How Landlords Can Save Tax With The Marriage Allowance
In the UK, landlords are able to save tax by sharing the Personal Allowance of their lower-earning spouse. This way, they can maximise the total household’s take-home pay without falling foul of the taxman.
However, there are strict rules. And it’s for this reason that we’ve asked Mike Parkes from GoSimpleTax to explain the Marriage Allowance below, along with how landlords can qualify.
What is the Marriage Allowance?
The Marriage Allowance is a tax perk for married couples and those in civil partnerships. It allows households to share part of their Personal Allowance – specifically, the Personal Allowance of the lower earner who is able to transfer £1,260 to the higher earner.
The higher earner will then receive a tax credit equivalent to the amount of Personal Allowance that has been transferred to them. Once the higher earner’s tax bill arrives, there will be a deduction of the same size.
Marriage allowance, are you eligible?
There are two financial requirements you’ll need to meet in order to receive the allowance:
- The lower-earning partner’s pay before tax must be less than the Personal Allowance – which, as of 2021/22 and until at least 2026, is £12,570.
- The higher-earning partner’s salary must fall between £12,571 and £50,270, making them a basic-rate taxpayer.
Provided you meet this criteria, you can request that HMRC transfers any unused Personal Allowance from the lower earner to the higher earner. Within 14 weeks of registering your interest in claiming the Marriage Allowance, HMRC will contact you and ask you to complete an application form.
How does the Marriage Allowance work?
Once HMRC has approved your transfer application, the lower earner can give a maximum of £1,260 to their partner’s Personal Allowance. If the lower earner has an income of less than £11,310 (the Personal Allowance minus £1,260), you can do this without being liable to pay any tax.
Currently, those earning above £11,310 but below £12,570 can still transfer £1,260 of their Personal Allowance, but they will become liable to pay tax on any income in excess of £11,310. This means the higher earner still makes a saving, but the total saving made by the household is lower.
It’s worth bearing in mind that you’re able to claim Marriage Allowance while on maternity leave or if you’re unemployed. However, once set up, this allowance will be transferred to the higher-earning spouse automatically every year until you cancel it or until your partnership comes to an end.
If your financial situation changes midway through the tax year, don’t worry – HMRC will simply ask you to disclose your total income at the end of the tax year via a P800 form. Whether because the lower earner exceeds £12,570 or the higher earner exceeds the basic-rate tax band, you’re required to fill out the form, helping HMRC adjust your tax code for the following year.
What are the benefits for landlords?
Provided they meet the above requirements, everyone is eligible – whether they’re self-employed and have a large portfolio or are employed and have invested in one buy-to-let property. The reason why landlords are encouraged to transfer their Personal Allowance is because it allows the household to maximise rental earnings.
This is especially true if the higher earner works full-time while the lower earner handles the property management side of things, as the employment income will come at the cost of rental earnings. However, by transferring some of their Personal Allowance, the higher earner is able to claim more tax relief at no cost to the lower earner.
For more information about how the Marriage Allowance works, and how you can apply for it, check out the GOV.UK website.
Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed landlord, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. Available on desktop or mobile application.
Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.
Robyn Banks awarded high honours for her work Lions Club
Such a surprise…
Many of you will already be aware that I am a Lion! That is to say I am a member of Lions Clubs International (LCI). LCI is a multinational worldwide charitable service organisation of over 1.3 million members. The primary focus is to assist members of the local/global community in times of need through voluntary service. We do a lot of fund-raising!
The organisation is a collective of Clubs; clubs make up a District and several Districts make up a “Multiple District” – in the British Isles we have 8 Districts making up the one Multiple District. 4 years ago I joined as a Lion; 2 years ago I was asked to be a District Officer; 18 months ago it was as a “Multiple District Officer (“UK”) (in this job I have to attend overseas meetings) and for the last year I have also been the officer for two more Districts as well. ALL of these positions involve my “bread and butter” work as a Data Protection Consultant.
I am not going to lie – it hasn’t all been plain sailing! As with business, some members do not like the compliance message – some have even tried to try and evict me from post! BUT I stay true to my convictions that my advice is the appropriate solution to enable the members to continue to conduct their service as they want to without falling foul of the laws and it seems to have earnt the respect from Senior Lions – Lions of longstanding who have worked their way up in the hierarchy (yes as with all large organisations there is a hierarchy!). I just see myself as doing the job I have been appointed to do this.
So imagine my surprise and shock when I attended my first MD (“UK”) Convention at the beginning of May to be awarded an “International President’s Certificate of Appreciation” – this is a high honour in Lions. The International President is the “top” Lion in the world and you are awarded this honour only by recommendation for your efforts. I had no idea it was coming and am so grateful to have my efforts recognised in this way.
Now if I can just get business owners to take note…
Find out more about Robyn’s work here – https://adavista.com
Get into gear with the SEISS Grants and your self-assessment
The Self-Employed Income Support Scheme (SEISS) has been a lifeline to many sole traders during the coronavirus pandemic. Provided they’ve met the necessary criteria, these individuals have been supplemented with up to 80% of their average trading profits.
However, these grants are taxable – meaning that they’re subject to Income Tax and National Insurance contributions in the tax year in which they’re received. As a result, they need to be included in your Self Assessment tax return.
So, to make that as easy as possible for you, we’ve asked tax return guru and Technical Director of GoSimpleTax, Mike Parkes, to set the record straight on SEISS grants and how to record them for HMRC.
Grant 4 now open
If you have reason to believe that you’ve suffered (or will suffer) a significant reduction in trading profits between 1st February 2021 and 30th April 2021 due to the coronavirus pandemic, and you’re eligible, you can now claim support.
To apply, you’ll need your:
- National Insurance number
- Government Gateway user ID and password
- Unique Taxpayer Reference (UTR) number
- UK bank details, including account number, sort code, and name and address linked to the account
This fourth instalment of SEISS closes on 1st June 2021. To determine your eligibility, HMRC first reviews your 2019/20 tax return. Your trading profits must be no more than £50,000 and account for more than 50% of your taxable income.
Changes to grant 5
The eligibility criteria for the fifth grant will be different. As it stands, the amount you receive will be dependent on your turnover between April 2020 and April 2021.
In effect, this means you may receive support if your sales have fallen by:
- 30% or more – In which case, the fifth grant will be 80% of three months’ average profits (up to a maximum claim of £7,500)
- Less than 30% – In which case, the fifth grant will be 30% of three months’ average profits (up to a maximum claim of £2,850)
This fifth and final instalment of self-employed support is expected to ‘cover’ the period from May 2021 to September 2021.
Declaring grants 1, 2 and 3 on your tax return
You won’t need to repay your SEISS grant, but they are subject to Income Tax and Class 4 National Insurance contributions. This means that, if you claimed grants 1, 2 or 3, they will need to be reported, in full, in your 2020/21 Self Assessment tax return.
HMRC is making this easier for users by including a box on the 2020/21 and 2021/22 tax return forms. You’ll need to include a 4th or 5th grant on the latter tax return should you claim them in 2021.
Alternatively, you can easily declare that you’ve received support through tax return software. Platforms like GoSimpleTax include this as a simple drop-down field.
If you discover that you received a SEISS grant that you were not entitled to, or were paid more than you should have been, notify HMRC within 90 days to arrange repayment. Fail to do so, and you may be charged a penalty.
Provided you have claimed the correct amount and include all grants within your Self Assessment tax return, you should stay on the right side of the taxman.
About GoSimpleTax
Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.
Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.
The First 5 Steps To Self-Employment Guide
For many people, becoming their own boss is the dream. They get to work in an industry they love, choosing their own clients and – better yet – their own hours. The only problem is that becoming self-employed isn’t that straightforward. At least, not on the surface.
After all, having to evaluate your income and manage your own tax affairs can be daunting. That’s why we’ve asked Mike Parkes from GoSimpleTax to help set your mind at ease, by providing his first five steps to self-employment.
1. Register as self-employed
First things first, you need to let HMRC know that you’ll be paying your own Income Tax and National Insurance contributions (NICs) moving forward. You’ll need to do this as soon as possible – no later than the 5th October after the end of the tax year in which you first became self-employed. So, if you become self-employed between 6th April 2021 and 5th April 2022, you have until 5th October 2022.
It’s a relatively simple process though. All you need to do is register on the GOV.UK website, or fill in an on-screen form to then post to HMRC. Once they receive this, they’ll post your 10-digit Unique Taxpayer Reference (UTR) number within 10 working days. You’ll need your UTR to access your Self Assessment account, which allows you to submit your tax return.
Because of the length of time it takes for your UTR to arrive, I’d suggest that you don’t wait until the last minute to register. Doing so may mean you miss the deadline to file your first tax return, which can land you an immediate £100 fine from HMRC.
2. Get to grips with your tax bill
Next, it’s time to understand what tax you’ll be responsible for paying. First is your Income Tax, which is determined by your taxable income (that is, your earnings minus any allowable expenses and deductions). HMRC takes this information from your Self Assessment tax return and calculates your tax bill accordingly.
The amount of National Insurance you pay also depends on your taxable profit (income less expenses). Instead of the Class 1 NICs that employed people make, you’ll pay Class 2 (unless you earn less than £6,515 a year) and 4 (if you earn profits over £9,569 a year).
Class 2 and 4 NIC rates for the 2021/22 tax year are:
| Class | Rate |
| Class 2 | £3.05 a week |
| Class 4 | 9% on profits between £9,569 and £50,2702% on profits over £50,270 |
3. Choose the correct insurance cover
This largely depends on which industry you’re in, but there are some general policies that all sole traders should consider. For example, if you employ another person, even if it is just part-time support to help complete projects, you are legally obliged to take out employers’ liability insurance. There is a significant fine for sole traders caught failing to have this.
You should also consider taking out public liability insurance. This protects your business should a client, customer or member of the public decide to take legal action. In the event that they suffer an injury at your premises, or you suffer an injury at their premises, it would also provide cover for damage to property.
Finally, you should consider insuring yourself for professional indemnity. This is where you protect yourself from a client lawsuit levelled at you on account of them being unhappy with the work you have done or the support you’ve provided.
We would always advise that you seek specialist advice from a suitably qualified insurance broker to discuss your requirements.
4. Identify any relevant tax relief in your line of work
Now you’re square with HMRC, and you’ve covered yourself legally, it’s time to enjoy the benefits of self-employment. All sole traders are eligible to claim relevant expenses to reduce their profits – and the lower the profits, the lower your tax bill will be.
This could include mileage for your car if you travel for work, training courses that help improve your knowledge or skill, or even a new computer that you use just for admin purposes. The only condition is that you use the purchase for business reasons only.
After you’ve incurred the expenses, and inputted the total amount on the relevant tax return, just be sure to store the receipts somewhere secure should HMRC request them. Software like GoSimpleTax makes this easy, by allowing you to take a picture of receipts and save them together with invoices and bank statements in the cloud.
5. Record income and expenses for your first tax return
A large number of sole traders log their income and expenditure towards the end of the tax year, causing unnecessary stress and a much longer tax return submission process. However, with real-time record-keeping, you can input this information throughout the year. This enables you to forecast your tax bill and better manage your cash flow.
Again, with Self Assessment software, this takes no time at all. Platforms like ours can give you an always up-to-date overview of your tax bill, which can help guide any business decisions you make. In fact, by seeing how much you owe well ahead of the Self Assessment payment deadline (31st January), you’re able to take the time to see if you have any expenses you might have missed or forgot about that may qualify for tax relief.
In order to be successful as a sole trader, you need to be maximising your take-home pay and steering clear of HMRC penalties. By following the above steps, you achieve both. So, are you ready to finally become your own boss?
About GoSimpleTax
GoSimpleTax software submits directly to HMRC and is the solution for the self-employed sole traders and freelancers alike to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.
Get started today, it is free to try – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.