Welcome to our August 2024 newsletter/blog

looking at some of what has happened since July 2024 and a few items that come into place in the near future which I hope is of interest to our clients and contacts.

Please get in touch us if you want to talk about how these updates affect you and your business. We are here to support you!

First Budget on 30 October 2024

With the Labour Party having won a substantial majority in the election last month the Chancellor, Rachel Reeves, has announced that the first budget of the new government will be held on 30 October 2024.

With Ms Reeves announcing recently that there is an additional £22bn hole in the public finances this will not be a budget that will cut taxes. In fact she has already indicated that taxes will have to rise. She also said there are “more difficult decisions to come”.

She has confirmed that she will stick to the Labour Party’s manifesto commitment to not increase income tax, employee’s national insurance contributions or VAT.

This means that tax raising measures will have to be found elsewhere.

She has already published draft legislation which charges VAT at 20% on education and boarding services provided by private schools for a fee. This will apply to any fees paid from 29 July 2024 in respect of services starting in January 2025.

Currently most of these schools are not VAT registered so they will now have to register for VAT. The increase in fees may not be as high as 20% however as schools will now be able to reclaim VAT on their inputs. We will have to see how schools manage their fee structures going forward.

The Chancellor has also confirmed the abolition of the Furnished Holiday Lets (FHL) property scheme which was first put forward in the Conservative March 2024 budget.

With the promises not to raise certain taxes (see above) we have to consider which taxes are now likely to rise.

Favourites, in my opinion, are Capital Gains Tax (CGT), fuel duty, stamp duty and potentially corporation tax small companies rate. There is also a lot that can be restricted with regards to pensions.

She has already announced the scrapping of winter fuel payments for pensioners and the Rwanda migration scheme.

If you have concerns about your tax situation and want to have a chat then please get in touch and book an online meeting to go through your individual circumstances.

In this month’s round up:

New VAT registration tool released by HMRC
How to avoid fraudulent websites and shop safely online

Bank of England reduces base rate to 5%
Stewart & Partners Property Group
Buying a second home: what should you think about?
We can help − Just ask us

New VAT registration tool released by HMRC

HM Revenue & Customs have released a new tool designed to help businesses find out what VAT registration would mean for their business.

VAT registration becomes mandatory if:

• your total taxable turnover exceeds £90,000 over the previous 12 months.
• you expect your taxable turnover to go over £90,000 in the next 30 days.
• you're based outside the UK and supply goods and services to the UK.

Taxable turnover refers to the total value of everything you sell except for anything that is exempt from VAT.

It is also possible to register for VAT voluntarily even if your annual taxable turnover is below £90,000.

If the majority of customers for your business are VAT registered then there is no increase in costs for them, and so voluntary VAT registration can be worthwhile so that you can claim VAT back on the purchases you make.

The new HMRC tool can help you to estimate what VAT might be owed or reclaimed by your business if you were to register for VAT. You are free to use the tool to explore multiple ‘what-if’ scenarios so that you can compare various situations and how you might be affected.

To use the tool, please see: https://www.gov.uk/guidance/check-what-registering-for-vat-may-mean-for-your-business

Bank of England reduces base rate to 5%

As anticipated, the Bank of England reduced their base interest rate on August 1 from 5.25% to 5%. The decision was a close call, with a majority of five to four voting in favour of the cut.

The Monetary Policy Report that accompanies the decision explains that while higher interest rates have helped return inflation to the Bank’s target of 2% and allowed them to make this cut, they are expecting a temporary increase to 2.75% later this year.

Why might inflation increase again?

The fall in household energy prices has been helping to bring inflation down, however as energy prices normalise, the downward pull they’ve been exerting on inflation will end. Prices for services, such as hotels and restaurants, insurance and rents for housing, on the other hand continue to rise at rates well above their past averages.

In addition, demand for goods and services this year have been higher than expected and this may contribute to higher inflation.

However, the Bank consider this to be a temporary situation and expect inflation to fall back to their target level next year.

Is another cut likely?

The Bank are prioritising making sure that inflation stays low and have said that they will not cut rates too much or too quickly. This suggests a further cut when they next meet on 19 September is unlikely.

What should you do about the rate cut?

Regardless of future decisions, the cut to 5% is good news for borrowers, but may not be so good for savers.

Commercial banks typically tend to follow the Bank of England, but not necessarily all to the same degree. If you have loan finance on variable interest rates, check to see that the interest rate reduces. Many loans and overdrafts have a rate that is tied to the Bank of England’s base rate so these should reduce automatically.

For savings it may be worth shopping around to make sure that you are getting the best rates on the market.

Buying a second home: what should you think about?

As accountants, we are often asked about the financial and tax implications of buying a second home. Sometimes the pull of a country or seaside retreat might inspire you to think about having a second home. Or maybe you have spare cash or income and are wondering if a second home could be a good investment.

Whatever the reason, before you take the plunge, what are some things you might want to consider?

What are the costs of buying a second home?

It will sound obvious to say, but outside of the purchase price there are a number of other costs to think about that may impact on your decision.

• Stamp Duty Land Tax (SDLT): This is one of the significant costs to consider. For second homes, there’s an additional 3% surcharge on top of the normal SDLT rates.

• Council Tax: Second homeowners in England should also be aware of potential increases in council tax. From April 2025, under the Levelling Up and Regeneration Act 2023, councils will have discretion to charge up to 100% more in council tax on furnished homes not used as a main residence. This means you could end up paying double the usual amount.

• Insurance: Because they’re often unoccupied for periods, insurance premiums are sometimes increased for second homes.

How will you pay for it?

Unless you have cash available to buy a second home outright, you’ll likely want to think about how you will finance your purchase. With this there are essentially two options.

• Mortgages: Meeting the conditions to get a mortgage on a second home can be challenging. For instance, a higher deposit is often required than would be the case for your main home. An interest-only mortgage could help to keep the costs down, but over the long term you’ll still need a repayment plan.

• Equity release: Your main home may have equity that you could release to fund your purchase. You might be able to borrow on the value of this equity using an equity release scheme. These have risks though, so you should get expert advice if you are considering this as an option.

Are there any tax implications to think about?

Besides the SDLT we discussed before, tax implications will depend on how you plan to use your second home and what your future plans are for selling it.

• Tax on rental income: Some second homeowners rent the home out for a period or use it as a holiday let. These can be good ways of helping to cover your costs if you don’t plan to live in the property yourself. However, any rental income you make will need to be declared on your tax return. On the plus side, some of the costs of running a rental property can be offset against the income.

• Selling your second home: When you sell your second home, any profit will be subject to Capital Gains Tax (CGT). The gain is calculated as the difference between the purchase price and the selling price, minus any allowable expenses and reliefs. This is different to the situation where you sell your main home, which is usually tax-free. If you plan to permanently move to your second home at some point in the future, then any gain you make from that point onwards could be tax-free.

Given the complexities of tax regulations around second homes, it’s essential to get expert advice. As your accountants, we can help you navigate these rules and make informed decisions. Please just give us a call and we’ll be happy to provide you with personalised advice. Before calling us you may wish to check out our specialist property pages on our web site.

Whether you’re considering buying a second home for personal use or as an investment, understanding the financial and tax implications will help you manage the costs effectively, avoid any surprises, and enjoy the benefits that come from your new place with peace of mind.

How to avoid fraudulent websites and shop safely online

The National Cyber Security Centre (NCSC) have refreshed their guidance on shopping and paying safely online. Whether for our business or personally, online shopping is now a normal feature of our daily routine. What tips do NCSC provide that can help us stay safe?

Check the shop is legitimate

Criminals send emails or texts that contain links to fake shops. These might direct you to a website that looks very much like a legitimate website, including the shop’s logos and so forth. The web domain or address could also look reasonably convincing.

It is good policy to never click links from emails unless you are absolutely sure that the person who sent it is someone you trust and you know the email has come from them.

Using consumer websites, which usually have reviews, can help you to identify whether a site is legitimate. They may also help you identify whether a business you are considering using has a good reputation.

If possible, try typing the official website of the shop directly into your browser’s address bar.

When using a search engine, take the time needed to read the entries on the results page rather than just clicking on the first item on the page.

Pay by credit card

Credit cards often have more protection for online purchases.

Using PayPal, Apple Pay or Google Pay may not provide the same level of protection, so make sure to check the ‘terms & conditions’ to see what protection you have.

Whatever you do, don’t pay by direct bank transfer.

Be sparing with the details you provide

When you make payment only provide the mandatory details, which are usually marked by an asterisk.

NCSC advise that it is best not to create an account unless you think you’ll become a regular customer. So, use the ‘checkout as guest’ option. Or, assuming they provide the protection cover you need, using PayPal, Apple Pay, or Google Pay could be your friend since using them means you don’t usually need to create an account.

Whatever the case, you shouldn’t let your browser remember your payment details if it prompts you to do so. And if you do create an account, don’t allow them to store your payment details for future purchases.

Use strong passwords

You should make sure that your shopping, online banking and payment accounts are all protected by strong passwords that aren’t used for any other account. Otherwise, if a criminal gets hold of the password to one account, they have free rein to access others.

Using 2-step verification is also a good defence as even if a hacker knows your password, they can’t automatically access your account.

These tips can help you stay safer when shopping online and minimise the problems that come if you end up being a victim of fraud.

Stewart & Partners Property Group

The Stewart & Partners Property Group is for clients who have an interest in the property sector, be it buy to let, property investment or construction.

Our web site pages give an overview of the property industry including buy to let, property investment and property development.

The major resource for all our property clients and contacts are the many helpsheets we have produced which give initial advice an many areas where clients need help. Check out the pages for yourself.

We also produce a monthly newsletter dedicated to the property industry. If you are interested then sign up to receive the newsletter.

How to Grow your Business

We have written a booklet titled How to Grow Your Business which offers ten strategies you can use to take your business to the next level.

Visit our website to download a free copy.

We can help − Just ask us

Are you considering starting a new arm to your business or do you have a query about tax planning? Do you need advice about financing or cashflow, maybe you just need help in accessing a loan.

We have a broad range of experience that goes far beyond just preparing accounts and tax returns. We also have access to a broad range of tools that will help with providing answers. Get in touch as we will probably have an answer to help you with your challenges.

Even if you just want help planning for the future with all the proposed tax changes, we are here for you.

And finally….

With the new Chancellor having her first budget in October there will be a number of announcements trailing new tax policies and government spending plans. Nothing is certain at the moment apart from the fact that things will change.

If you are worried about the potential changes we are here to help you consider the best way forward for you.

You can book time with me to discuss your concerns and any tax planning that you wish to consider.

However you should not make changes to your plans just because three is a possibility that tax policy may change. Every change needs to be thought through carefully.

Don’t act in haste.

If you have any initial queries you can book a free 15 minute zoom meeting with me. Planning meeitngs will lbe charged for as additional advice.

Finally, don’t forget to make time for yourself and do not let your business run you, you should run your business.