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Updates to UK Property Tax & Self-Employment Status

26/05/2021

In this blog we highlight updates to UK property tax, as HMRC deadlines approach – and how to obtain self-employment status with HMRC, which allows for the ever-present HMRC IR35 anti-avoidance tax rules.

UK Property Tax Updates

First, a reminder that the nil rate Stamp Duty Land Tax (SDLT) holiday expires, at the end of next month-June 2021, for a property with a sale price below £500k. However, the nil rate SDLT continues for a property with a sale price of below £250k until the end of September 2021.

Also, a reminder that multiple dwelling relief (MDR) can reduce SDLT. The proviso is that it is the physical attributes of the property at the time of the sale completion date that are relevant. Changes to the property contracted to take place after the sale completion date are not relevant to establishing MDR. To claim MDR, as at the sale completion date, the property must consist of self-contained dwellings each with their own entrances within the property. If you believe you can claim MDR make sure that your solicitor is fully aware of the position as MDR can be easily overlooked.

Self-Employment & Setting Up a New Business

In these COVID-19 time we expect many people in the UK have reconsidered their working life and whether changes could be made perhaps by setting up a self-employed business. In some cases such thoughts have been forced upon them due to job redundancies etc.

Now that the successful NHS vaccination programme has given us all some hope to return to something like a normal life, including work, perhaps you are now considering whether the skills you have can be used in a freelance role and involving you setting up your own business. If so you may want to know what HMRC will look for to support your claim that you are self-employed for UK tax purposes.

There are several issues to consider and starting a business can be intimidating. Perhaps the first question for you to answer is not on your UK tax status but do you have the mindset of an entrepreneur or an employee? In some respects a difficult question to answer but one that needs to be addressed as a first step. If you consider the insecurities and stresses of starting a new business are overwhelming perhaps you have more of an employee mindset whereas an entrepreneurial mindset will look at the start-up business problems as challenges to be solved and they will be adaptable to the changes that maybe needed to establish the new business.

In short – per a comment we recently spotted on a social media post – ‘an employee mindset accepts what you cannot change whereas an entrepreneur mindset is to change what you cannot accept’.

If your business is based on your personal services and skills rather than marketing/selling goods and supplies there is another way of setting up your business involving agreeing to a contract to provide to a client/customer your personal services -perhaps on a part time basis to allow you to have time to develop other clients and opportunities. If this is the case then this where HMRC start to take an interest!

For further info look on the HMRC web site for the anti-avoidance rules more commonly known as IR35 including the online HMRC test Check Employment Status for Tax (CEST).

Be warned a high proportion of HMRC’s CEST results show an unhelpful ‘status not known’. If you find this to be the case we suggest you obtain professional advice rather than rely on the HMRC to help you through the unresolved issue! If you are in this position contact us.

Your personal services can be supplied to your client/customer under a contract either directly by you as an individual or via your own personal service limited liability company (PSC). The tax issues for this matter are worthy of a separate blog and so below we just give you the main issues that HMRC will be interested in if you provide your services as an individual and wish to have self-employment status or provide your services via your own PSC.

PSC

Trading through a PSC can be tax efficient but any contract between the PSC and the client/customer providing your personal services needs to be in the name of your PSC and the terms of the contract must be such that it is a contract for services (self-employed) and not a contract of services (employment).

Individual

The contract needs to be in your name along with your business name. As for the PSC contract as mentioned above you need to ensure the contract terms between you, the individual, and your client/customer is a contract for services (self-employed) not contract of services (employment).

For carrying out a business, either via your PSC or as a freelance individual, it is advisable to ensure that you have set-up a business in the eyes of the HMRC i.e. you have completed everything that would normally be seen as evidencing that you are in business on your own account. This includes trading via a chosen business name, setting up a bank account in the name of the business, ensuring that you have any trading accounts in the name of your business for suppliers, such as, telephone, broadband etc.

Using business premises will also be a positive in proving to HMRC that a business exists along with the self-employed status but all costs relating to the business premises must be in the name of the business.

A final point is that there should be no trading restriction imposed by one single customer/client on you marketing and then providing your business services to more than one customer/client.

As a firm of Chartered Accountants and Chartered Tax Advisers we at HaesCooper are professionally qualified to advise on start-up businesses and to deal with a HMRC enquiry under the IR35 anti-avoidance rules as to your self-employment tax status, to learn more please contact us.