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Are commercial woodlands a good place to invest surplus business cash?

July 17, 2014 by Guest Blogger

Are commercial woodlands a good place to invest surplus business cash?{{}}If you have surplus cash in your business, it makes sense to get it working for you. There are many investment options, of course. With interest rates remaining low for the moment, buying woods or a forest is becoming increasingly popular.

Recently the value of commercial woodlands has been increasing and they offer many tax advantages for investors. For example, where there is a commercial occupation of woodlands in the UK, the income and profits made from sales of the timber are not subject to income tax or corporation tax.

Occupation is deemed to be commercial if the woodland is managed for the realisation of profit. On the other hand, it is important to understand that any revenue receipts or rents resulting from further activities (eg sporting rents) are taxable.

Broadly speaking, if you wish your investment to be assessed as being "commercial" you will need to:

  • Sell timber, firewood or woodland products and to keep a woodland profit and loss account
  • Have a set of management objectives for the woodland that include the production of timber or timber products, and for the management plan to be approved by the Forestry Commission
  • Being VAT registered may be seen as supportive evidence of owning "commercial woodland".

For capital gains tax purposes, where a person who owns commercial woodlands with a view to generating profit, no capital gains tax will be payable in respect of:

  • Monies received for the disposal of trees standing or felled or cut on the woodlands.
  • Insurance proceeds in respect of the destruction of or damage or injury to the trees by fire or other hazard.

In addition, the sale price or transfer value of the trees is also left out of capital gains tax calculations. Only the increase in the value of land is assessed for capital gains tax.

The investment in woodlands is deemed as a business asset and is therefore eligible for rollover relief. If any gains on the disposal of business assets arise within the period of one year before, and three years after the acquisition of the woodland, the gain could be rolled into the base cost of the woodland. This defers the gain until the woodland is disposed of.

In relation to inheritance tax, the entire value of commercial woodlands, including both the land and the trees, attracts Business Property Relief - currently at 100% - once it has been owned for two years. There is no inheritance tax liability as long as this condition is met.

Commercial woodlands are not exempt from VAT registration and woodland sales can constitute a taxable supply. The registration for VAT purposes is compulsory where taxable supplies exceed £81,000 in the previous 12 months. Voluntary registration by the occupiers of commercial woodlands is generally desirable, particularly during the development of a plantation, because the effect of the registration is that VAT incurred on expenditure in the woodlands may be recovered.

On the sale or gift of a woodland by a registered trader, the disposal of standing timber usually escapes a tax charge if the business is transferred as a going concern.

Woodlands are commercial properties for the purpose of stamp duty land tax and attract duty on sales above £150,001.

Despite the noticeable tax incentives associated with commercial woodlands, when it comes to investing it is important to assess both the risks and rewards, and review in detail whether this opportunity is suitable for you. It is always advisable to seek professional advice.

© Carol Cheesman, Principal of Cheesmans Accountants.

Further reading

What you need to include in your small-business invoices

July 10, 2014 by Guest Blogger

What you need to include in your small-business invoices{{}}

Branding

Your invoice is a document that you send out from your business, so make sure it reflects your brand. Think logo, colours, fonts and wording of the item descriptions and of payment terms. For example, if the brand message you want to convey is “fun and quirky”, make sure your payment terms are not written in lawyers’ English.

Legal information

There is some information that you must legally include. If your business is a limited company or LLP, your invoices must show its Companies House registered number and address, and if you put the name of one director/member on your invoice, you must include the names of all directors/members.

If you’re registered for VAT, you must include your VAT number on your invoices and comply with HMRC’s rules about VAT invoices. These rules include that an invoice must show:

  • An invoice number that is unique and follows on from the number of the previous invoice (if you spoil or cancel a serially numbered invoice, you must keep it to show to a VAT officer at your next VAT inspection).
  • The seller's (ie your) name (or trading name) and address.
  • The seller's VAT registration number.
  • The invoice date.
  • The time of supply (also known as the tax point).
  • The customer's name (or trading name) and address.
  • A description sufficient to identify the goods or services supplied to the customer.
  • The rate of any cash discount.
  • The total amount of VAT charged (expressed in sterling).

For each different type of item listed on the invoice, you must show:

  • The unit price or rate, excluding VAT.
  • The quantity of goods or extent of the services.
  • The rate of VAT that applies to that sold.
  • The total amount payable, excluding VAT.

And if you issue a VAT invoice that includes zero-rated or exempt goods or services, you must:

  • Show clearly that there is no VAT payable on those goods or services.
  • Show the total of those values separately.

If you make retail sales and you make a sale of goods or services for £250 or less (including VAT), you can issue a simplified VAT invoice. For more information, look at HMRC's guide.

Requirements for sole traders

If you are a sole trader and you're not registered for VAT, you’re not subject to legal requirements like these, but I would say it’s best practice to keep to the same rules as for VAT invoices, except of course that you would not charge VAT.

This is to help make your invoices look ultra professional and avoid any queries from either HMRC or your customers. In particular, if you use sequential numbering for your invoices, HMRC can easily see that you have reported all your income.

Price

It’s important to make sure the “Price is Right”, otherwise you could find yourself in the highly embarrassing position of either having to ask your customers for more money, or give them some back.

When you include your price in your invoice, make sure you use your most recent pricing - and don’t forget any discounts or special offers that you might have promised to all your customers or to just this particular customer.

Remember that if your business is VAT registered, HMRC says you must include the price per unit on your invoices.

Description

Avoid queries from customers by making the product/services description on the invoice as clear as you can. If not and a customer has to phone up to query an invoice, they may see this as poor service on your part – and it may also mean they take longer to pay.

Payment information

Make it as easy as possible for customers to pay you. Include your bank account details on your invoices if you are taking payment from online banking or by BACS. If you send your invoices by email and use a service such as PayPal or GoCardless to collect payment from customers, include a link when you email the invoice, so customers can pay with one click.

Remember that it’s for you to decide how quickly you want to get paid. Set your payment terms and make sure your customers keep to them.

Make sure that your invoices are clearly laid out with all the information a customer needs. Your aim is to make your customers’ lives as easy as possible, because that way they will come back and buy from you. Remember, happy customers are also more likely to refer more people to you.

© Emily Coltman FCA, chief accountant to FreeAgent, which “provides the UK’s market-leading online accounting system specifically designed to meet the needs of small businesses and freelancers. Try it for free at www.freeagent.com.”

Further reading

Posted in VAT | Tagged Invoicing, Cashflow, billing | 0 comments

How to avoid online tax scammers

July 03, 2014 by Guest Blogger

A number of tax scams have been going around online. Some have even gone as far as making people believe that they’re the Home Office. It’s understandable that one wouldn’t think twice about what’s on your screen – all that you care about is that you’ve just been told you can get a tax refund, right? But before you do anything, follow these seven rules…

1.   Never, ever give out your banking details

Excitement can turn into impulsiveness, which may lead to you giving away personal information. Keep in mind that the Home Office will never send an email requesting information from you. Your bank will never ask you to update your personal details by asking you to “click here”. HMRC will also never ask you for your banking details via email. Remember, it’s a trap and these “scambags” want you to fall for it.

2.   Fake websites are out to get you

Fraudsters clearly have a lot of time on their hands. They’ve created websites that either look like the official HMRC website or an official tax refund agency website. If you click on the link sent to you in the email, you’ll be taken to one of these fake websites. Sometimes the email address you see on the screen of a fake website or email seems legit, but when you click on it, it creates a different address or URL. Always check the actual address on the email you’re sending.

Stay away if the website displays these characteristics:

  • unprofessional appearance
  • poorly written content
  • shoddy web design
  • shortage of information

Official UK government websites always have .gov.uk at the end of their URL (website address).

An example of an email sent by fraudsters:

example tax scam{{}}

Examples of fake websites:

{{}}

{{}}

3.   Don’t be too quick to hand over your money

These sneaky fraudsters have tried their best to sound extremely professional and real. They’ve made all sorts of promises, including great service, but only if you put down a deposit or pay the admin fee.

In a non-fraudster world, this will never happen. The Home Office, HMRC or any other government agency will never ask you for money via email, over the phone or even in person. Run as far as you can if you’re asked to give out money, especially if it’s cash or by using unsecured payment methods such as Paysafecard.

4.   Check, check and check all email addresses

Curiosity killed the cat, but don’t let curiosity get the better of you too. The email addresses and website links you get in these suspicious emails may seem genuine, but it’s important that you double-check them. If you have to reply to email accounts such as Yahoo, Hotmail or Gmail, you should definitely avoid this at all costs.

Official Home Office email addresses are always in the below formats:

Fraudsters, however, have used the below email addresses to scam some people. A red flag should pop up in your mind if you see any of these email addresses:

5.   Does it sound too good to be true?

If you open up an email and you can’t believe what you’re seeing – you probably shouldn’t believe it. As the saying goes – if it’s too good to be true, it probably is.

6.   If in doubt, get out

If you suspect the person you’ve been in contact with is not who they say they are, ask for a number you can call them on and find out if the number belongs to them. If your suspicions are confirmed, stop all communication and report your suspicions to Action Fraud or if you’re in the UK, phone 0300 123 2040.

7.   You could be speaking to anyone, so trust no one

Scam artists seem like normal people, which makes it difficult to tell who you’re really dealing with. These people are using the telephone more and more as a way of making you trust them and stealing your money in this way too. Be careful of suspicious phone calls from someone claiming to be from HMRC.

Fraudsters have essentially made scamming their careers. It’s quite likely that they are desperate people who will go that extra mile to get what they want. Always be very wary before engaging with anyone online.

You might also like to read

Tagged Scams, HMRC, Crime | 0 comments

Annual Tax on Enveloped Dwellings: the essential guide

June 26, 2014 by Guest Blogger

Annual Tax on Enveloped Dwellings: the essential guide{{}}You may never have heard of ATED (Annual Tax on Enveloped Dwellings), but it is about to become much more relevant to UK taxpayers. It was introduced to apply to high-value residential properties “enveloped” (ie owned) by a non-UK company or other “non-natural” person.

The rules have so far only applied to properties worth more than £2m, so only a small proportion of properties were affected. But in the 2014 Budget, it was announced that this threshold is to be lowered to £500,000. 

The existing rules as at March 2014

These are aimed at enveloped properties and have three distinct parts:

1. ATED – an annual tax imposed on residential property worth more than £2m.

2. A capital gains tax (CGT) charge on gains realised after 6 April 2013 on sale of ATED properties.

3. 15% Stamp Duty Land Tax (SDLT) on the acquisition of an ATED property.

There are numerous reliefs available from these charges, including a relief if the company is renting the property out on a commercial basis with a view to making a profit. 

Changes announced in the 2014 Budget

The ATED taxes are to be extended to properties worth between £500,000 and £2m.  This is publicised as a measure to discourage overseas investors from buying properties in the UK as an investment, with no intention of using the properties. It also tackles some of the structures that may be in place for tax-avoidance motives. 

Operative dates

1. SDLT:  the extension of the 15% SDLT charge to properties worth more than £500,000 took effect on 20 March 2014.

2. ATED:  amendments to the ATED rules will be staggered to bring in the lower value thresholds:

a. Residential properties worth more than £1m and not more than £2m

  1. This band will apply from 1 April 2015
  2. The first ATED return will be due 1 October 2015
  3. Payment of the tax will be due by 31 October 2015

b. Residential properties worth more than £500,000 and not more than £1m

  1. This band will apply from 1 April 2016
  2. It is believed that the first returns for properties in this band will be required on 1 April 2016, with tax due on 30 April, but this is not yet confirmed.

3. CGT:  the extension of the CGT charge on ATED-related gains will take effect from 6 April 2015 for properties worth more than £1m but less than £2m, and from 6 April 2016 for properties worth more than £500,000 but less than £1m.

You might also like to read

Tagged Property, CGT | 0 comments

Free HMRC live webinars on business expenses for the self employed

June 19, 2014 by Fanny Marshall

Free HMRC live webinars on business expenses for the self employed{{}}HMRC is running a series of live interactive webinars in June aimed at those who are self employed, explaining how to file your business expenses.

You can take part in the free live webinars by pre-registering on the HMRC website and submitting questions in advance to be answered on the day. Each webinar will last an hour.

The HMRC webinars are:

Business expenses for the self employed

Simpler Income Tax – Cash Basis & Simplified Expenses

HMRC have also created an online video tutorial explaining the differences between Cash Basis and Simplified Expenses

You might also be interested in:

Why we’re not seeing the whole self-employment picture

June 18, 2014 by Guest Blogger

Tax self assessment{{}}We’ve been thoroughly enjoying the increasing media profile of the UK’s self-employed population. It’s something we’ve been trying in vain to accelerate for the past five years, but now that hundreds of thousands of new self-employed professionals are appearing every month the UK’s freelancers and contractors are finally enjoying the recognition they deserve. The national press is finally waking up.

With an increased profile, though, comes increased interest, analysis and criticism. So far investigations into the self-employed have been decidedly mixed. The Trade Union Congress issued a worrying report that the self-employed were low-earners, lacking employee benefits and only self-employed because of a lack of better alternatives.

Last week the RSA and Etsy issued a rather more measured analysis in a report called Salvation in a startup, which showed that the majority of the UK’s freelancers, contractors and entrepreneurs are there by choice - although they earn slightly less than employees.

Any large-scale analysis we perform currently, though, is flawed. The government has no way to accurately record and measure the impact the self-employed have on our economy – or even how many of them there really are. The ONS figures (considered to be the most authoritative) are just sample surveys, asking people how they self-identify, which could be different to their true legal employment status.

The UK’s hundreds of thousands of limited company freelancers and contractors are overlooked by most measurements too – even though they are the highest-earning group, and usually careerists rather than the “odd-jobbers” the TUC is concerned about.

Paul Lewis of BBC Moneybox pointed to Self Assessment revenue as a sign that the self-employed aren’t earning much – it rose only 1.7% last year despite self-employed numbers surging 8%. Paul needs to check his calendar: Self Assessment revenue collected in 2013/14 was for income earned between April 2012 and April 2013 - when, according to the ONS, the number of self-employed actually dropped by 0.4%.

Self Assessment income also omits limited companies, whose taxes are paid through regular PAYE and Corporation Tax. According to our research this group had an annual average income of £58,200 last year - more than double national average earnings, and with tax contributions to match.

Whatever the eventual impact of the UK’s booming self-employed population, it’s becoming obvious that the government needs to do more to support this unique - and uniquely vulnerable - group of businesses. Benedict Dellot, who authored the RSA’s report, said: "The fundamental lesson from our research is that we need to learn to live with the self-employed. Trade unions should be trying to support the self-employed rather than hark back to the days where everyone is employed by a large employer.”

• Blog supplied by Jon Norris of online accountancy firm Crunch.

Further reading

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