Universal Credit

Universal Credit

Last year saw the introduction of Universal Credit, which is the largest overhaul to the benefits system since the 1940s and which could affect up to 8 million people.  The concept behind the new system is to “make work pay” so that people are not trapped on benefits because they would lose money if they got a job.  The system will combine six working-age benefits into the one new Universal Credit, so it is expected to be easier to run as well as reducing the incidence of fraud and error.  As with most new systems that involve HMRC, we’ll wait to see if what is expected actually happens!

Universal credit will be paid monthly, and claimants will be expected to manage and budge their own payments, for example to landlords if they are in receipt of rent benefit.  This is supposed to make the payment received feel more like wages, thus preparing the claimant for the way things would work if they were employed.

In order to claim Universal Credit you have to apply online, and all data thereafter is also kept online.  This is where your part in the process may kick in, as it interacts with RTI (Real Time Information) and your obligations if you’re an employer.  You must ensure your RTI returns are complete, accurate and submitted on time because the data will be used in Universal Credit claims.  You may not be claiming yourself but you may have staff, and for them it’s vitally important that HMRC have the correct information.

Universal Credit is being slowly introduced between 2013 and 2017, so there’s plenty of time to see how the system will work in practice, and to see what interesting things go awry along the way!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Buying property in my own Limited Company

Buying property

Can I or should I in my own Limited Company? Is it common, what are the risks and basic consequences? Does it only affect commercial property?

For contractors the question of buying property through their own Limited Company arises when considering possible ways to invest their profits. It is definitely possible to do this. Whether it is actually advisable and tax efficient is a different question and can vary from case to case.

 

Tax considerations

Buying a second property in your own name will mean that any rent you receive will be taxed on you personally, using up some of your tax band and thus leaving less availability for basic rate dividends, and any gain you make on the eventual sale will be subject to Capital Gains Tax at either 18% (basic rate) or 28% (higher rate).

If you decide to buy through your company on the other hand, any rent received and eventual gain on sale are both subject to Corporation Tax at 20%.  If you are registered under the flat rate VAT scheme then any rent you receive will constitute turnover for VAT purposes, and you’ll have to pay a proportion to HMRC each quarter.

 

Company ownership considerations

The property will be owned by your Limited Company and will therefore be tied to its fortunes. Should the company experience any difficulty, either legally or financially, then the property would be at risk as an asset of that company. Should you wish to dissolve the company then the property would need to be transferred back to you before this could occur. This would of course involve additional related legal costs and taxes payable.

If the property is your main private residence then company ownership is not recommended.

Firstly, you would incur a benefit in kind, unless you paid commercial rent to the company. Secondly, any gain on selling the property would be subject to Corporation Tax. Under normal circumstances any gain on your own home is usually exempt from tax entirely.

 

Mortgage availability

In order to secure a mortgage, particularly with newer Limited Companies, a director’s personal guarantee may be required. If given this takes you out of limited liability protection of your own personal assets.

If this is something you are currently considering then speak to your accountant who will be able to advise you on the best course of action based on your particular circumstances.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.