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small trading exemption charity

Small trading tax exemption increases

On 5th April 2019, changes to the small trading exemption for charitable companies and CIOs came into effect. The same changes took effect for unincorporated charities on 1st April 2019.

A charity is considered to be ‘trading’ if it sells goods or services to customers.

Charities must pay tax on any profits that are made from trading, unless one of the following applies:

• you are making money to help your charity’s aims and objectives, known as ‘primary purpose trading’;
• your level of trade that is not primary purpose (i.e. selling charity Christmas cards) falls below the charity’s small trading tax exemption limit; or
• you trade through a subsidiary trading company.

Prior to April 2019, charities with income exceeding £200,000 did not pay tax on the first £50,000 generated from trading activities.

The table below shows how the current small trading tax exemption limits are applied:

 

 

What does the new small trading exemption mean for your charity?

For the most part, this is good news for charities with taxable trading income of between £50,000 and £80,000. However, bear in mind that if trading income exceeds £80,000, the full amount will be subject to tax. The £80,000 is not a tax-free allowance.

Partner Toni Hunter adds “You should also consider the compulsory VAT threshold, which is currently £85,000, and the Making Tax Digital obligations that this brings. Personally, I welcome this increase in the limit because trade is important as a fairly reliable and consistent source of income, yet managing a trading subsidiary can be burdensome for smaller charities, both financially and in respect of governance.” 

Here at George Hay, we recognise that managing a charity or social enterprise can be challenging and extremely demanding in respect of both time and money.

Our experienced accountancy professionals are familiar with the regulatory requirements affecting charities. We also understand the unique challenges facing the sector, including the need to operate as efficient, cost-effective businesses. 

Our proactive and practical advice is designed to help your charity find financial stability whilst also achieving its core objectives.

If you’re concerned about how the latest changes may impact upon your charity, you should seek specialist advice. Contact us on 01480 426500, to see how we can turn your concerns into confidence.

 

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Stamp Duty Land Tax rules have changed

Effective 1 March 2019, the payment window for Stamp Duty Land Tax (SDLT) has been halved. SDLT must now be settled within 14 days of the sale instead of 30.

This change affects all land and property transactions, whether commercial or residential.

A completed Stamp Duty Land Tax return must also be submitted within 14 days of the ‘effective date’ of the transaction. Even if no tax is due, a return must be filed.

 

Stamp Duty Land Tax penalty system

 
The current penalty regime for late filings and payments will remain in place.

Defaulters will have to pay an automatic fixed penalty for failure to return by the filing date. The penalty is determined by the lateness of the return.

A fixed penalty of £100 applies to returns filed up to three months after the filing date. The penalty then increases to £200 for returns later than three months.

In extreme cases, where a return is submitted a year or more after the deadline, HMRC will also charge a tax-based penalty. This penalty can be equal to the full amount of the tax that is due.

For the purposes of filing a return, the ‘effective date’ is typically the date that the transfer is completed. However, it can also be the date that the contract is ‘substantially performed’, if this is prior to completion.

‘Substantial performance’ applies where one of the following conditions has been met:

• most of the buying price is paid – normally 90%, in cash or something else of economic value;
• the buyer is entitled to possession of the property; and
• the first payment of rent is made.

 

Exceptions to the rule

 
There are a few exceptions to the requirement for an SDLT return. Exceptions include transactions where no money or other payment changed hands; where property has been inherited in a will; and where property has been transferred because of a divorce or civil partnership dissolution.

 

Payment is purchaser’s responsibility

 
Many people use a solicitor or legal conveyancer to act on their behalf during the sale of property. However, it is always the individual purchaser’s responsibility to ensure that payment is made.

Therefore, it is important that those purchasing commercial or residential land and property understand the new Stamp Duty Land Tax rules.

Here at George Hay, our team of property experts are on-hand all year round to ensure that you are always up to date with the latest legislation. We can help homebuyers and investors to understand their current tax liabilities and prepare for changes to property taxation now and in the future; identifying risks and opportunities along the way.

If you’d like to discuss your circumstances with one of our experts call us today on 01480 426500 or email huntingdon@georgehay.co.uk

For more information and further guidance, click here.

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Landlords, all is not lost in the 2019 lettings landscape…

Recent changes to regulation and property taxation have put the staying power of many landlords to the test. So, as a new year gets underway, we consider whether 2019 will be more of the same. 

There are hundreds of articles, full of ‘facts and figures’, making predictions about what the lettings market has in store for landlords. So many, in fact, that it can be hard to distinguish the key ‘need to know’ pieces of information.

In this blog, we aim to break things down and address some of the possibilities…

Profitability of your property business

Many astute investors are drawn to property by the prospect of regular income, healthy returns and relatively easy acquisition.

As with any business, profitability is key to longevity, success and your ability to expand. However, profitability is also extremely vulnerable to peripheral influences. 

The latest quarterly landlords panel report revealed that 55% of private landlords believed that their profits had been squeezed by legislative, regulatory and tax changes. 

Many consequently expressed interest in selling at least one property during 2019, particularly those managing larger portfolios. Those not looking to sell otherwise showed little interest in adding to their portfolio.

However, despite confidence levels clearly struggling, the vast majority are still making a fruitful living from their lettings business.

Armed with sound advice in 2019, both new and established landlords may continue to enjoy profitability.

Rental yields and regional difference in demand

Rental yields can make or break profitability and should always be a key consideration when building your portfolio.

The quarterly landlords panel report revealed that average UK rental yields have fallen to a three-year low of 5.6%. On the other hand, outer London and the North East have seen increases.

Tenant demand affects yield and this too differs amongst regions. The East Midlands for example, have seen an 8% increase whilst demand in central London fell by 11%.

Such inconsistences have left confidence in the UK financial market at its lowest in five years.

There will always be highs and lows, as the current economic and political backdrop will continue to evolve. That being said, those willing to ride the wave can still reap rewards.

Regulation, legislation, taxation and reeling costs

Regulatory, legislative and tax changes have pushed up costs and given rise to concern in recent years. The National Landlords Association (NLA) have warned that excessive change could see many landlords giving up the fight.

The changes to mortgage interest tax relief, for example, will continue to impact upon landlords beyond the next 12 months. Landlords will only be able to deduct 25% of their mortgage interest under the previous system. Under the new system, 75% will qualify for the 20% tax credit.

The  NLA are calling on the government to refrain from introducing new policies for at least five years. Existing polices need time to bed in and their effectiveness should be monitored. However, it is impossible to know whether the Government will take these concerns seriously. 

We know the changes implemented up to this point have not always been in landlord’s best interests. However, the changes have given rise to a more resilient property market. A resilient property market is one that will, hopefully, be better prepared for whatever comes next!

Buy-to-let vs. Build-to-rent

Analysis conducted by Savills, for the British Property Federation, reveals that the number of Build-to-Rent homes under construction across the UK has increased significantly. This is thought to correspond with the demand for longer-term tenancies.

The professionally managed private rented sector is expected to continue to grow at a notable rate. As a result, industry experts also expect that individual landlords will decline in number.

However, as it currently stands, buy-to-let landlords still dominate the market, with far more accessible properties when compared with professionally managed developments which often target the more affluent portion of the rental market.

Home ownership rates continue to decline and research by property agents, Knight Frank, suggests that an additional 560,000 families are expected to be renting by 2025.

Consequently, there will remain a need for landlords to continue to supply quality properties to families and individuals with varying financial histories.

Will Brexit bring good or bad for landlords?

The truth is, nobody can say for sure whether life after Brexit will be better, worse or the same. As it stands, we can only speculate about ‘possible’ outcomes…

The good – the uncertainty associated with Brexit means many individuals and families are reluctant to buy property for fear of being trapped in an inert market. When faced with such a conundrum, renting is a far more attractive possibility. Therefore, the demand for rental property may well spike following our withdrawal.

The bad –  unemployment is a huge concern for many looking beyond Brexit and there is widespread unease when considering the ways in which our job market might be affected. Rising unemployment could spell trouble for landlords as tenants could find it increasingly difficult to meet their rental payments. This, in turn, will affect landlords’ ability to keep up with the financial demands associated with running a lettings business.

All is not lost

It is impossible to predict how the property market will change in time. It is the ‘nature of the beast’, so to speak. However, if you’re prepared to look at the bigger picture and give your investment time to grow, property can still deliver a great return.

Regulatory and tax changes don’t have to be the reason you give up on your property aspirations and the future may not be as bleak as you might think. There are plenty of opportunities that individual landlords can take advantage of with the right advice, guidance and planning.

Whether you’re a new or established landlord, we can support you throughout your venture and assist you with proactive and effective tax planning; identifying and taking advantage of opportunities to minimise your liabilities and maximise your investment.

To find out more about the services we offer to landlords, investors and developers, click here, or call us on 01480 426500.

If you’d like a comprehensive update on the current state of the lettings market and to pose your questions to some local experts (us included), register for a free place at our property seminar on 28th February 2019, here.

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Setting up a charity: Which structure should you choose?

Not-for-profit organisations come in all different shapes and sizes, with unique objectives and funding arrangements. This means that, when choosing a legal structure for your enterprise, there is no one-size-fits-all solution.

The structure that you adopt will determine how your venture operates, so getting it right can save you a lot of time and effort in the long-run. Though, that isn’t to say that you can’t change your structure later as this is also an option.

The four main structures

As a charity, you will typically identify as one of the following; an unincorporated association, a trust, which is also unincorporated, a Company Limited by Guarantee or a Charitable Incorporated Organisation.

• A trust – is typically run by a small group of appointed ‘trustees’ and is relatively simple and inexpensive to establish. 

• An unincorporated association – is a membership organisation ideal for small groups, perhaps run by volunteers. Whether the group is charitable or not depends on the presence of charitable aims and who benefits.

• A Company Limited by Guarantee (CLG) – is a limited liability company, incorporated and registered at Companies House. Income is not distributed amongst shareholders, meaning a CLG can be not-for-profit if all surplus income is reinvested into the organisation.

• A Charitable Incorporated Organisation – is an incorporated charity. CIOs must register with and report to the Charity Commission, regardless of income, but need not register with Companies House. Members have limited liability and it also has its own legal personality.

The rise in popularity of the CIO – is it right for you?

The Charitable Incorporated Organisation was launched in 2013 to combine the benefits of a charitable organisation and a company. It is one of two corporate structures available, with the other a CLG.

Corporate structures often prove popular thanks to the limited liability protection that they offer, alongside greater legal freedoms.

CIO’s have grown in popularity since their introduction and since January 2018 when charitable companies were allowed to convert to this structure. There are a number of advantages to CIOs, that CLGs do not possess – for example:

– CIOs are only regulated by the Charity Commission meaning no dual administrative requirements;
– two types of CIO – foundation and association – accommodate charities with focused/wider membership;
– there is no minimum income threshold for registration;
– there is no charge to register with the Charity Commission; and
– the vast majority of company law does not apply.

On the other hand, to exist as a charity the CIO must have had their application accepted by the Charity Commission, which can take up to 45 days.

Converting to a CIO has proven more challenging than expected. This, alongside lack of public education prevents CIOs from being perceived in the same altruistic light as a charity.

In addition, just as the Commission has the power to incorporate charities, they can also dissolve them. If a CIO loses its registration, it will cease to exist.

What if I want to convert to a CIO?

First, consider why it is that you want to convert; whether the risk that unlimited liability carries, or the administrative burden associated with dual regulation. Based on your objectives, consider the options available to you and choose the structure that fulfils your requirements. The Charity Commission says the CIO structure is beneficial for small to medium-sized charities which often employ staff and enter into contracts.

Converting to a CIO (or any structure for that fact) should not be done on a whim as it can be a complex process. Many of the undertakings involved cannot proceed until the Charity Commission approves the CIOs registration. This can lead to delays in getting the new organisation up and running. As with any big decision in business, doing your research and obtaining professional advice where necessary is vital.

Here at George Hay, we understand that to respond to the challenges associated with today’s economic climate, charities are having to take a long hard look at their plans for the future. That’s why our specialist team support the not-for-profit sector, providing audit, independent examination reports, accounting, taxation and advisory services to charities, academies, clubs and social enterprises of all sizes.

We can assist you with everything from appraising and strengthening governance procedures to setting accounting policies, and from providing ideas for diversification to helping you identify an efficient structure for your venture. To find out more about how we can help charities and not-for-profit organisations, click here.

You can also read the Charity Commission’s guidance on changing the structure of your charity, here.

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Business Awards: Blow the judges away

Whether you started up your business relatively recently, or you’ve been established for several years and whether you’re a local SME, or a large international organisation, making the most of opportunities to showcase your venture and have your accomplishments and successes recognised is essential.

Business awards are not just about the sharp suits, high heels and trophies; they are about so much more than that and they can really benefit your business’ brand and reputation.

Benefits range from industry recognition to raising your profile and from gaining exposure to national and local press to building invaluable networks made up of peers and professionals who you may be able to collaborate with further down the line.

When entering awards, most businesses look forward to the possibility of standing up on the stage to accept an accolade. However, before this even becomes a possibility, you must convince the judges that you are worthy of winning.

Over the years, we have had the pleasure of supporting many different awards, by way of sponsorship or by joining the judging panel, for example. We are always thrilled to be involved in the celebration of innovation and best practice within our local, regional and national business community.

This year, we are supporting the 21st annual Hunts Post Huntingdonshire Business Awards 2018. We have once again chosen to sponsor the ‘Business Development’ category and I will also reprise my role on the judging panel. The Business Development award recognises businesses who demonstrate the ability to improve performance or prospects by making the most of new opportunities.

You can read more about the launch of the awards here and find out more about our involvement with them, here.

Judging is never easy, particularly when the calibre of entrants is always so exceptional, but what exactly is it that we look for…

1.  Passion is imperative

Bear in mind, when putting together your entry, that as judges we have many submissions to read through. So, it follows that you need to make yours memorable! Let your passion shine through; write with conviction and enthusiasm and give us a reason to care about your business and what you have achieved. Get a friend, relative or someone else outside of the business to read your entry; if they don’t feel your passion coming through, then chances are we won’t either.

2. Keep the criteria in mind

When putting your submission together, keep in mind the criteria for the category that you are entering. We want you to be passionate, but it can be too easy to get carried away and forget about the question/s you are supposed to be answering. Make sure your entry is focused and that the information you provide throughout is there for a reason!

3. Evidence your claims

Wherever you make claims about your business, make sure you provide evidence to back them up. You can tell us that your business is the best in the world, but if there is no evidence to support that, how can you expect us to believe it. Strong supporting material, including pertinent facts and figures, will help us to judge your business more fairly and better evaluate the impact of your activities.

4. Learn from the process

It is not just us who can learn about the business from your entry, but you as well. Entering awards provides you with the perfect opportunity to profile your business from the inside and many report finding the process a great eye- opener. If nothing else, you might just come away with a better understanding of your operation, your employees, how far you’ve come and exactly where you’re headed.

The gala awards ceremony will take place on Friday 2nd November at Burgess Hall, St. Ives and will be hosted by Stuart White. Entries are open until 5pm on 7 September 2018. To find out more about the awards, which categories are available to enter or to download an entry pack, click here.

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