This month’s newsletter includes articles covering: when a hobby may be considered a business, rolling over taxable gains into replacement assets, a note of how long you need to keep tax records and current limits on claiming certain tax reliefs.
When is a hobby a trade?
We have received enquiries from a number of clients, concerned that HMRC is going to try and tax them for the small amounts of cash that they make from pursuing hobbies. For example, buying and selling on eBay or setting up stalls at their local drive in markets ? car boot sales.
If you establish a regular pattern of making money in this way, and in fact turn in a profit, then you probably need to consider if your hobby is a business that you need to declare to HMRC. Each case needs to be considered on its own merits.
HMRC follows a number of guidelines called “the badges of trade” that help them reach a conclusion: is a part-time hobby, that creates an income stream, a business that needs to be declared on an annual tax return? These badges of trade are listed below:
These criteria are not the only aspects of activity that will be considered. Please call if you are concerned that your hobby may be considered a trade.
Also, please note that from April 2017, the government is to introduce a new £1,000 allowance for property income and a £1,000 allowance for trading income. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. So, if your hobby does not produce income above £1,000, it can be ignored for tax purposes after 5 April 2017.
Deferring taxable gains until future sales
It may be possible to delay paying Capital Gains Tax (CGT) if you sell a business asset that is subject to a charge to CGT, but you use all or part of the proceeds to buy new business assets. The relief you can claim is called Rollover Relief.
This relief means you won’t usually pay any CGT until you sell the new, replacement asset. Depending on the circumstances of the replacement asset sale, you may then need to pay CGT on the gain from the original asset.
You can also claim provisional Rollover Relief if you are planning to buy new assets with your proceeds of sale, but haven’t done so as yet, or if you use the proceeds to improve assets you already own.
To qualify for Rollover Relief, the following circumstances must apply:
You can claim relief on assets including land and buildings, fixed plant or machinery ? and space stations! The old and new assets don’t have to be the same kind.
Different rules apply if you only reinvest part of the proceeds from selling the old assets, if the old were only partly used in your business, or if you use the proceeds to buy ‘depreciating assets’ (fixed plant or machinery, or assets expected to last for less than 60 years when acquired).
The devil as always is in the detail. If you are considering the sale of an asset that would normally be subject to a CGT charge, and you are aiming to replace the asset, we would suggest that you call to discuss the transactions to make sure you make the most of this relief.
How long do you need to keep tax records?
The length of time you need to keep tax records depends on the types of income you earn and the types of tax you are paying. A list of time limits is set out below:
Income Tax and Capital Gains Tax
These deadlines can be extended. For example, if:
Limits on certain claims for tax relief
From 6 April 2013, the total amount of certain Income Tax reliefs that can be used to reduce your total taxable income is limited to £50,000, or 25% of your adjusted total income, if higher.
The main reliefs subject to this limit are:
These restrictions do not apply to Gift Aid relief; nor pension contributions which have their own limits.
It is worth considering these restrictions as they may limit your ability to recover a proportion of cash lost by claiming a reduction in tax payable on future or past income and/or gains.
Tax Diary November/December 2016
1 November 2016 – Due date for Corporation Tax due for the year ended 31 January 2016.
19 November 2016 – PAYE and NIC deductions due for month ended 5 November 2016. (If you pay your tax electronically the due date is 22 November 2016.)
19 November 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2016.
19 November 2016 – CIS tax deducted for the month ended 5 November 2016 is payable by today.
1 December 2016 – Due date for Corporation Tax due for the year ended 29 February 2016.
19 December 2016 – PAYE and NIC deductions due for month ended 5 December 2016. (If you pay your tax electronically the due date is 22 December 2016)
19 December 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2016.
19 December 2016 – CIS tax deducted for the month ended 5 December 2016 is payable by today.
30 December 2016 – Deadline for filing 2015-16 Self Assessment tax returns online to include a claim for under payments to be collected via tax code in 2017-18.
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