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February Questions and Answers

Q1. We have just purchased a second property, which we intent to occupy at weekends to escape the hectic city life. We’re both in our 50s and want to start slowing down a bit! I’ve heard that there is planning that can save tax on second homes – I believe MPs are infamous for using it. Can you explain what this is?

A: Where you genuinely occupy more than one property as a residence for at least some of the time, you are entitled to make an election to specify which one is to be treated as the main residence for the purposes of private residence relief. It doesn’t matter which property you actually live in most of the time, as long as you do occupy both as a home. This can be beneficial if the property you occupy less frequently is likely to appreciate in value more than the other. In the absence of an election, HMRC will determine which was the main residence based on available information, and may result in a larger gain being chargeable. You need to make the election within two years. HMRC’s guidance is useful here.

Q2. I’ve decided that the cash accounting scheme isn’t working for my business anymore. I’m intending to revert to standard VAT accounting from the start of the next VAT period. Do I need to notify HMRC or take any special measures?

A: You don’t need to inform HMRC, but you do need to take care to ensure you don’t miss any sales or purchase invoices during the switch. As you will be used to accounting for payments and receipts as and when they are made, there is a risk that invoices raised before the change date may be overlooked. You need to account for VAT on invoices issued or received and make good any net unpaid VAT to HMRC. However, you may be able to opt to spread any payment over six months. See VAT Notice 731 for further details.

Q3. We have been reporting our VAT returns under MTD since April 2021. As our systems are already set up and compliant with this, am I right in assuming we will already be set up for MTD for Corporation Tax as well? I don’t want to incur further costs if that is possible.

A: It would be prudent to discuss this with your software provider. CT information needs to be reported using UK GAAP principles, whereas your VAT accounting may be cash-based. It might be that the software is capable of operating on two bases contemporaneously, but it would be unwise to make that assumption. It’s also possible that your VAT periods won’t coincide with the CT reporting quarters. The staging date won’t be until 2026 at the earliest but preparing early is a good idea. Start by reviewing the recent consultation document, which details much of what is likely to be required.

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