A round up and summary of key tax opportunities and changes.
Tax-free childcare
Tax-free childcare is a government funded scheme where parents can receive up to £2,000 per year, per child, towards childcare costs.
In order to access the scheme, certain eligibility criteria need to be met including a ‘minimum income requirement’. This provides that you and your partner (if you have one) must be each earning the equivalent of at least 16 hours per week at minimum wage. This equates to £9,518 for the 2024/25 tax year and could therefore present a problem for directors taking a basic salary at the secondary NIC threshold of £9,100.
Dividends, interest and property income do not count towards the minimum income requirement, but benefit-in-kinds can be included. If you would like to continue to access tax-free childcare, a reassessment of your remuneration for the year may be required.
SDLT and multiple property purchases
SDLT and multiple property purchasesBudget 2024 brought the announcement that ‘multiple dwellings relief’ for stamp duty land tax (SDLT) would be abolished with effect from 1 June 2024. This relief previously provided a reduction in the SDLT payable on purchases of two or more dwellings in one transaction (or part of a series of linked transactions) but is no longer available (unless contracts were exchanged on or before 6 March 2024).
It was not a huge surprise to see an announcement in this area after countless court cases contesting whether the relief was due and, in particular, in relations to properties with a ‘granny’ annex. It was anticipated that the relief may be tweaked to increase the number of dwellings to which it applied, however, rather than a complete abolition.
Going forward, any future purchases of properties of five or less residential properties in one transaction, will be subject to SDLT at the applicable rates for the aggregate value of the properties being acquired, including, most likely, the 3% supplemental rate for additional dwellings, which will significantly increase the cost of investment. Where six or more residential properties are purchased, however, it will still be possible to apply non-residential rates with a much more attractive top rate of 5% (compared to 15% under residential rates or 17% of a non-UK resident).
Accommodation offset and minimum wage
Accommodation offset and minimum wageEmployers are required by law to ensure employees are not paid less than the national minimum wage (NMW) or national living wage (NLW). It is not as simple, however, as just looking at the employee’s hourly rate to determine compliance.
One area of particular complexity if where an employer provides living accomodation to an employee, which must be taken into account when calculating NMW/NLW (although all other benefits are not considered). The rules are complicated further depending on whether the employer charges the employee for the accomodation (and/or any associated bills).
From April 2024 the accomodation offset rate is £9.99 a day or £69.93 per week and the impact on NMW/NLW calculations is dependent upon three scenarios:
- Accomodation is provided to the employee free of charge – the employee’s pay is deemed to be increased by the offset rate and hence can help to bring the employee up to the NMW/NLW.
- The employer charges the employee rent at or below the offset rate – no adjustment to the employee’s pay is made.
- The employer charges the employee rent at above the offset rate – the employee’s pay is deemed to be decreased by the difference between the offset rate and the rent charged by the employer which can result in the employee falling below the NMW/NLW.
It is also necessary to consider whether the provision of accomodation is taxable on the employee as a benefit in kind (BIK). The two rules have to be considered seperately but care should be taken as, for example, reducing the rent payable to ensure that NMW/NLW is met, could result in a BIK arising on the employee.
HMRC change the goalposts for salaried member rules
HMRC change the goalposts for salaried member rulesUnder the salaried members’ rules, LLP members are taxed as employees unless they fail one or more of three specific conditions. Where one or more of the conditions is failed, the member’s profit share from the LLP is taxed on a self-employed basis. One of the conditions (Condition C) is that the LLP member has contributed less than 25% of their profit share to the LLP as fixed member’s capital.
Since the rules were introduced, many firms have required their fixed share members to contribute a sufficient amount of capital to the LLP to fail Condition C. In our experience, this approach has provided popular due to Condition C being easily measured and offering the greatest degree of certainty.
HMRC have recently made some changes to their guidance, stating that a genuine contribution made by the individual to the LLP, intended to be enduring and giving rise the real risk, will be disregarded if the main purpose, or one of the main purposes, is to avoid the member being taxed as an employee. They have also added a new example indicating that they consider the targeted anti-avoidance rule (TAAR) to apply where there is a separate agreement between the member and the LLP that allows the member to increase their capital contribution periodically in response to increases in their profit share, in order that Condition C continues to be failed.
As a result of HMRC’s new stance, it would be prudent to consider whether any changes need to be made to the arrangements between the LLP and its fixed share members going forward. Note, however, that this is just a change in HMRC’s guidance and this has not been enshrined in the legislation, nor has their position been tested in courts to date.
This landscape can be complex to navigate so seeking expert advice is always best. Click the button below to access the Summer edition of our Talking Tax publication and read more about the topics discussed in this article.
