Benefits in Kind – how to make life easier

P11D forms advise HMRC of benefits paid to employees and directors. If your business provides any sort of beneficial payment or gift of goods to employees, generally speaking most will be taxable as a benefit in kind – as if they were payments of salary etc.
To make your life easier there are some beneficial payments that you can include in a dispensation.
For example the provision of certain business travel for an employee. Items covered by a dispensation do not have to be returned on the annual P11D form.(Payments for the use of a company car or van are not included here as they are covered by separate rules.)

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Essentially you can apply to HMRC to dispense with the need to include expenses or benefits for which your employee gets a full tax deduction.
For some businesses this could take some of the pain out of this annual chore.
HMRC require that you need to have the following systems in place to qualify you for a dispensation, they are:
You must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than the employee claiming the expenses check that:
the amount claimed isn’t excessive
the claim doesn’t include disallowable items
If it is not possible for you to operate an independent system for checking and authorising expenses claims, for example, because you are the sole director of your company and you have no other employees, you will only be able to obtain a dispensation if you:
ensure all expenses claims are supported by receipts for the expenditure
demonstrate that the claim relates to expenditure that can be covered by a dispensation, your receipts may be sufficient for this purpose, but if not you must retain additional information.
Once a dispensation is granted it will last indefinitely although HMRC may review from time to time to make sure the conditions under which the original grant was made still apply.
Generally speaking dispensations are granted from the application date. However HMRC may agree to apply the dispensation from the beginning of the tax year in which you apply. As we are now at the beginning of a new tax year, 2010/11, this is a good time to send in a claim for dispensation. Please call if you would like assistance to do this.

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New Employment Rules

There are a host of new employment related regulations coming into force on 6 April 2010. This is a brief summary of the regulations that are most likely to affect you or your business.

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Fit notes – these replace sick notes issued by GPs and will state what the worker can do, rather t
han what he or she is prevented from doing.
Pension date – the date from which the individual can draw the state retirement pension will not necessarily fall exactly on a woman’s 60th birthday. For example, a women who reaches age 60 between 6 April 2010 and 5 May 2010 will have a state pension date of 6 May 2010. This date also affects the payment of the employee’s NI contributions.
NI contribution years – individuals who reach state retirement age only have to accumulate 30 full years of NI contributions or credits to gain a full state pension.
A single year of NI contributions will count towards the state pension. Until now a person had to accrue at least one quarter of their working life (about 11 years for a man, 10 for a woman) to be entitled to any state retirement pension. Each year of NI contributions will be worth roughly £3.20 of weekly pension at current rates. It will be essential to accurately record the NI number for every employee, so that each individual can collect their pension entitlement when they retire.
Home responsibility protection credits (HRP) will be given on a weekly basis. This will allow the HRP credit to be combined with actual NI contributions to make up a full year of NI credits. HRP credits are given where a person stays at home to look after a child and claims child benefit.

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Paying VAT and new penalties

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From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman’s account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman’s bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You need to check with your bank in advance about the best way to pay a large VAT bill electronically.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.

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Company Car Tax

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The taxable benefit on the use of company cars and fuel for those vehicles has increased from 6 April 2010. Take for example a petrol-powered car with CO2 emissions of 160g/km. In the tax year to 5 April 2010 you were taxed at 20% of the vehicle’s list price. From 6 April 2010 the taxable benefit for driving the same car will be 21% of its list price.

The tax position for those who have free fuel with their vehicles is even worse. Until 5 April 2010, the value of the fuel-benefit for all company cars was based on a fixed value of £16,900 multiplied by the percentage used to calculate the car benefit. So there is an increase in both the percentage and the multiplier. From 6 April 2010 the value increases to £18,000. This means the taxable benefit of having free fuel for a petrol car with emissions of 160g/km will increase from £3,380 to £3,780.

Company van drivers are also hit by the rise in the fuel benefit. Currently where free fuel is provided in a company van, and the van is used for some non-business journeys, the driver is taxed on £500 per year for the use of that fuel. From 6 April 2010 the van driver will be taxed on £550 per year for use of the fuel.

You can reduce these high tax charges by switching to a low emissions car. Where the CO2 emissions are 120g/km or less the car benefit for petrol cars is just 10% of the list price, and half that amount where CO2 emissions are 75g/km or less. We could only find one car with emissions in that bottom category: Toyota plug-in Prius, which has an official CO2 emissions rating of only 67g/km.

If your vehicle has zero emissions such as an electric car or van, there is no tax charge at all from 6 April 2010. What’s more, when your business buys a new electric vehicle it can write-off the full cost for tax purposes in the year of acquisition.

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