Welcome to the new 'Brotherton Blog'......our
aim is to get some useful help and tips into the blog that
readers can benefit from as well as share
some of our experiences and things happening
here at Brothertons. Hopefully it is of interest!!......we will
do our best not to be boring accountants!
RESTRICTION ON INTEREST RELIEF for Buy to Let Investors is
something we are taking very seriously at Brothertons. Even
though the changes are being introduced over a 4 year period
(2017-18 to 2020-21) so effectively over the next 5 years we are
advising clients to consider this straight away and look at
their situation in detail to ensure they are set up in the most
We are finding as this is so new, many people are just
unaware of what an impact this will have on them potentially. We
are keen to talk to clients and non clients so please call for a
chat if you are concerned this may impact on you.
As an example on how this will impact differing situations I
have created two examples below which will hopefully give some
idea on how this will affect certain situations from 2020-21
compared to the current situation.
Bill is a Manager earning £45000.00 per annum, so he is a 40%
tax payer. He has purchased a buy to let property as an
investment. The outstanding debt is relatively small but does
exist and interest on this loan is £2500.00 per annum. His
repairs and other costs are £1000.00 for the year.
Gross Rents 7200.00 7200.00
Repairs and other costs
Interest on Mortgage
Net Rental Profit 3700.00 6200.00
TAX at 40% 1480.00
Tax Reducer at 20% on Interest
Liability on Rental Income 1480.00 1980.00
Karen and Phil are married and run a rental property
business. This is run through a partnership. They have many
properties and are highly geared. This has never bothered them
as they are happy to hold the properties as potential
investments and as long as they are covering their costs and
making a small amount they are happy. This was their strategy
from day one. Sound familiar?
Gross Rents 600'000.00 600'000.00
Repairs and other costs
Interest on Mortgage
Net Rental Profit 50'000.00
Personal Allowance X2 (22000.00)
Tax at 20% (two Tax payers) 5600.00 17200.00
Tax at 40%
Tax at 45%
Less interest Relief on 350000
Net tax liability from Rental Income 5600.00 77800.00
Effective rate on 'real' rental profit
From these examples it can hopefully be seen how this will
impact on most situations , even individuals with only one
property. (subject to loans and income levels)
Other scenarios are just not sustainable as can be seen above
and we are looking at differing strategies to help in these
Initially I would suggest open discussion just to clarify
your own personal situation moving forward then a proactive look
at options for moving forward. Please call to discuss your
situation on 01527 68235 or email
From 16-17 new rules have been introduced which will affect the
way dividends are taxed on individuals. The tax credit which is
currently associated with a net dividend is being abolished so
there will be no more grossing up of a net dividend.A dividend
tax allowance is being introduced which will make the first
£5000.00 of dividend income tax free, no matter what level of
income a person has. Any further dividend received in the tax
year will be taxed at 7.5% 32.5% or 38.1% depending on if the
income is in the basic, higher or additional rate band.Dividends
within your allowance will still count towards your basic or
higher rate bands and may therefore affect the rate of tax you
pay on dividends you receive in excess of the £5000.00
This will impact
on many people and we are happy to discuss you situation on a
one to one basis to ensure you remain as tax efficient as
possible within the new rules.
This week we have made some major updates to our computer
systems. Lucid Computer Solutions Ltd, our computer and IT
support guys, based in Redditch, have again done a great job and
everything has been implemented smoothly and efficiently as we
have always come to expect, over the 9 years they have provided
us with IT support.
Saturday 'Auto-Enrolment meetings' have proved very popular and
we have managed to talk to a great number of business owners and
address their concerns and answer their questions on
AUTO-ENROLMENT. Moving forward we are extending the Saturday
opening times of 11am-4pm throughout the whole of August, so
please call the office if you would like to call in and have
your Auto-Enrolment questions answered.
had discussions this week relating to property held jointly
between spouses and there are specific rules that should be
considered if the asset is income bearing. If spouses or civil
partners own property jointly, are married and live together,
care should be taken. From an income tax perspective the
individuals are treated as beneficially entitled to the income
in equal shares. This means for example, if a property is owned
jointly, even in differing ownership splits, not 50%-50% the
income arising from this property would be deemed to be split
However, individuals can make a joint declaration to HMRC
indicating their unequal beneficial interests in certain cases
which would change the split from the default 50%50% if.......
a)one of them is beneficially entitled to the income to the
exclusion of the other or
b) they are both entitled to the income in unequal shares
and their beneficial interest in the income CORRESPONDS to
their actual beneficial interest in the property from which the
A declaration has affect if the notice is given to HMRC
within a period of 60 days of the declaration.
It is therefore really important for such assets to be looked
at and a declaration made if necessary. Individuals should take
care.......it is not enough to own the asset in unequal shares,
this needs to be reported to HMRC if income is to be assessed in
ownership share proportions.
This week we have been talking to clients about the impact the
budget may have on them moving forward. Key areas of discussion
have been the the New DIVIDEND TAX CREDIT and the way dividends
will be taxed moving forward after 01 April 2016 This new policy
for taxing dividends will mean the current tax credit on a
dividend is abolished with the first £5000.00 worth of dividends
in a year not incurring any tax. After this level the rates will
depend on your level of income in the year and any dividends
dropping into the basic rate band will be taxed at 7.5%,
dividends dropping into the higher rate band will be taxed at
32.50% and for dividends dropping into the additional rate band
the rate will be 38.1%.
have been eagerly awaiting the announcement of the ANNUAL
INVESTMENT ALLOWANCE (AIA) and the new level has now been set at
£200'000.00 from 01.01.16 The current level is £500'000.00 There
are transitional rules for anyone claiming AIA in a year that
straddles these rates and anyone looking at investing in capital
assets should take some advice to ensure the timing of the
purchase is advantageous with regards the AIA claimable.
weeks we have talked about the increase in interest of BUY
to LET investments. The new budget has potentially impacted
on BUY to LET investors. Currently the amount of tax relief
on mortgage interest an investor can claim is based on their
marginal rate of tax, so if they are a higher rate tax
payer, paying tax at 40% with some property profits, the
reduction in taxable property income due to the 'buy to let'
mortgage interest would have effectively given them tax
relief at the 40%. Moving forward this relief on the
mortgage interest element will be limited to the basic rate
of 20%. These rules are being phased in over a 4 year period
starting in April 2017 This initially was a scenario we
thought would only affect taxpayers who paid tax at the
higher rates of tax but looking at the way the relief will
be given as a tax reducer there will be potential huge
impacts on even basic rate tax payer with high gearing. They
could loose their personal allowances in some cases and we
would recommend individuals with rental properties to talk
about this as soon as possible. We will be looking at this
in detail as we look more into this new legislation and will
keep the website up to date as we go along. But please call
to discuss your personal situation.
This week we saw the first conservative led budget for
almost 20 years. There are plenty of changes which we will
be looking at over the forthcoming weeks and advising our
clients accordingly. I have listed below some of the key
announcements by George Osborne and will be looking at the
detail, moving forward....
a 'NEW LIVING WAGE' of over £9.00 an hour is to be introduced by
2020. This will climb incrementally and will be set at £7.20
from April 2016
personal allowance will increase to £11000.00 from April 2016
Higher Rate tax
thresholds will increase to £43000.00 from April 2016
reforms to dividend tax starting April 2016. The tax credit is
being abolished and a new tax free dividend allowance is being
introduced. Over this £5000.00 allowance, dividends will be
taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate
taxpayers and 38.1% for additional rate taxpayers.
From April 2017,
a family home allowance will be introduced for inheritance tax
will be reduced to 19% in 2017 and to 18% in 2020
The AIA Annual
Investment Allowance will be permanently set at £200'000.00 from
April 2016 for SMEs
Allowance for employers will increase by £1000.00 to £3000.00
A couple of weeks ago we talked about the up-surge in
individuals considering 'BUY to LET' Investments. We have had
detailed meetings this week with a number of mortgage brokers to
assess the market place for potential borrowings. There are many
things to consider when entering this market or just considering
a second property to let out.....We are happy to sit with anyone
who would like to explore the potential to getting into this
market and answer any questions they have from a business, tax
or accounting perspective and we are also happy to provide you
with details of trusted mortgage brokers who will be able to
assist in any borrowing requirements you may have.
week we have set up another couple of Limited Companies for our
clients using our In-House Incorporation Service. Trading as a
sole-trader can be simple and straightforward. However, it isn't
necessarily the best format for a trading vehicle. It really
does depend on many issues whether a company is a better option
for trading a business, but sticking with the same format of
trading vehicle because that is how it has always been done is
not an approach we would recommend. We help businesses look at
their circumstances in a 'case by case' basis and ensure there
is a bespoke solution to each trading scenario. Please call with
any questions you have if you have ever thought...'Should I be
trading as a Limited Company?'
This week we have seen further concern from small employers who
are worried about their duties, regarding AUTO-ENROLMENT
PENSIONS for their staff. To help counteract this, we are
offering Saturday meetings, during July, for anyone ( clients or
non clients) who needs some help and advice in this or any area.
If you are too busy during the week and would like to come in
and have a chat and get some advice, please give the office a
call and arrange a 30 min free meeting. We will be available
every Saturday during July, 11.00am to 4.00pm.
We have also been reminding client's that the P11d deadline
for reporting 'benefits in kind' for 14-15 is now close with
the deadline for submission of the forms being 06.07.15 The
payment deadline for any Class1A NIC due is 19.07.15 or
22.07.15 if paid electronically. Penalties are levied by
HMRC for late or non submission of P11ds and we would advice
any business to assess their situation to see if any
submissions are required.
Over the last few months we have seen increased interest from
individuals thinking about investing in the 'BUY to LET' market.
The improvements in the property market and signs of recovery in
this area have triggered peoples interest in potentially
starting out or developing their property portfolios. A further
change in the pension rules allowing individuals to drawdown on
their pension funds have also created further interest, with
potential funds for investment being more accessible.
We are finding individuals are asking us questions such
as.....should I hold an investment in a company or privately?
What are the tax implications when I sell a property that isn't
my main residence? How do I account for the rental side of the
investment? In a simple, 1 hour free meeting we
happily address all of these issues and give people a starting
point and further information they need to make an informed
decision on whether this type of investment is right for them.
We are happy to talk to anyone about this so please call the
office if you would like a free one hour discussion.
We also have trusted associates that are qualified mortgage
advisors who have had years of dealing with the BUY to LET
market and we can help you set up initial meetings to discuss
any borrowing requirements if you like the idea of entering this
Over the years we have developed useful tools for property
developers to assess their situations and analyse the right
time for them to invest further in additional properties.
Assessing your own risk appetite, equity to loan values, rental
yields and analysis of the market overall are all areas that
need to be addressed when looking at this type of investment. We
are here to help you do that.
It has been exam time over the last couple of weeks
and we have had staff sitting exams, working towards their ACCA
qualification. Vesma has also had her results for her recent
exam sitting at AAT level and has passed, so that is great news and she
is now working towards the last couple of exams to complete AAT.
We have spoken to a new client this week and addressed their
VAT situation. After completing one of our 'free reviews' we
identified there were some substantial savings to be made. We do
carry out a lot of free VAT reviews for non-clients and very
often find areas we can make savings....Please don't
hesitate contacting us if you would like us to have a look
at this for you.....it really can be beneficial.
This week we saw commentators talk about the new
marriage allowance which has been introduced from 06 April
2015.......saying it is potentially not worth the effort that HMRC will have to put in to administer the allowance..... We Disagree! The allowance allows an individual with
unused personal allowances to transfer £1060.00 of the PA to
their spouse, as long as the spouse is a basic rate tax
payer.....this will bring a saving of up to £212.00 PA and is
well worth the claim. We will be ensuring all our clients that
are eligible will get this and is definitely worth the effort.
This week we saw another one of our clients stage for AUTO
ENROLMENT. All the training and systems implementation we have
been doing here at Brothertons over the last 12 months is now
paying off for us. This particular client was very
concerned about his obligations as an employer. He was really
worried about everything that needed to be done. I initially
went to see him and told him we would help make the process as
pain free as possible and help him every step of the
way....which is what we have done. It really makes it all worth
while when the client calls into the office to thank us
personally, for making the process smooth and problem free.
After looking around at pension options he decided to use
NEST for his auto- enrolment compliant pension scheme. At
Brothertons we are a
delegate for NEST and we were able to set this up for him, so
he had nothing to do, just give us the go ahead. We then got
everything ready for the staging date and again there was
nothing for him to do. At the staging date we ran his
payroll and completed the pension assessment. We sent out letters to
all staff that were automatically enrolled and to eligible
workers who could opt in to the pension if they wished.......
still nothing to do for our client. We then added all eligible
staff to the pension scheme and deducted the relevant deductions
from the pay. We then notified NEST of all the deductions and
finally set up a DD between NEST and the employer so pension
contributions are paid by 22nd of each month....so again nothing
for the employer to do.
As an employer it is only right you will be concerned about
the impact AUTO-ENROLMENT could have on your business. As you
can see in the example above it really can be a
smooth process, leaving you time to focus on running your
Many people don't realise that in some scenarios there is no
actual requirement for an employer to have a pension scheme and
we can also explore this option to see if you fall into those
the week we have taken on a few new clients. I also met up with
a potential new client and we arranged to meet in his local
coffee shop....what a good excuse to feed my caffeine addiction!
It did make me think what a good idea....if businesses want to
talk to us about any business, accounting or tax issues they
have, why not meet them at a local Costa or Starbucks!!.....
and have a chat about their business and get that mocha at the
same time.... so give me an excuse to get out and I will get the
One of the clients we took on
a few weeks ago was bogged down with
using an accounting package which was in their own words 'over
the top and dragging her down'....she seemed to be spending all
her time on the data entry rather than on her business! Sound
familiar? Over the years I have set up all types of accounting
systems for clients and we have some great solutions which help
simplify the record keeping situation. We have now set her up
simple to use spreadsheets so she can record her bank, sales
ledger and purchase ledger and keep track of debtors and
creditors. Initially, just to get her started we have input a months worth of data for her.
She is now up and running with a great new
system. Apparently we are 'Treasures' so I had to get that into the
first Blog!! Don't judge me!