Category: Business Advisory

The Coronavirus Local Authority Discretionary Grants Fund

The Chancellor announced further government support to small businesses with fixed property costs, that are not eligible for the Small Business Grant Fund or the Retail, Hospitality and Leisure Grant Fund.

The grant is designed to allow businesses to continue meeting their property-related overheads, so that in turn less strain is placed on landlords, who of course have their own commitments and obligations.

These businesses may now be eligible for a grant of £25,000, £10,000 or any amount under £10,000. Critically, grants will be awarded to eligible businesses on a first-come, first served basis until all the fund has been allocated. We encourage our clients who believe that they may be eligible to visit their local council’s website to find out how to apply. The local council will run an application process and decide whether to offer the grant.

ELIGIBILITY
You may be eligible if your business:

  • is based in England
  • has relatively high ongoing fixed property-related costs
  • occupies property (or part of a property) with a rateable value or annual mortgage/rent payments below £51,000
  • was trading on 11 March 2020
  • did not claim under another government grant scheme, such as the Small Business Grant Fund or the Retail, Hospitality and Leisure Grant

Local councils have been asked to prioritise businesses such as:

  • small businesses in shared offices or other flexible workspaces, such as units in industrial parks or incubators
  • regular market traders
  • bed and breakfasts paying council tax instead of business rates
  • charity properties getting charitable business rates relief, which are not eligible for small business rates relief or rural rate relief

You will need to show that your business has suffered a significant fall in income due to coronavirus and you should contact our office if you require assistance putting together a claim.

We are doing everything we can to help our business community. If you would like to discuss how the changes or the coronavirus pandemic may affect you or your business, please do not hesitate to contact us on 020 8952 7717 or use our online enquiry form.

Coronavirus Bounce Back Loan Scheme

Among the range of UK Government measures to help protect businesses and individuals from the economic impact of coronavirus, the latest to be announced is the Bounce Back Loan Scheme (BBLS). Launched on Monday 4 May 2020, smaller businesses impacted by coronavirus are now able to apply for funding support of up to £50,000 via the BBLS if certain eligibility criteria are met.

HOW CAN I GET HOLD OF THE MONEY?

The BBLS provides lenders with a government-backed guarantee of 100% to offer loans of up to £50,000 to businesses across the UK that are losing revenue as a result of the COVID-19 outbreak.

BBLS is administered by the British Business Bank and made available to businesses via accredited lenders. It is currently open until 4 November 2020.

KEY FEATURES OF THE SCHEME

  • Facilities to £50,000 or 25% of turnover, whichever lower, for eligible businesses.
  • Repayment terms: six years, with no penalty for early repayment.
  • Interest rate: 2.5% per annum. Interest is payable by the government for the first 12 months.
  • Personal guarantees: No personal guarantees. No recovery action can be taken over the borrower’s main home or primary personal vehicle but, for sole traders or partnerships, other personal assets may be at risk of recovery action.
  • 100% guarantee: The scheme provides the lender with a government-backed guarantee (100%) against the outstanding facility balance (principal and interest).
  • The borrower always remains 100% liable for repayment of the debt.
  • The borrower must self-declare they meet the eligibility criteria and make certain confirmations of solvency.

TO BE ELIGIBLE FOR THE BBLS

A business must confirm:

  • It is a UK limited company or partnership, or tax resident in the UK, that was carrying on business on 1 March 2020.
  • More than 50% of its income is derived from its trading activity.
  • The loan will not be used for personal purposes but as an economic benefit for the business.
  • Whether or not on 31 December 2019 it was a ‘business in difficulty’ (see definition in FAQs for Small Businesses: Bounce Back Loan Scheme) and does not breach state aid restrictions. If it was a ‘business in difficulty’ then, in addition, the facility will not be used for export-related activities.
  • It is not in bankruptcy, debt restructuring proceedings or liquidation.
  • Its understanding of losses that may be incurred, impact on credit rating, reduced consumer protection and that the lender will not assess affordability.

A business will be subject to standard checks such as customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.

Ineligible businesses and sectors: banks, building societies, insurance companies; the public sector including state-funded primary and secondary schools; or an individual other than a sole trader or partner acting on behalf of a partnership.

Businesses that have utilised the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) or the Bank of England’s Coronavirus Corporate Financing Facility (CCFF) cannot also use the BBLS unless that loan will be refinanced in full by the BBLS.

We are doing everything we can to help our business community. If you would like to discuss how the changes or the coronavirus pandemic may affect you or your business, please do not hesitate to contact us on 020 8952 7717 or use our online enquiry form.

Non-resident Taxation of Income from UK Property

Finance Act 2019 has introduced two changes to the taxation of non-resident income from UK property:

  1. From 6 April 2019, disposals of direct or indirect interests in UK land are brought into the Territorial scope of charge; and
  2. From 6 April 2020, income from a UK property business is moved out of the charge to income tax and brought into the charge to corporation tax.

Background: the position until 5 April 2020

Non-UK resident companies have been subject to income tax in respect of property income arising in the UK. Tax has been chargeable at the basic rate of 20%. These companies are required to complete a Non-resident Company Income Tax Return (SA700).

Finance Act 2019

Coming into effect from 6 April 2020, income from a non-resident UK property business will now be subject to corporation tax rather than income tax. The corporation tax rate is currently charged at 19%: 1% point lower than the equivalent income tax rate. The details of profits to be charged with corporation tax will be included on a company tax return form CT600, as opposed to the SA700.

From an administrative point of view, the annual company tax return will include details of both UK property business income and any property disposals for the accounting period as a whole, on which corporation tax will be due. The filing deadline is 12 months after the end of the accounting period, though in practice, this will be filed 9 months after the end of the accounting period: the point at which any corporation tax is due.

Property losses and allowable deductions

Profits and losses will accordingly be drawn up under corporation tax principles according to the rules of CTA 2009 Part 4.

Loan relationships or derivative contracts that the non-resident company is party to for the purposes of its UK property business are also brought into the charge to corporation tax.

For companies that have net deductible interest and financing costs of over £2 million per annum, there will be a limit to the amount that the company can deduct: the Corporate Interest Restriction.

Transitional rules

UK property business income tax losses carried forward at the point of transition, 6 April 2020, will be grandfathered and therefore deductible under corporation tax rules against future income of the property business.

Capital allowance balances will transfer between the two regimes in such a way as to produce no balancing allowances or charges.

Notably, if a company’s only source of UK income after 6 April 2020 is expected to be income from the UK property business, no Income Tax payments on account for 2020/2021 and future tax years will be required. Similarly, if a credit balance remains in the company’s Income Tax account after all Income Tax liabilities for 2019/2020 and earlier years have been settled, the credit balance will be repaid to the company.

Annual Tax on Enveloped Dwellings (ATED)

ATED on residential properties owned through a corporate structure with a value of more than £500,000 continues to be unchanged following the Finance Act 2019. As ever, ATED can be relieved in full for residential property that is let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner. Other reliefs can be claimed as per sections 30 to 41 of the ATED technical guidance.

Capital Gains Tax (CGT) on UK property

Non-residents, both individuals and companies, are taxed on almost all gains made on disposals of UK residential properties. Since 6 April 2019, non-UK residents who make an indirect disposal of an interest in UK land will also be brought into the Territorial scope of charge, with the new s1A of TCGA 1992 Part 1. Indirect disposals can for example be disposals of shares in a non-UK entity that derives at least 75% of its value from UK land, provided that the person making the disposal has an investment of at least 25% in that company. The scope of taxation for non-residents has been extended from targeting UK residential property specifically, to now including commercial property and disposals of shares in so-called ‘property rich’ entities. Disposals will be reported in the annual company tax return.

Mouktaris & Co have experience in helping clients navigate the regulatory, accounting and tax matters of property businesses. Our team can review your corporate structure and advise on whether it may be beneficial to de-envelope or restructure in other ways, to take heed of an almost even UK vs non-UK playing field. This will include reviewing potential capital gains tax, stamp duty and inheritance tax liabilities as well as commercial considerations of raising finance and banking relationships in the UK and offshore.

Contact Mouktaris & Co Chartered Accountants to find out how we can help your property rental business.

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