Business Tax
Furnished holiday lettings (FHL)
For many years, income from FHL has been treated as a trade for income tax purposes, enjoying a number of advantages over general property rental. A FHL has to satisfy a number of conditions about availability for letting, actual periods let during the year and length of stays; if it qualifies, the advantages include unlimited relief for finance costs, capital allowances, and CGT business reliefs on disposals.
As widely predicted before the Budget, the Chancellor has decided to abolish the favoured treatment of FHL. He said this was to eliminate the advantage of short-term letting over longer-term letting to residential tenants, with the intention of making more property available for residents rather than visitors.
FHL treatment will be abolished from 6 April 2025. Details of the rules are not yet available, but it is likely that there will be tax charges arising on the transfer of properties from the FHL regime to the normal rental regime (such as balancing charges on assets on which capital allowances were claimed). Where money has been borrowed to finance the purchase of FHL property, the restrictions on interest relief for general residential rental income will apply in 2025/26.
Anti-forestalling rules will apply from 6 March 2024 to prevent taxpayers attempting to preserve the effect of the FHL rules on future capital gains by entering into unconditional sale contracts in advance.
Recovery Loan Scheme
The Recovery Loan Scheme has been renamed as the Growth Guarantee Scheme and extended until the end of March 2026. The scheme offers a 70% government guarantee on loans to SMEs of up to £2 million in Great Britain, and £1 million in Northern Ireland.
Business rates
On 1 April 2023, business rates in England were updated to reflect changes in property values since the last revaluation in 2017. A package of targeted support was announced a year ago to help businesses adapt to the new charges. Further measures were announced in the autumn to take effect for 2024/25.
The small business multiplier will be frozen for a fourth consecutive year at 49.9p, but the standard multiplier will be uprated by inflation to 54.6p. Eligible retail, hospitality, and leisure businesses will continue to qualify for 75% business rates relief, capped at £110,000 per business.
Construction Industry Scheme (CIS)
The CIS requires many businesses carrying out construction work to deduct tax (at either 20% or 30%) before paying subcontractors unless the supplier has gross payment status (GPS), which HMRC will grant to subcontractors who show a good record of tax compliance.
From 6 April 2024, VAT obligations are added to the statutory compliance test for being granted (and for keeping) GPS.
The measure also extends one of the grounds for immediate cancellation of GPS. HMRC is able to withdraw GPS if they have reasonable grounds to suspect that the GPS holder has fraudulently provided an incorrect return or incorrect information in relation to a list of taxes. This has been extended to include VAT, Corporation Tax Self-Assessment (CTSA), Income Tax Self-Assessment (ITSA) and PAYE.
Other reforms, also to come in from 6 April 2024, are:
- Digitalising applications for CIS registration.
- Bringing forward the first review of a GPS holder’s compliance history from 12 months after application to 6 months, reverting to 12 months thereafter.
- Removal of the majority of landlord to tenant payments from the scope of the CIS.
Changes of basis
Although there were no new announcements in this Budget, two important changes are coming in on 6 April 2024. After a transitional year in 2023/24, self-employed trading profits will be assessed on a fiscal year basis in 2024/25, regardless of the accounting date chosen by the business. Anyone who has an accounting date other than 31 March or 5 April should have been preparing for this change.
Secondly, the cash basis of accounting becomes the default for calculating trading profits for unincorporated businesses of any size for 2024/25. It will still be possible to choose to calculate profits using accruals accounting. All self-employed traders should consider the impact of the change and decide what is best for them.