September Questions and Answers

Newsletter issue – September 2024

Q: I'm interested in investing in a startup and I’ve heard about the Seed Enterprise Investment Scheme. I'm considering investing £30,000 in a company that qualifies this tax year. What tax relief can I expect?

A: You're right in identifying that The Seed Enterprise Investment Scheme (SEIS) may be helpful in what you're looking to do, offering as it does, some tax relief. For the 2024/25 tax year, you can claim income tax relief of 50% on eligible investments up to £200,000. That means, for your £30,000 investment, you could receive £15,000 in income tax relief. Additionally, there are two reliefs related to Capital Gains Tax that may apply. Firstly, disposal relief. If this is due, and your SEIS shares are held for at least three years and the company qualifies, any capital gains from their will be exempt from CGT. Secondly, there's reinvestment relief, where a gain coming from the 2023/24 tax year on disposing an asset is reinvested in shares in a company on which you get SEIS Income Tax Relief.

Q: I'm planning to rent out a room in my home for £9,000 this year. Am I right in thinking that some of this income will be tax-free? If so, what are the rules?

A:For anyone in your position it's worth knowing about the Rent-a-Room Scheme. This allows you to earn up to £7,500 tax-free from letting furnished accommodation in your home for the 2024/25 tax year. Since you're planning to rent out a room for £9,000, the first £7,500 of this income will be tax-free. The remaining £1,500 will be subject to income tax based on your marginal tax rate.

The tax exemption for this type of income under £7,500 is automatic, so you don't need to do anything. But when it goes over £7,500, you must inform HMRC and choose whether to opt into the scheme by submitting a tax return. Or alternatively, you can choose to be taxed on the rental profit (total income minus allowable expenses) if that results in a lower tax liability.

It's also worth noting that the £7,500 tax-free allowance is halved if you share the income with your partner or someone else.

You're also eligible to opt into the scheme if you run a bed and breakfast or a guest house, but you can't use it for homes converted into separate flats.

If you'd like more information about tax issues relating to property and rental income, do get in touch.

Q: I run a small business. Due to a cashflow issue, we're struggling to pay our next VAT bill in full and we've only got 20 days until payment is due. What are our options? 

A:It can be difficult for any business when something like this arises. However, there is a possibility that you can come to an agreement with HMRC to set up a phased payments plan.

Since the start of the year if a business that pays VAT proposes a plan to pay in instalments within 15 days of the payment being due, and HMRC agrees it, it would not get charged a late payment penalty. That is, of course, dependent on sticking to the conditions of the agreed plan. HMRC might cancel it if you don't. So, although you're running out of time, you could be eligible for this support, but it's vital you contact HMRC as quickly as possible.

Otherwise, you could face penalties. Late payments attract interest charges and they're applicable from day one it's overdue.

This is what HMRC says: "If HMRC agree a Time to Pay arrangement with you, it can mean lower, or no, late payment penalties. It can cover all outstanding amounts due, including penalties and interest."

Get in touch with the Payment Support Service to discuss your finances and the amount you can pay off each month of your outstanding VAT bill.

If you need any further assistance understanding VAT rules, payments and penalties, please contact our team.