Property and Business Tax: Live Q&A

Don't you just love clichés? Neither do we, really. The sad truth is that this is a very complex question to try and answer. It does very much depend on the business/investment and your lifestyle needs.

Someone that does not need the money from the business or investment activities may be best to use a limited company. This is provided that they are high rate tax payers?

What is you are a basic rate tax payer? The best tax structure may be to have the investment and business activities just in your own name and avoid the complexities.

Then there is risk...but that is a story all onto itself

Value Added Tax (VAT) registration is a requirement for business owners that sell products or services in the UK and has a turnover/income of £85,000. This means that they will now need to charge VAT of 20% (typically) on top of their initial prices. This means their customers/clients will end up paying more. This does mean that business owners can reclaim any input VAT that they are charged by their suppliers on their quarterly VAT return.

For many business owners VAT can be a little too complex. This is where a VAST flat rate scheme may come into its own. It is simple to use and will require much less paperwork to carry out the calculations.

What about property investors? Rent is VAT exempt. This means that the UK landlords does not charge VAT to their tenants. As they do not charge VAT to tenants it also means that they are unable to claim back VAT from their suppliers.

What about property developers? This is a complex area and each element of work requires serious VAST consideration before starting

On the face of it paying tax is a simple question that leads to more complex answers. The reason is that someone that has £100 sales less £50 worth of costs makes £50 profit. You would think that tax is based on the £50.

Sadly this is not always the case as business owners and property investors are also allowed to claim certain tax credits that is based on a fixed asset that purchased during the year.

There are a variety of costs that are not allowed, even though they are shown on your profit and loss account. This means that certain costs would be taken out and profit increases, which is what tax is based upon?

There are a number of factors that you need to take into account when trying to figure out your tax liability.

There is a tax called Capital Gains Tax (CGT). This is charged when you sell an asset. The amount of tax and the rate of tax depends on a number of factors.

One consideration around CGT is the tax structure you use in your business. If you sell an asset in a limited company then the tax rate will be the same as the corporation tax rate, which is 19% up to £50,000 profit and increases to 25% (from 2023) once the profit increases to £250,000. There is a scaled rate tax charge from 19% to 25% but you will need to speak with your tax advisor about this.

Selling an asset that you own in your personal name may be free from tax altogether. This is because certain assets are not charged to CGT at all. Please speak with your tax advisor on this. Additionally, individuals are allowed a CGT annual exemption. This is circa £12k, which is allowed to be gained from selling an asset without paying tax. This is of course doubled for couples living together.

If an individual sells a taxable asset above the circa £12K rate then there are different rates of CGT that applies. Selling no property related assets attract a lower rate of tax. Basic rate taxpayers will pay 10% compared to 20% for high rate taxpayers.

Those that sell residential buy to let properties will pay a higher rate of CGT. 18% will be charged to basic rate taxpayers and 28% CGT charged to high rate taxpayers.

There are many ways in which you can reduce or avoid CGT and it is always best for you to speak with your accountant before you finally sell an asset.