The Chancellor, Rachel Reeves, prefaced the Spring budget with a reminder that Labour was elected “bring change, provide security for working people and deliver a decade of national renewal”.

This has been made more difficult in recent months amid weaker-than-expected growth, and uncertainty in US markets pushing up borrowing costs. She said that the “global economy has become more uncertain.”

Overview for businesses

This budget has fewer direct implications for small businesses than the Autumn budget in October 2024. Importantly, there are no changes to tax.

The main focus of this budget is to cut the welfare budget and find money for new homes, government efficiency and defence.

Taxes

There are no further tax increases. However, the chancellor stressed the importance of detecting fraudulent behaviour, and highlighted the use of new technology to help HMRC crack down on tax avoidance. This could raise £1bn to the treasury.

Welfare cuts

The aim of benefit changes is to save £4.8bn by 2029-30. The health element of universal credit will be frozen for existing claimants until 2029-30 and reduced to £50 for new claimants in 2026-27, and subsequently frozen.

Personal Independence Payments (PIPs) will be reviewed and the government will introduce an additional eligibility requirement for the daily living element of the benefit.

£1bn has been allocated to employment support to help people back into work, plus £400m for jobcentres.

Spending

Defence spending is to rise to 2.5% by April 2027, funded by international aid cuts. The scrapping of NHS England will pass on savings for patient care.

£3.25bn is being invested in a new “transformation fund” to bring down the cost of running government. The first allocation from the fund is in AI tools to drive modernisation. Initial projects will look at the probation service and the foster care system.

The government is allocating £2 billion towards affordable housing next year. House building is predicted to hit a 40 year high, with 305,000 houses built a year, reaching a total of 1.3 million over the next five years.

To deliver this plan and to tackle trades skill shortages, the government is also allocating £600 million to train the next generation of construction workers in the UK. This will include creating new technical excellence colleges.

Inflation and growth forecasts

Inflation fell in February and is expected to average 3.2% this year before falling “rapidly”, in line with the Bank of England’s 2% target from 2027 onwards.

Growth measures include the third runway at Heathrow, planning and pension reform, and deregulation.

Ends.

Upcoming changes to the special tax rules for Furnished Holiday Lettings are set to shake things up from April 2025.

Announced in the March 2024, these changes essentially remove the tax benefits that holiday lets gain over other types of rental property businesses.

Here’s a rundown of what’s happening and how it might affect you.

What are the changes ahead?

1. Finance Costs Deduction: Currently, you can deduct mortgage interest in full as a business expense, but from April 2025, only a 20% tax reduction will apply. This could impact your taxable income. Could it put you into the next tax bracket or affect your eligibility for child benefit?
   
   
2. Tax Deduction for Furnishings: The initial costs of furnishing can currently be deducted for holiday lets, unlike other rentals – and again this ends in April. But if you’re replacing furnishings, that’s still deductible, as it is with other residential lettings.

• Capital allowances on fixtures. From April, you will no longer be able to claim capital allowances on central heating, air conditioning and alarms.
  
• Relevant earnings for pensions: Profits from holiday lets currently count toward pension contributions, but this perk will be history from 2025.

• Profit Allocation Flexibility: Previously, joint property owners could allocate the profits to themselves in any proportion. But from April the default is a 50:50 split, as with other types of lettings. Might you need to take action to put all profits in one name only, or to reflect the ownership split?

• Capital Gains Tax Changes: Special CGT reliefs, such as lower rates and rollover relief will no longer apply.

Why the changes?

The government aims to level the playing field by aligning tax treatment across different property lettings. This move is intended to simplify the tax system and encourage longer-term residential letting. It’s thought that the moves will raise £245 million a year by 2028/29.

Not everything is yet clear

Although the changes kick in from April 2025, some specifics are still pending government consultations. Keep an eye out for transitional provisions affecting capital allowances and losses.

Things to consider

If you’re thinking about selling your holiday let, doing so before 6 April could mean you can claim Business Asset Disposal Relief (BADR). You could therefore pay capital gains tax at 10% instead of 24%.

Another option is to stop renting the property as a holiday let before the deadline. You then have three years to complete the sale.

From April, brought-forward holiday let losses will be converted into normal property losses. If you have other property income, you can set the losses against profits from this overall, and not just the holiday let.

Let us help

For a more detailed assessment of how these changes could impact you, including potential adjustments to your taxable income and profits, get in touch. As small business and property accountants in the Lune Valley, we’re here to help you understand and prepare for these upcoming shifts in tax policy.

Running a small business comes with many challenges, but one of the most important is managing your finances effectively.

Being on top of your financial situation isn’t just about avoiding debt — it’s about giving your business the opportunity to thrive.

We have 10 top tips to help you stay in control of your finances and set your business up for success.

1. Keep accurate financial records. Make it a habit to record every transaction in your accounting system. Log in at least once a week. Then you’ll always have a clear picture of your cash flow and can quickly spot any issues.
   
   
2. Regularly review expenses. Business costs can pile up, and fine-tuning where your money goes can free up funds for more important investments. Keep an eye on energy costs, travel and tech to see where you could make savings.
   
   
3. Plan ahead. Having a solid business plan with clear financial projections will help you anticipate challenges and set achievable goals. It’s important to keep an eye on the big picture as well as the day-to-day.
   
   
4. Invest in tech. Invoicing apps can simplify the process of sending invoices, tracking payments, and even chasing late payments for you. Accounting software can help you monitor your cash flow, manage your records, and make tax filing easier. 
   
   
5. Separate business and personal. Separate your personal and business bank accounts. It will avoid confusion and make tracking your profits much easier. It simplifies your tax returns and gives you a clear view of your business’s financial health.
   
   
6. Pay yourself first. Set aside 10% of your profit as personal earnings. It will help make sure your business is profitable and helps give you a safety net for unexpected expenses.
   
   
7. Build and Maintain Positive Cash Flow – Offer early payment discounts or charge late fees to get your clients to pay on time. The sooner you are paid, the healthier your cash flow.

• Borrow while business is good. Don’t wait until your business is struggling to seek finance. Applying for a loan when your financials are in good shape will increase your chances of approval and give you more flexibility. Loans can be a great way to drive growth.
• Invest in marketing. Being clear about your audience, what they want and how to reach themis the way to grow and maintain sales. Well-planned marketing activities will quickly pay for themselves.

1. Stay on top of your tax. Know which taxes apply to your business and when they’re due. Paying your taxes on time helps you avoid hefty penalties and maintain good financial standing.

If you can, put money away in a separate account every time income is received. If you receive £1,000 put away £200 and don’t touch it. This will quickly build up to cover any tax liabilities once they are due.

Good financial management is crucial for any business – and if this is something you need advice on, talk to an accountant.

As specialist small business accountants in the Lune Valley, we love to share tips on tax and financial efficiency. Contact us today with your questions and we’ll be glad to help.

31 January is the annual self-assessment deadline, and it can be a stressful time of year for many. Here’s our guide to submitting your tax return and reducing the anxiety.

Who Needs to Submit a Tax Return?

Typical people who usually have to carry out self-assessment include:

• The self-employed
• People with more than one job
• People drawing a pension while continuing to work
• Directors and partners of limited companies
• Anyone earning a certain amount from investments (including rent from property)
• People claiming child benefits who have earned above a certain amount
• Anyone who receives a P800 form (this comes from HMRC stating that you didn’t pay enough tax).

Not sure if you need to complete a tax return? Check on the government website.

Our Top Tips

1. Start Early

Officially, you’re supposed to register for Self-Assessment by 5 October every year, but there’s no penalty for missing that deadline. To be safe, though, apply for your UTR (Unique Taxpayer Reference) at least 20 days before the submission deadline, as there is no such thing as a temporary or emergency UTR number.

A common mistake is losing your Government Gateway user ID – or forgetting to register. This can prevent you from filing your Self-Assessment tax return and result in penalties if you attempt to file close to the 31 January deadline.

To register, visit HMRC. You’ll need your National Insurance number, a UK address, and either a recent payslip, P60, or a valid UK passport. It may take up to 10 days to receive your activation code by post.

2. Don’t Be Late

There is an automatic £100 late filing penalty if your 2022-23 tax return is submitted after 31 January 2024 and penalties increase to £10 a day if you’re more than three months late.

Late payment interest of 7.75% and a 5% penalty on unpaid tax after 1 March 2024 could also apply.

3. Check If You Qualify for Marriage Allowance

This tax rebate applies to couples where one partner earns less than the personal allowance (£12,570 in 2023-24) and the other earns more but is not a higher-rate taxpayer. The lower earner can transfer up to £1,260 of their allowance, potentially reducing the couple’s tax by up to £252 a year.

4. Claim Gift Aid at the Higher Rate

If you’re a higher-rate taxpayer, donating through Gift Aid allows you to claim back the difference between the basic and higher tax rates on your donations. For example, donating £100 with Gift Aid makes the donation worth £125, and you can reclaim 20% of that – an additional £25.

Check your emails for receipts from sites like JustGiving to ensure you’ve recorded all eligible donations.

5. Plan for Payments on Account

Payments on account are advance payments towards your next tax bill, due by 31 January and 31 July each year. Each payment represents half of your previous year’s tax bill, including any Class 4 National Insurance contributions if you’re self-employed.

You won’t need to make payments on account if:

• Your last Self Assessment bill was under £1,000, or
• You’ve already paid over 80% of all tax you owe.

If your business is expanding, plan for potentially higher payments on account to avoid unwanted surprises.

6. Claim All Legitimate Expenses

Allowable expenses reduce your tax bill and include costs incurred ‘wholly and exclusively’ for business purposes, such as:

• Office costs (e.g., equipment, stationery).
• Travel expenses (e.g., fuel, parking, train fares).
• Staff salaries and pensions.
• Business premises costs (e.g., rent, utilities).
• Advertising and marketing.

Keep detailed records and receipts, as HMRC may request proof. Claiming illegitimate expenses can lead to penalties of up to 100% of the tax due.

7. Don’t Forget Pension Contributions

Higher-rate taxpayers often miss out on claiming tax relief for private pension contributions. Basic-rate relief is usually added automatically by your pension provider, but higher and additional-rate taxpayers must claim the extra 20% or 25% via Self-Assessment.

The rebate can be paid as a tax reduction, a refund, or through an adjusted tax code.

8. Double-Check the Details

Errors can delay your return or lead to penalties. Double-check:

• Your name is spelled correctly.
• Figures are accurate.
• Tax codes are correct.

Review your entries thoroughly before submission.

9. Seek Professional Advice

For complex finances, an accountant or tax advisor can help you identify savings, ensure compliance, and reduce stress. While there’s a cost involved, the benefits often outweigh the expense.

10. Keep Copies of Everything

After submission, save a copy of your return and confirmation. These records are invaluable for resolving discrepancies or preparing future returns.

Filing your tax return doesn’t have to be a nightmare. By starting early, staying organised, and using these tips, you can submit your return with confidence.

Worried about Self-Assessment? Let us help. As small business accountants in Lancashire, we’re here to support you with tax returns, accounting, payroll services and much more. Call us today.

Since the Budget announcement on October 30^th, concerns have been raised by the businesses and individuals who are affected by some of the key measures.

The biggest changes affecting small businesses are those to the employer National Insurance rate, the secondary threshold and the National Living and Minimum Wage. Read on to see how these might affect your business from April 2025.

A recap of the key announcements

The following changes will be introduced from April 2025.

• The rate of employers’ National Insurance Contributions NICs will increase from 13.8% to 15%
• The employee salary threshold – where employers pay NICs – is reducing from £9,100 to £5,000
• The Employment Allowance will increase from £5,000 to £10,500.
• The £100,000 eligibility threshold will vanish, meaning that more employers will qualify for the Employment Allowance
• The National Living Wage (NLW) (for those aged 21 and over) will increase to £12.21 per hour.
• The National Minimum Wage (NMW) (for those aged 18-20) will increase to £10 per hour.

Around 1.4 million UK businesses employ staff, most of which are micro and small businesses with up to 49 employees. Just 38,000 are medium-sized businesses (with 50-250 employees) and only 8,000 UK firms have 250 people or more. British small and medium-sized businesses employ nearly 60% of the UK workforce.

Counterbalance measures

To an extent, the National Insurance changes were counter-balanced by the increased Employment Allowance, which allows eligible businesses to reduce their liabilities. It will move from £5,000 up to £10,500 a year.

Eligible companies pay less in NI contributions on each payroll until the allowance is used up. With the removal of the £100,000 Class 1 liability limit, most employers will now be able to claim the allowance.

This move was an attempt by the Chancellor to protect small employers from increased NI contributions. She claimed that around one million employers will pay the same or less in employer NI contributions than previously.

Impact of the changes

The concern is that increasing employer NI contributions and the minimum wage could put strain on small businesses that have low profit margins or are making losses.

To cope with this new cost, businesses are considering recruitment freezes, reducing salaries or cutting future investment.

The political argument for introducing these additional costs is to boost future employment and economic conditions, by using the funds to invest in state schools, the NHS and public services.

What could it mean for you?

The best way to understand the real impact of the changes for your small business is with examples.

At the moment, an employee on the National Minimum Wage might typically work 120 hours a month at £11.44 an hour. Currently this is a monthly wage of £1,373, rising to £1,466 from April next year.

When including NI and a 3% employer pension contribution, the additional cost per employee per month is £167. Over a year it would be £2,004.

A business with 10 employees would therefore face an increase of more than £20,000 per year. If it qualifies for the employment allowance, the total would be reduced by £5,500 per year – leaving the business still needing to find an additional £15,000 in staffing costs.

If a business has three employees, however, the employment allowance would largely cancel out the additional NI and wage costs.

Plan ahead for April

It’s important to apply these changes to your own business to explore the impact and understand whether you need to make changes to your strategy from April next year.

Get in touch and we can help you work through specific numbers to help you plan ahead.

As specialist small business accountants in the Lune Valley, Lancashire we’re ideally placed to support you with payroll, tax and financial efficiency. Contact us today to see how we can help.

On Wednesday October 30 the Chancellor Rachel Reeves presented Labour’s first Autumn budget in 14 years.

She confirmed her priorities as putting ‘more pounds in people’s pockets’, improve living standards and restore economic stability. Overall, the budget measures will raise an additional £40 billion in tax.

Below, we explore key elements from the Budget that will affect small businesses and individuals.

National insurance increase

Employees will not pay more national insurance directly, but from April 2025 employers’ national insurance contributions will increase by 1.2 percentage points to 15%. The NI threshold reduces from £9,100 to £5,000.

Recognising the potential impact of this on Britain’s smallest businesses, Ms Reeves is increasing Employment Allowance from £5,000 to £10,500. The chancellor says this means 865,000 employers won’t pay any National Insurance at all next year, and over one million will pay the same or less as they did previously.

Minimum wage increase

Reeves confirms that the ‘national living wage’ – the legal minimum for over 21s – will increase by 6.7% to £12.21. This equates to £1,400 a year for an eligible full-time worker.

A single adult rate will be phased in over time, to eventually equalise pay for under 21s.

No rise to income tax

Income tax will not increase, and the ongoing freeze in income tax thresholds will end in 2028. This will reduce the flow of taxpayers moving into higher tax brackets as salaries increase with inflation.

Business rates

Businesses will receive 40% relief on business rates for retail and hospitality up to a cap of £25,000.

Capital gains and inheritance tax

Capital gains tax will increase, with the lower rate moving from 10% to 18%, and the higher rate from 20% to 24%.

The government is extending the freeze on the threshold for inheritance tax, allowing £325,000 to be inherited tax free; £500,000 where property is involved and £1m by passing allowances on to a spouse.

£2bn in tax will be raised by reforming reliefs for business and agricultural assets. Beyond £1m, such assets will attract inheritance tax at 20%.

State pension spending to increase

Labour will make sure that “the people who powered our country receive the pension they are owed”, and remains commitment to the triple lock. Spending on the state pension is projected to rise 4.1% in 2025-26, equating to a £470 increase for over 12 million pensioners in the UK.

Fuel Duty

The chancellor rejected the option to increase fuel duty, and is maintaining the 5p cut from the previous government.

Electric Vehicles

To continue to support the take-up of electric vehicles, existing incentives will be retained in company car tax from 2028. The government will also increase the differential between fully electric and other vehicles in the first rates of Vehicle Excise Duty, as of April 2025.

Stamp Duty

Reeves announces the government will increase stamp duty land surcharge for second homes by 2% to 5% from 31 October 2024. There are no changes to the duty rates for First Time Buyers or people moving home.

Other measures

The additional tax will be raised in a variety of ways, with further announcements including:

• A new levy on vape liquid, which will be increased in line with tobacco.
• A cut in draught duty by 1.7%, which equates a penny off a pint in the pub.
• The non-dom tax regime will disappear from the tax system from April 2025, impacting UK residents whose permanent home for tax purposes is outside the UK.  According to the Office for Budget Responsibility, this package of measures will raise £12.7bn over the next five years.
• Private school fees will now be liable for VAT, and private schools will lose business rates relief from April 2025.
• Air passenger duty is to increase, at a level of an additional £2 on an economy short haul flight. But the duty for private jet passengers will increase by 50% to around £450 per person.

Inflation and growth forecasts

The chancellor will maintain the Bank of England’s 2% target for inflation.

Inflation will average 2.5% in 2024, rising to 2.6% in 2025 and dropping to 2% in 2029. Inflation was at 1.7% in September, below the Bank of England’s 2% target, down from 11% in October 2022.

The Office for Budget Responsibility slightly upgrades its growth forecast for this year but adjusts them down in later years. GDP growth is forecast to be 1.1% in 2024 and 1.6% in 2030.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

Last year, HMRC received more than 130,000 reports of scams and phishing attempts. With fraudsters becoming ever more sophisticated in their attempts to fool us, it’s important to know what to look out for.

We round up the latest advice and examples of phishing and fraud.

Text or WhatsApp messages

The number of fraudulent text messages has increased by more than a third in the past year. HMRC does send texts out in some situations, but never asks you for personal information.

A common approach is to claim you are due a tax refund, supplying a link. HMRC only sends links to information on the gov.uk website or to HMRC website.

Don’t click on any links unless you are certain they are legitimate, and if the link is to a form requesting information, close it down.

If you have subscribed to the UK Government Channel on WhatsApp, you might receive occasional tax-related reminders. These will be single messages and you will not be able to reply. HMRC will not communicate with you for any other reason using WhatsApp.

Send any suspicious messages to HMRC on 60599 (network charges apply).

Letters

HMRC recently shared an example of a misleading fraudulent letter that has been in circulation. A copy is below. The letter requests the recipient to email copies of recent bank statements, filed accounts, VAT returns and passport information.

It’s a convincing-looking letter – but one clue is a long and complicated email address. All genuine correspondence from HMRC should end in @hmrc.gov.uk.

QR codes

HMRC does use QR codes in letters and correspondence. The QR code will usually take you to guidance on the GOV.UK website – and if not, the letter will explain the destination for the code.

You will never be taken to a page to input personal information.

Send any suspicious emails or other materials containing QR codes to phishing@hmrc.gov.uk and delete them.

Emails

HMRC will never send notifications by email about tax rebates or refunds.

Don’t click on links in a ‘tax rebate’ email or open any attachments. Never disclose personal or payment information.

Fraudsters are good at making email addresses look genuine – but you can often detect suspicious details by clicking on the sender name. If you are unsure, forward it to HMRC’s phishing address and then delete it.

Phone calls

People are reporting an automated phone call scam that suggest HMRC is filing a lawsuit against you, asking you to press a button to speak to a caseworker and make a payment. You should end a phone call like this immediately.

Other scam calls may refer to National Insurance number fraud, or offer a tax refund, and ask you to provide bank or credit card information.

To help HMRC investigate, share any call details such as the date and phone number used via this online form.

Refund companies

Some companies send emails or texts offering to claim tax refunds or rebates on your behalf, usually for a fee. These companies are not connected with HMRC in any way. You should read the ‘small print’ and disclaimers before using their services.

What to look for

Although online criminals work very hard to make their scams appear real, there can often be a few tell-tale signs that things are not as they seem. Watch out for:

• Spelling errors and untidy formatting
• Email addresses that don’t look genuine
• Any form that requests financial information or personal details
• Strange website addresses that are not part of gov.uk

Helpful rules to follow

The Metropolitan Police suggests following these rules to prevent fraud:

• Be suspicious of all ‘too good to be true’ offers and deals.
• Don’t agree to an offer immediately. Insist on time to get independent or legal advice first.
• Don’t hand over money or sign anything until you’ve checked someone’s credentials and their company.
• Never send money to anyone you don’t know or trust, or use methods of payment you’re not comfortable with.
• Never give banking or personal details to anyone you don’t trust.
• Always log on to a website directly rather than clicking on links in an email.
• If you spot a scam or have been scammed, report it and get help.

What to do if you fall victim to a scam

If you think you’ve fallen victim to fraudsters, contact Action Fraud on 0300 123 2040 or at Action Fraud.

Remember that if you’re a victim of a scam or an attempted scam, however minor, there may be hundreds or thousands of others in a similar position. Your information may be vital in completing the picture.

Don’t be embarrassed – many people fall victim to online crimes each year because fraudsters are experts at deception.

For further advice on tax, tax refunds and staying safe as a taxpayer, we can help. Get in touch with our team today.

If you plan to set up a small business, the structure you choose can make an important difference. It can influence the amount of tax you pay, how you pay it and how the business operates.

Each type has its pros and cons, and the best way to set up your new venture will depend on your circumstances.

Here’s a quick guide to the different types of operating structure.

What type of business structure do I need to be self-employed?

Being self-employed just means you work for yourself. You can set up any type of business and still be self-employed.

What are the different types of business structure?

There are several types of legal structure to choose from when you set up a business in the UK. The main options are:

• Sole trader
• Limited company
• Partnership
• Limited Liability Partnership (LLP)

What is a sole trader?

In a sole trader set up, you’re the sole owner of your business. In legal terms, operating as a sole trader means there’s no distinction between you as an individual and you as a business. That means you keep all the profits you make after paying tax and National Insurance, but you’re also personally liable for any business debts.

Running your business as a sole trader is often the most straightforward option. Registering is quick and easy, and business admin is simpler.

But a sole trader set up might not be suitable for every business owner. Being personally liable for any business debts could, for example, put your home at risk if the business can’t pay its bills.

For some businesses, it’s more tax efficient to operate under a different business structure. Sole traders are taxed differently from a director of a limited company.

How do I start up as a sole trader?

Anyone can become a sole trader, and you won’t need to tell HMRC about the business if you earn less than £1,000 per tax year from self-employment. If your self-employed earnings are higher than this, you’ll need to register your sole trader business.

You don’t need to register with Companies House like a limited company, but you will need to sign up for self-assessment with HMRC.

Setting up a limited company

A private limited company exists as a legal entity in its own right, that’s separate from you as the owner or director.

That protects your personal assets if the company can’t pay its bills, but it also means that any profit the business makes belongs to the company.  You will need to decide how to pay yourself from the business.

Anyone can form a limited company. You don’t need employees or partners or a minimum amount of money to set up a business. Those requirements only apply if you’re starting a public company. You’ll need to register the business with Companies House.

Partnerships

A partnership is also registered as a business with HMRC, but not with Companies House. It’s a structure for a business where you and one or more partners work together.

Partners can be individual people or other companies. Each partner is jointly liable for everything that happens in the partnership – you share the profits as well as the risks.

Partnerships don’t pay any tax as an entity. Each partner must submit their own tax return, reporting their share of the income. They pay tax depending on how they are set up individually – as a sole trader or limited company, for example. Each partner is responsible for submitting their own tax return and paying tax.

How do I set up a partnership?

The partnership chooses a name and one partner acts as the ‘nominated partner’, to deal with legal admin like registering the partnership with HMRC.

Each partner will also need to register within in the partnership. Most partnerships also set out a written agreement, confirming how profits will be shared and how someone can leave the partnership if they choose to in future.

Limited Liability Partnerships (LLP)

A Limited Liability Partnership (LLP) puts a limit on how much the partners are liable for company debts. It limits how much partners invest in the business and guarantee personally against loans.

Unlike general partnerships, LLPs must register at Companies House.

At least two partners need to be ‘designated members,’ who file account information about the partnership. Each partner must also register as self-employed with HMRC and pay tax on the income they earn from the business.

Again, it’s a good idea to create a partnership agreement detailing how profits are shared and confirming individual roles and responsibilities.

Can I change from one type of business structure to another?

Yes, and it’s very common to switch from one type of structure to a different one. For example, many people become self-employed as a sole trader, and then later incorporate the business as a limited company as it grows.

Or, you might decide to take on a partner. It’s a good idea to seek advice to make sure you follow the correct procedures.

Need some advice about the type of business structure that might work best for you? Just give us a call. As small business accountants in the Lune Valley, we can advise you on business structure, tax returns, accounting, payroll and more. Get in touch!

We’re often asked for advice on whether or not to buy an investment property via a limited company.

The answer, as always, is that it depends on the circumstances. There are pros and cons to either approach, as we explain in this month’s blog.

The options

You can either buy property personally or through a limited company, also called a property investment company or Special Purpose Vehicle (SPV).

If you buy personally, the deeds and mortgage are in your name, and you pay income tax on your rental profits.

Or, you can set up a limited company, owned by you. The company buys the properties, the mortgages are in the company name and the company pays corporation tax on the rental profits.

Benefits of Buy to Let through a limited company

There are a few good reasons why people set up a limited company to buy property…

1. Better taxation of mortgage interest. A limited company can offset 100% of the mortgage interest, reducing the profit and therefore the tax due.
   
2. Lower taxation for higher rate taxpayers. If you’re a higher rate taxpayer or plan on owning multiple properties, there can be a tax saving.  Rental profits are taxed at the current rate of corporation tax, which tends to be around 50% of higher rate income tax.
   
3. Flexibility. You have flexibility around what you do with the profits. You can invest in further properties, save into a tax-efficient pension or take dividends. That flexibility can help with tax planning.
   
4. Good for growing portfolios. If youplan to expand your property portfolio, there are usually tax savings via a limited company. You can retain your profits in the company for future purchases and protect them from tax.

5. Inheritance tax and legacy planning.  If you plan to pass your properties onto your family in future, it’s simpler to transfer a limited company than a property. Because the company owns the property, that can protect against stamp duty, inheritance tax and capital gains tax liabilities.

Disadvantages of limited companies for Buy to Let

There are a few things to be aware of before you decide to set up a limited company for investment properties.

1. More expensive for basic rate taxpayers. If you’re a basic rate taxpayer and you plan to own one to two properties, it may not benefit you to set up a limited company. If your salary is likely to remain under the higher rate tax threshold and you have no plans to buy more property, it makes sense to buy in your personal name.
   
   
2. Additional legal responsibilities and costs. As a company director, you need to keep accurate financial records and submit accounts and returns to Companies House and HMRC. Most people appoint an accountant to deal with this, which is an added cost.
   
3. Double taxation. In a limited company, you pay corporation tax on your profits. If you want to take money as a salary or dividends, you’ll also pay income tax. There are strategies to mitigate double taxation, so seek advice before setting up your company.
   
4. Capital gains tax considerations. If you sell a rental property personally, you’ll need to pay capital gains tax – but you do get a tax-free allowance. A limited company doesn’t get the tax-free allowance, but the rate of tax is lower. If selling property is a key part of your strategy, get some tax advice.
   
5. Mortgage costs. Buy to Let mortgages are more expensive for a company. Lenders charge higher interest rates and fees to limited companies compared to individuals. But stress testing is often more favourable for limited companies. A mortgage broker can advise on the best deals for you.

I already own Buy to Let property – should I transfer it into a limited company?

Moving your property into a limited company is not cheap or straightforward. You will sell each property to your company, which can generate numerous costs:
Stamp duty: Your company will have to pay stamp duty when buying the property. Check the stamp duty thresholds and bands on the government website. You usually pay 3% on top of these rates if you own another residential property.

Capital gains tax: If the market price is higher than your original purchase price, you are personally liable to capital gains tax at 18% or 24%, depending on whether you are a basic or higher rate taxpayer.

Early repayment fee: A penaltymay apply if you end your mortgage early to switch to a company Buy to Let mortgage.

Mortgage costs: There will be costs to secure a company Buy to Let mortgage for the property. Limited companies have fewer mortgage options, which could mean higher interest rates.

Legal fees: These will also come into play for transferring properties and updating the Land Registry.

Everyone’s situation is different. Whether you’re starting out as a landlord or you already own Buy to Let property, it’s important to seek tax and mortgage advice so you can make an informed decision.

Need some tax advice on Buy to Let? We can help. As Lune Valley accountants we provide personalised support to many landlords in the city. Contact us today.

Not all tax-free allowances disappear at the end of the tax year, which can help save you money. We explore those that do, and those that don’t.

Tax allowances that you can carry forward

1. Your pension allowance

You can pay 100% of your annual income into your pension up to a maximum of £60,000 a year. Those contributions are also boosted by tax relief at the same rate as your income tax.

And in fact, with carry-forward rules, you could pay in even more and still get a top-up, because you can also use any pension allowance left over from the last three tax years.

This year, then, you could pay into your pension and get tax relief on as much as £200,000. That’s based on two years with a £40,000 allowance, plus two years at the higher rate of £60,000 (this changed in 2023).

There are more rules and criteria involved, but this can be a helpful approach for higher earners who have a variable income, or people with a lump sum to pay into a pension.

2. Your inheritance tax gifting allowance

Cash gifts are considered ‘potentially exempt transfers’ from inheritance tax if your estate were to qualify. They become totally tax free if you live for seven years.

You can also give away up to £3,000 a year free of inheritance tax and, if you didn’t use last year’s allowance, you can carry that forward too. That means a couple that hasn’t gifted before could give away as much as £12,000 in one go.

Also, if your child is getting married, you can give them up to £5,000 tax free to mark the occasion. You can give £2,500 to grandchildren too, which could contribute towards a deposit for their first marital home.

3. Capital losses

Losing money on an investment is painful, but if you keep a record of losses and report them to HMRC, they could be helpful in the future.

While the capital gains tax allowance can’t be carried forward, investment losses can be – and you can offset use against capital gains to potentially reduce your bill.

Don’t worry if you haven’t reported losses from previous years, because HMRC gives you four years to report a loss.

Allowances that disappear if you don’t use them

1. Capital gains tax allowance

Under your capital gains allowance, you can keep some investment profits each year tax-free, although the allowance has shrunk a lot – in just two years it has dropped from £12,300 to £3,000.

Because the allowance is now small, it pays to be strategic in how you benefit from your investments. It’s now less appealing to let your gains pile up.

Imagine you make around £500 a year on an investment. If you let this accrue and sell the investment after 10 years, your gain could be £5,000. You would have to pay tax on £2,000 of that gain.

Instead, you could take advantage of the annual allowance, selling a portion of the shareholding annually. If each sale was under the annual exempt amount, you wouldn’t lose out to capital gains tax.

2. The dividend allowance

Dividends are taxable too and, like capital gains, this allowance has also been cut in recent years. It currently stands at £500 a year.

The tax is 8.75% for basic-rate taxpayers, 33.75% for higher-rate and 39.35% for additional rate.

Married couples could transfer assets between each other and use both sets of allowances to reduce their exposure to the dividend tax.

Another helpful option is to make the most of both your ISA and pension allowances to grow your money tax free.

3. ISA allowance

Money kept in individual savings accounts (ISA) is fully protected from tax. There’s no tax on interest or dividends, or when you take money out.

So, it really does make sense to use your £20,000 ISA allowance each year. You can’t carry this forward.

Married couples can effectively amass £40,000 a year tax free between them. If you still have spare cash beyond that, you could pay into a Junior ISA for a child or grandchild too. This has a £9,000 allowance.

Want to explore how to minimise the tax you pay? Get in touch – as Lune Valley tax specialists and accountants we can help you assess the most tax-efficient way to manage your money.