In this episode we will discuss the tax implications for Estate Agents. We will look at ways tax can benefit a business day-to-day and opportunities to increase competitiveness. Enjoy.

Hello and welcome to Tax Able. Today we are taking a deep dive into the property industry, specifically looking at tax considerations for estate agents. Estate agents? You’re like Marmite as historically, Cowboys in the industry have given you a bad rep. But one way to change people’s minds is to provide a good service and tax can help.

Typically, a business will have two main income streams. You’ll receive management fees from your property landlords or commissions for sales of new or used properties. These two industries work hand in hand as when lettings are booming, property sales are usually declining. That’s why businesses usually have a mix of both.

We’ll split today into two parts. First of all, we’ll look at the day to day operation considerations, and lastly, we’ll look at the client considerations. So operations, what do you need to think about? Well, commission payments. This is relevant to your property sales as if your staff are due commission, it will be recorded in the company’s account as an amount owed. We call this accruing the expense. However, for tax purposes, if you accrue for a commission and they are not paid within nine months of your year end, you will be taxed on this amount.

Hopefully it will not be a frequent occurrence as most sales do not take nine months to complete. But you may have had a few issues over the pandemic and also be mindful if you’re pushing for sales around your year end.

Some other costs you may not be aware of that you can claim are well, the world has changed. Businesses are moving online. If you have taken up virtual viewing or are considering developing your website to cater for this, all the costs are deductible. Next, our business expenses paid for personally. This is something that everyone overlooks and you need to make sure that you, as the owner and your staff claim for their business expenses. These are items you pay for personally, but may or may not know that you can claim them.

We’ll look at the different categories. The first one is business mileage. HMRC have standard flat rates you can claim which include fuel, insurance and wear and tear. For example, for a petrol car the rates are 45 P for the first 10k miles and 25 P thereafter. Anything above this is classed as a benefit in kind and is taxed on the employee. If you pay below this amount, then your employee can make a personal claim to HMRC. Most people tend to pay just the standard flat rates, as it doesn’t cause any headaches further down the line. And remember, you can claim business mileage on cars that your employees or you own personally and used for a business purpose.

Other costs you may not know that you can claim are parking, hotels, taxis, entertaining and that’s taking any clients or staff out for any sort of hospitality, subsistence, which is your coffees or lunches while out for a business purpose. If you do not claim for these, you’re paying for business expenses out of your taxed pay.

The expenses are refunded in full and are tax deductible. You will need to make sure that you keep certain records and these are required whether they’re paid for personally or by the business. For business mileage, you need a mileage log and this means you need to record certain information, such as the date, the mileage of the trip, the destination and the travel purpose.

For entertaining, HMRC will look at whether the meeting or event was actually for a private reason. So we recommend keeping a diary, either digital or physical, to record who you met with, the reason for the meeting, where you went, and any other information which may show that it was actually a business meeting. If you do get an inquiry, HMRC usually ask for an extract from this diary as evidence.

Next, let’s look at how you can reward your staff. Well, you can do the usual thing. You can give them a bonus. This will be taxed through payroll, so they will lose a chunk of it income tax, national insurance, pension and potentially even student loan. You can also give them gifts. Not trivial gifts are taxed on the employee and the employer, whereas trivial gifts are exempt from income tax national insurance and avoid any consequences for you, the employer and on your employees.

So what are trivial gifts? They have to meet certain requirements and we’ll go through those. Now, the gift must not be a cash or cash voucher. The cost of the benefit does not exceed £50, including VAT, for each employee not provided under a salary, sacrifice or other arrangement. It’s not in recognition of a particular past or future service, and there’s no limit on the number of trivial gifts that can be made to an employee during the year. You need to record your reasons for any trivial gifts, either your board minutes or your records, or you can simply send an email to HR.

Now, what examples of trivial gifts? Well, it can be taking a group of employees out for a meal to celebrate a birthday, buying each employee a Christmas present or a birthday present. Flowers on a new birth of a baby. So any bottles of wine, flowers, chocolates, perfume, as long as the gift does not exceed under £50, including VAT and it meets all of the other criteria, it will class as trivial and there will be no tax consequences for the business.

The VAT is recoverable and for Corporation and income tax it is deductible. Now directors HMRC have tweaked that a lot of you are owner managed businesses and to make sure that there is no abuse of the trivial gift system directed the cap at £300, including VAT of gifts per year.

There are certain other benefits you can provide to employees which are not taxable and this is a good way to incentivise staff as well as being tax efficient. Some examples are payments for business mileage in the employee’s own car. When we covered that earlier, employer payments into a registered pension scheme, medical treatment to help an employee return to work if they’ve had an absence of at least up to 28 days, and this is up to a maximum cost of £500. This may be particularly relevant because of Long COVID. One health screening assessment, one medical checkup per year, meals provided in a staff, canteen or light refreshments at work, parking provided at or near your place of work, nursery places for children or childcare, vouchers removal and relocation expenses up to a maximum of £8000 per month, one mobile phone per employee, but they must be registered in the employer’s name.

Annual social functions for employees provided that in any one tax year the total cost does not exceed £150 per head, including VAT. There are a few more rules around this, so listen to season one episode called How to Crack the Christmas Tax Code for more information about this.

You could look at getting a pool car. This is a vehicle made available for use for more than one employee and it has very limited to no private use and it must be kept overnight at the place of work, employee expenses that are paid or reimbursed and we looked at those earlier that’s your entertaining, your subsistence, etc. This also includes any office equipment that has been bought for homeworking and lastly any additional household expenses incurred while your employees are working from home and this can include contributions towards electricity, heating or broadband. HMRC, as usual, have a flat rate which you can pay, which is £6 per week.

Next we’ll move on to company cars. Historically, company cars were given to everyone as a way to incentivise them either to start working or for award of good work. Now, with all the rule changes, company cars are not tax efficient unless they are fully electric. This is because if you provide a company car, your employee will be taxed annually on the list price of that car and this can be very expensive. If you want more information about how company cars are taxed then please listen to season one’s episode called Go Green for Greta Thunberg. The alternative options for company cars are to have the pool car that we looked at earlier for your viewing or to reimburse the mileage costs that employees have to use their own cars. So that’s your day to day considerations.

So let’s move on to your client considerations and this is how to market yourself above your competitors. Now you’ve got two income streams, so we’re going to split these into those two. Let’s first look at your property landlords.

The government doesn’t like landlords, so it seeks to penalize them through the tax system. Individual landlords used to be able to deduct mortgage interest payments from their tax bills, but you cannot do this anymore. Some relief is given, but it is restricted. The biggest question I get is whether their portfolio should be transferred into a company. Now, you are not qualified to comment on this, but make sure you pass them over to a trusted advisor. They’ll need to talk to a tax adviser and also a mortgage broker to see whether this is feasible. Secondly, I always get told that their tax bill is too high either because of VAT they can’t recover or their tax make sure you have an adviser that you feel comfortable referring to see if they can help your clients.

Next, you have property sales, and I cannot stress this enough that the sales particulars are key they’re looked at in the tax courts. So we as advisers and your clients need them to be correct. And the main reason for this is stamp duty land tax, and this is the biggest cost for purchases. There are potential ways that your purchaser can make savings, so there are certain things you need to look out for and that should also be identified in your sales particulars. So we’ll go through those.

Now, firstly, is the property habitable? That means can someone live in it? If not, is it in such a state of disrepair that it’s not safe or it’s not feasible for someone to move into it? Secondly, does it have an annex for an elderly relative or the potential to be used as an Airbnb or let out? Thirdly, if a house has excess land, is that land being used commercially? This means is it farmed, grazed, rented to a small business, etc? And lastly, is there any commercial use of any time in the property? For example, a house that has converted part of it for a business? I usually see the bottom floor has been converted to a dentist surgery, dog groomers or hairdressers. If you identify any properties like this, reach out to an expert to see if they can help.

The way I work with my clients is I help identify the points to highlight in the sales particulars and estimate the tax savings based on the sales price. Agents pass over my details to their buyers and if they decide to go ahead, I engage directly with them, not with the estate agents.

But why should you look out for these things? Well, if your buyers can save money on their purchase, you can market the property at a higher price. This increases your commission and it makes your client happy while giving a good service to the buyer who’s made a saving that they’re unlikely to have been aware of.

If you have overseas purchases there are two key items you need to be aware of. The first one is last year a new stamp duty land tax 2% non-resident surcharge was implemented. This is an extra liability to the purchaser of 2% of the total purchase price on top of their usual liability. This is something to flag to them early on. This is something to flag to them early on as they’re unlikely to have heard of it and it may cause buyers to pull out of an offer if their bill is going to be too high and they haven’t budgeted for it.

The second item is for companies. If you have an overseas company buying UK property, there is going to be a new register and it’s going to be implemented imminently. The ultimate owners will need to be declared at Companies House This may cause delays for purchases once introduced as there’s likely to be a few teething problems. So why are they doing this? Well, it’s to prevent criminals using UK property to launder their money.

We’ve covered a lot today. So what are the points to take away? Firstly, make sure you’re claiming your business expenses which are paid for personally. Secondly, be aware of the tax free ways to reward your staff. Thirdly, have a tax advisor on hand to refer your clients to when they have tax questions. And finally, an awareness of tax savings can help you with your competitiveness.

If you are an estate agent or are thinking about setting up your own business then make sure you listen to my interview with Jeff Doble, the founder of Dexter’s Estate Agency. We discuss his journey, how and why he set up Dexter’s, lessons learned along the way and advice to his younger self. Jeff was away skiing at the time so we couldn’t get a strong enough signal for the video. But the audio is available on your usual podcast platform or the website.

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please visit my disclaimers page. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Subscribe to podcast