Expenses and Tax According to Trade

Part 1

Very common questions we receive – what can I claim on expenses? What tax reliefs are there according to my trade?

The fact is, each trade has different expenses they can claim for, and there are different tax reliefs, so there is no blanket answer.

Plus, what about if it is a second job, or a hobby even?  Being an influencer perhaps – gifts aren’t taxable right?  Not quite.  Consider whether the trade is Uncommercial (a hobby), or commercial, as this will affect how losses which arise are utilised.

There are nuances to different trades so we have put together a handy overview guide as to what can be claimed on expenses according to trade.  (Part One)

Actors

• Actors can be self-employed or employees depending on the terms of their contracts and the way in which they carry out their profession. See Income tab.
• Actors often have high travel and subsistence costs to consider due to long spells working away from home as well as personal expenses including clothing, costumes, medical and beauty costs. See Expenses tab for what is deductible for tax.
• Special rules apply to image rights and agent fees. See Overview tab
• Actors working overseas for long periods of time need to consider whether this affects their tax residency position. They may have overseas tax withheld from the payments they receive for working abroad. Double taxation relief may be available depending on the terms of the relevant tax treaty. Advice should be taken as to the overseas tax position.
• There are special NICs rules for actors and entertainers. See Overview tab
• Self-employed actors must register for VAT once their earnings reach the VAT registration threshold.
  • Acting is a ‘where performed’ service for VAT purposes.
  • Royalties will be treated as having a place of supply in the country of the customer.

What’s new?  Basis Period reform

Finance Act 2022 provides that from April 2024:

• Self-employed trading profits will be allocated to tax years regardless of the business’ accounting period end date.
• 2023-24 will be a transitional year with the new rules fully operative from April 2024.
• Where higher profits arise in 2023-24 due to the change in basis, an automatic five-year spreading rule will apply to the additional profits.

Airbnb

This guide takes a look at how homeowners who let all or part of their UK property as an Airbnb are taxed. It does not deal with overseas properties and specialist and local advice should be taken where the property is let abroad.  Again, it’s specific: Expenses and Tax According to Trade

• In some cases where the activity does itself not amount to a trade (i.e. it is a property business), the conditions for Furnished Holiday Letting(FHL) treatment may be met. See Overview tab.
• Income from Airbnb is generally rental income.
• The trade must be run on a commercial basis for Loss Reliefto apply.
• The provision of holiday accommodation is standard-rated for VAT purposes.
• Whether or not an Airbnb business is eligible for Inheritance Tax Business Property relief depends on the level of services provided and all factors considered in the round.

Antiques Dealers

• There are no specific rules for Antique Dealers for income and expenses so normal rules apply.
• You should check that you do have a trade and not a hobby and whether it is a commercial trade as this will affect loss relief.
• The VAT position may be more complex if you are selling from a space in an emporium or similar.
• The Second Hand Goods scheme may apply for VAT.
• If you take any goods or materials from stock for your own use or consumption you have to treat this as a sale at market value. There may be VAT implications.

What’s new? Basis Period reform

Finance Act 2022 provides that from April 2024:

• Self-employed trading profits will be allocated to tax years regardless of the business’ accounting period end date.
• 2023-24 will be a transitional year with the new rules fully operative from April 2024.
• Where higher profits arise in 2023-24 due to the change in basis, an automatic five-year spreading rule will apply to the additional profits.

Artists

• Loss relief will be restricted if there is no trade or profession and you are simply creating works of art as a hobby.
• Self-employed artists must register for VAT once their earnings reach the VAT registration threshold.
  • Royalties will be treated as having a place of supply in the country of the customer.
  • The flat rate scheme may be appropriate, seeVAT tab.
• Special profits averaging rules apply to self-employed artists.

What’s new? Basis Period reform

Finance Act 2022 provides that from April 2024:

• Self-employed trading profits will be allocated to tax years regardless of the business’ accounting period end date.
• 2023-24 will be a transitional year with the new rules fully operative from April 2024.
• Where higher profits arise in 2023-24 due to the change in basis, an automatic five-year spreading rule will apply to the additional profits.

Authors

• Authors can be self-employed or employees depending on the terms of their contracts and the way in which they carry out their profession. See Income tab.
• Loss relief will be restricted if there is no trade or profession and you are simply writing as a hobby.
• Special rules apply to image rights. See Overview tab
• Self-employed authors must register for VAT once their earnings reach the VAT registration threshold.
  • Royalties will be treated as having a place of supply in the country of the customer.
• Special profits averaging rules apply to authors and other individuals earning profits from creative works.

What’s new?  Basis Period reform

Finance Act 2022 provides that from April 2024:

• Self-employed trading profits will be allocated to tax years regardless of the business’ accounting period end date.
• 2023-24 will be a transitional year with the new rules fully operative from April 2024.
• Where higher profits arise in 2023-24 due to the change in basis, an automatic five-year spreading rule will apply to the additional profits.

Dancers & Physical Performers

• Loss relief will be restricted if there is no trade or profession and you are simply dancing or performing as a hobby.
• Dancers and performers can be self-employed or employees.
• Self-employed performers must register for VAT once their earnings reach the VAT registration threshold.

What’s new?  Basis Period reform

Finance Act 2022 provides that from April 2024:

• Self-employed trading profits will be allocated to tax years regardless of the business’ accounting period end date.
• 2023-24 will be a transitional year with the new rules fully operative from April 2024.
• Where higher profits arise in 2023-24 due to the change in basis, an automatic five-year spreading rule will apply to the additional profits.

Influencers

• Influencers can be self-employed or employees or can operate through a limited company.
• Loss relief will be restricted if there is no trade or profession and you are simply posting online etc as a hobby.
• Free items received may be taxable if they can be converted into cash.
• The VAT flat rate scheme can apply, different rates might be appropriate depending on what your main activity is.
• Image rights payments to the self-employed are taxed as professional income.
• Expenses are deductible if they are incurred wholly and exclusively for the purposes of the trade or profession.

What’s new?  Basis Period reform

Finance Act 2022 provides that from April 2024:

• Self-employed trading profits will be allocated to tax years regardless of the business’ accounting period end date.
• 2023-24 will be a transitional year with the new rules fully operative from April 2024.
• Where higher profits arise in 2023-24 due to the change in basis, an automatic five-year spreading rule will apply to the additional profits.

Pop-ups

Pop-up café, restaurant and coffee shop owners can be in business as sole traders, partnerships or limited companies.

Normal accounting and tax rules apply:

• There is a specific VAT flat rate scheme rates for catering services including restaurants and takeaways of 12.5%
• Unless you are cash accounting stock valuation is important due to the high levels of stock and perishable items.
• With staff often being temporary or seasonal, part-time or on zero-hours contracts, Employment status checks should be undertaken for all new joiners.
• If you take any goods or materials from stock for your own use or consumption you have to treat this as a sale at market value. There may be VAT implications.
• Tips are taxable.

What’s new?  Basis Period reform

Finance Act 2022 provides that from April 2024:

• Self-employed trading profits will be allocated to tax years regardless of the business’ accounting period end date.
• 2023-24 will be a transitional year with the new rules fully operative from April 2024.
• Where higher profits arise in 2023-24 due to the change in basis, an automatic five-year spreading rule will apply to the additional profits.

Woodlands & Forestry

Woodlands and forestry ownership carry significant tax reliefs, including Income Tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT).

• Income from the commercial occupation of woodlands is Income Tax and Corporation Tax exempt.
• Rental income from letting commercial woodlands is taxable.
• No loss relief is given for the commercial occupation of woodlands.
• Capital allowances cannot be claimed when the cost is connected to commercial woodlands.
• The sale of trees from commercially managed woodlands is exempt from CGT whether standing or felled.
• If woodlands are sold, the proportion of the gain that relates to the trees is exempt from CGT.
• Woodlands could qualify for one or more of Business Property Relief (BPR) or  Agricultural Property Relief (APR) or Woodlands Relief for IHT.
• The sale of felled trees or timber is standard rated for VAT.
• Forests are Non-residential property for Stamp Duty Land Tax (SDLT) purposes.
• Care needs to be taken when purchasing woodland as part of the acquisition of a residential property. In these circumstances, the woodland can be treated as Residential property for SDLT purposes.

What’s New?  Geographical scope of Woodlands Relief for IHT

From 6 April 2024

• The government announced at Spring Budget 2023 that it intends to restrict the scope of Woodlands Relief, for Inheritance Tax, to property in the UK.
• This will result in property located in the European Economic Area (EEA), the Channel Islands and the Isle of Man being excluded from relief from 6 April 2024.

Consultation: potential expansion of APR

HM Treasury has opened a new consultation on the taxation of environmental land management and ecosystem service markets and the potential expansion of Agricultural Property Relief (APR).

The consultation, published with the Budget 2023 documents, asks for views on:

• How the production and sale of ecosystem service units such as woodland and peatland carbon units and other units, should be taxed bearing in mind that these markets can involve VAT, Corporation Tax, Income Tax, Capital Gains Tax, Inheritance Tax, and Stamp Duty Land Tax.
  • There are concerns that the existing laws create uncertainty, particularly in respect of woodlands and income and Corporation Tax.
• The consultation will run from 15 March to 9 June 2023.

If you have a question, speak to the Robinsons Team

*credit rossmartin.co.uk