HMRC begin removing Tax relief on mortgage Interest and other finance costs from April 17, how will this affect you?

In the 2015 emergency budget the chancellor announced his plans to restrict relief for mortgage interest and other finance costs on residential properties to the basic rate of Income Tax. This will be introduced gradually from 6 April 2017.


Current rules

Up until April 17 Landlords can deduct their mortgage interest (plus associated costs like arrangement fees) along with their other costs before determining your taxable profit.

Example as follows;

Rental income             £12,000

Mortgage interest        £6,000

Other costs                  £2,000

Rental Profit             £4,000

The landlord would then be taxed on this profit at their marginal rate of either 20% = £800, 40% = £1,600 or if their total income is over £150,000 at the additional rate of 45%.


New rules

Under the new rules Landlords will no longer be able to deduct all of their mortgage interest and other finance costs from their property income to arrive at their rental profits. They will instead receive a basic rate reduction from their income tax liability for these costs.

Landlords will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income will be restricted to 75% of mortgage interest and other finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% mortgage interest and other finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% mortgage interest and other finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all mortgage interest and other finance costs incurred by a landlord will be given as a basic rate tax reduction

When the new measures fully take effect in April 2020 and below we look at the impact of this using the previous example above;


Example as follows;

Rental income             £12,000

Other costs                  £2,000

Rental Profit             £10,000

With no deduction for mortgage interest the effect of this would be as follows;

Basic Rate Tax payer = 10,000 x 20% tax       £2,000

Minus 20% of Mortgage Interest £4,000           £800

Tax due                                                          £1,200

This is therefore a £400 increase in tax when compared to the current rules

Higher Rate Tax payer = 10,000 x 20% tax    £4,000

Minus 20% of Mortgage Interest £4,000           £800

Tax due                                                          £3,200

This is therefore a £1,600 increase in tax when compared to the current rules


What can you do to minimise the impact of these new rules;

There are some options you could consider to minimise the impact of these new rules;

  • Limited Companies currently continue to receive the full deduction for mortgage interest and other finance costs, so you could consider moving your properties into a limited company. However before doing this you would need to also consider Capital Gains Tax implications, additional stamp duty potentially payable by the company and any mortgage exit charges applicable.
  • Furnished Holiday Lets also continue to claim full relief on mortgage interest and other finance costs so you could consider a move to this form of rental. There are however a number of specific rules to be considered and met in order to reach furnished holiday let status and this may not be appropriate for your type of rental properties.
  • If you don’t currently own property and considering buying you could put it into a Limited Company straight away so not to be caught by these rules at all.


Concerned how this new legislation will impact on you? Contact us and arrange a free initial meeting where we can help we can help explain these changes and how Frampton and Co could help provide you with a solution.

Telephone: (01424) 211141

VAT registered small business? Have you considered using the Flat Rate Scheme?

The flat rate scheme is very popular with small businesses and could benefit your business. Here is everything you need to know about it.

What is Flat Rate Scheme and who can join it?

The Flat Rate Scheme is designed to simply record keeping for small business and allows them to apply a fixed percentage to your gross turnover to arrive at the VAT liability.

A business can join the flat rate scheme if its gross taxable turnover including all standard, reduced and zero rated (excluding VAT) it below £150,000.

You are still required to charge VAT in the normal way but would pay a reduced fixed percentage over the HMRC based on your business sector. You cannot reclaim VAT on your purchases unless you purchase capital assets which are over £2,000

One a small business has joined the scheme it can continue to use it until its total income is more than £230,000 (including VAT)

You cannot join the Flat Rate Scheme if;

  • you have left the scheme in the last 12 months.
  • You registered for VAT as a business division in the last 24 months.
  • You use one of the Margin Schemes for second-hand goods, art, antiques and collectibles, the Tour Operators’ Margin Scheme, or the Capital Goods Scheme.
  • You have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year.
  • Your business is closely associated with another business.

An Example of how to calculate your VAT liability on the Flat Rate Scheme

As an example of how the scheme works let’s look at a catering company with £100,000 of net Vatable turnover. VAT calculation would be as follows;

Sales £100,000 + VAT @ 20% £20,000 = £120,000

VAT payable = £120,000 gross income x 12.5% = £15,000 payable to HMRC

As a catering company is unable to reclaim VAT on most its purchases by using the Flat Rate Scheme there may be a financial saving as the percentage of turnover paid over to HMRC is lower than that the VAT 20% it would charge customers.

What are benefits to a small business?

There are several benefits to using the Flat Rate Scheme;

  • Reduced record keeping and simplified VAT calculations
  • 1% discount on the percentage applied for newly VAT registered businesses in the first year of using the scheme
  • For those small businesses in certain sectors such as catering or consultancy where they have little or no VAT to reclaim on purchases they will also benefit from the cash advantage of apply a percentage less than 20%. Such as for example 14.5% for IT consultancy services

Flat rate percentages

Detailed below is a list of the Flat Percentages applicable under the Scheme;


Type of business Current VAT flat rate (%)
Accountancy or book-keeping 14.5
Advertising 11
Agricultural services 11
Any other activity not listed elsewhere 12
Architect, civil and structural engineer or surveyor 14.5
Boarding or care of animals 12
Business services not listed elsewhere 12
Catering services including restaurants and takeaways 12.5
Computer and IT consultancy or data processing 14.5
Computer repair services 10.5
Entertainment or journalism 12.5
Estate agency or property management services 12
Farming or agriculture not listed elsewhere 6.5
Film, radio, television or video production 13
Financial services 13.5
Forestry or fishing 10.5
General building or construction services* 9.5
Hairdressing or other beauty treatment services 13
Hiring or renting goods 9.5
Hotel or accommodation 10.5
Investigation or security 12
Labour-only building or construction services* 14.5
Laundry or dry-cleaning services 12
Lawyer or legal services 14.5
Library, archive, museum or other cultural activity 9.5
Management consultancy 14
Manufacturing fabricated metal products 10.5
Manufacturing food 9
Manufacturing not listed elsewhere 9.5
Manufacturing yarn, textiles or clothing 9
Membership organisation 8
Mining or quarrying 10
Packaging 9
Photography 11
Post offices 5
Printing 8.5
Publishing 11
Pubs 6.5
Real estate activity not listed elsewhere 14
Repairing personal or household goods 10
Repairing vehicles 8.5
Retailing food, confectionery, tobacco, newspapers or children’s clothing 4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8
Retailing not listed elsewhere 7.5
Retailing vehicles or fuel 6.5
Secretarial services 13
Social work 11
Sport or recreation 8.5
Transport or storage, including couriers, freight, removals and taxis 10
Travel agency 10.5
Veterinary medicine 11
Wholesaling agricultural products 8
Wholesaling food 7.5
Wholesaling not listed elsewhere 8.5


If you think the Flat Rate Scheme could suit your business and need some advice contact for a free initial meeting;

Telephone: (01424) 211141


8 Key reasons a new business start-up needs an accountant

1) Failing to Inform HMRC
Did you know you only have 3 months to inform HMRC you have started trading as a self-employed individual.
Failure to inform can lead to substantial penalties.

One simple meeting with us can take all the hassle away from the registration process with HMRC, we can process all the paperwork on your behalf.

2) Incomplete record keeping
A number of new businesses fail to keep sufficient records, this can be from not keeping track of all income and expenses to incorrectly calculating VAT.

HMRC can charge you a penalty if your records are not accurate, complete and readable.
It is key to have complete records in the event of tax enquiry, failure to do so often leads to additional tax charges.

We can advise you exactly how your records should be prepared and even provide you with a bookkeeping template or training on relevant software.

3) Selecting the right type of finance
When starting out on a new business venture raising finance can be key, with so many options available many business start-ups do not select the appropriate option for their venture.

Due to high Apr rates and fixed monthly repayments a straight forward loan or credit card may now always be the best answer, especially in the early stages of a start-up when cash flow maybe tight.

New businesses should also consider local grants on offer and options such as the EIS investment Scheme, which can also offer great benefits to the investor as well.

4) Considering business structure
There are many business structure formats;

– Self employed
– Partnership
– Ltd Company

It can be a tough choice when deciding what structure to adopt.
The most important point here is to seek professional advice early.

The tax savings or costs can run into the £1000’s by not selecting the appropriate business structure at the right time.

A common example of this problem can be seen when a new business starts off as self-employed and generates a reasonable level of profit in the first year of trading.

In this scenario a new business with a £30,000 profit in the first year of trading would generate a tax bill of £6,000 (based on 15/16 rates), and because this is the first year a payment on account of £3,000 would also be due, this would leave the new business with a total outlay of £9,000.

This level of tax could have a serious impact on a new business especially if past profits had already been reinvested.

This problem could of easily been easily avoided if a Limited Company structure was put in place from the start, If this had of been done then the tax charge would of started at just £4,000, This is a massive £5,000 difference just by selecting the correct business structure.

5) Processing of employees
Many new start-ups may not have had to deal with employing staff, but if that time comes there are a number key problem areas to consider;

– Are you compliant with the minimum wage
– Is the correct holiday allowance being given
– Have you registered with HMRC as an Employer
– Has all PAYE & NI been calculated correctly and filed with HMRC to meet RTI requirements
– The need to register the employees for a pension

A simple meeting with us can ensure all these areas are covered with ease.

6) To meet filing deadlines
A new limited company start up that is vat registered with employees would have at least nine filling deadlines to meet each year.

These range from filing VAT and Tax returns to HMRC to abbreviated accounts and annual returns to companies house, and to make things even more complicated each deadline will be at a different stage of the year.

Missing any deadline will normally result in a financial penalty and these could easily add up to £1000’s a year.

If you appoint an accountant from the outset they can take the stress away from remembering the numerous filling deadlines.

7) To claim R&D Relief
R&D relief is often overlooked by new business start-ups, and the financial costs of doing so can be huge.

R&D relief is available for a number of scenarios and in particular for the development of a new product, procedure or service if it is as technological improvement or advance over existing items on the market place.

All costs of developing such an item / procedure can be increased by 130% for tax purposes, therefore £20,000 worth of expenditure would become £46,000 and generate a tax saving of at least £5,000.

Therefore if you’re planning to bring a new product, service or procedure to the market place then its best to seek advice early on to ensure you benefit from the extra tax relief available.

8) Paying too much tax on company cars
Quite simply buying a car inside a company without fully understanding the tax consequences can be very costly, and that’s tens of thousands of pounds costly if you’re unlucky.

A car purchased inside a company for work and personal use will lead to a benefit in kind tax.

This is a tax that will be assessed personally on anyone who drives the car, the amount of tax will ultimately depend on the car purchased and the individual’s circumstances.

Due to the potential tax costs involved it will always be best to speak to an accountant before making a decision on any vehicle purchase.