Company cars – are they worth having?

 

Government tax policy on company cars is new heavily focused on steering people towards choosing an efficient or ‘green’ car. This doesn’t have to mean driving a Smart car! There are for instance Audi A3, BMW320d and Honda Civic models which fall into the green (sub 111 g/km) bracket.

For further details, look at :

greencarsite

vca car fuel data

What Green Car

The company claims capital allowances on the cost of the car, and the claim is now related to CO2 emission.

Above 160g/km 8% per annum (prior to April 2012 10%)

Between 111 g/km and 160 g/km 18% per annum (prior to April 20%)

Below 111 g/km 100% in year 1

The ‘benefit in kind’ personal tax paid by the employee is also varied according to the CO2 emission. Also low emission cars are liable to lower road tax.

Example

The following example compares the tax treatment of two cars purchased in April 2012. One is a diesel car (car D) with CO2 emissions of 109 g/km costing £27,500, with a petrol car (car P) costing the same amount but with CO2 emissions of 165 g/km.

 

Year ended March 31 2013

 

Company’s tax position:

 

Car D         Car P

 

Capital allowances claimable 2012/13                                     £27,500   £2,750

 

Corporation Tax relief

at small companies rate – 20%                                                               £5,500          £550

 

National Insurance at

13.8% payable on benefit-in-kind (see below)                                           £569      £911

(there is Corporation Tax relief on this)

 

 

Director’s/employee’s tax position:

Taxable benefit-in-kind

15% of cost car D and 24% for car P                                                      £4,125      £6,600

 

Tax payable assuming

40% rate applies                                                                                           £1,650      £2,640

 

 

Summary

 

The low emission diesel car saves corporation tax of £4,950 above the petrol car– this difference will even out eventually but it will take several years.

 

Employers’ National Insurance: Buying car D will save £342 each year.

 

Director/employee tax: Choosing car D will save the employee £990 each year.

 

 

Tax Credits – apply now to secure benefits

In order to qualify for a full year’s Tax Credit claim for 2012-13 your application needs to be made before 6 July 2012. This is because HMRC will not back date an application by more than three months.

Based on your past income levels you may be of the opinion that an application would produce no cash benefit. However, your circumstances may change. For example if you are self-employed you may suffer a downturn in trade that you cannot foresee or you may be able to claim for a significant investment in plant or equipment and reduce your taxable profits accordingly.

 

Applying in the April-July 2012 window will secure your rights to Tax Credits for 2012-13. Even if the initial assessment reveals that no Tax Credit payments are due to you, should your circumstances change you can ask for the assessment to be re-evaluated.

 

Please call if you would like assistance in making a claim.

HMRC have apoloised after sending out misleading letters regarding tax credits.

The letters said the maximum income for a family to be eligible for the benefit will be £26,000 from 6 April 2012.

That figure is broadly correct for a household with one child but the threshold rises for those with more. Families with two children will be entitled to credits if the annual family income is less than around £32,200.

 

Withdrawal of age related allowances

Is your birthday after 5 April 1948?

If the answer is yes you will not qualify for the higher value personal

allowances presently available to the over 65s and over 75s.

From 6 April 2013 Age Related Personal Allowances are being phased out. Here’s how the changes will work in practice:

 

1.            If your birthday is after 5 April 1948 you will not qualify for Age Related allowances.

2.            If your birthday is after 5 April 1938 but before 6 April 1948 you will continue to qualify for the Age Related Personal Allowance (65 to 74 age group) of £10,500 until this allowance equals, or is exceeded by, the Personal Allowance. For 2013-14 the basic Personal Allowance is due to rise to £9,205.

3.            If your birthday is before 6 April 1938 you will continue to qualify for the Age Related Personal Allowance (75 and over) of £10,660 until this allowance equals, or is exceeded by, the Personal Allowance. As mentioned in 2 above for 2013-14 the basic Personal Allowance is due to rise to £9,205.

 

There is no doubt that eventually all taxpayers over the age of 65 will be disadvantaged by these changes.

 

HMRC to cap certain tax reliefs

In an attempt to ensure that higher rate tax payers make a reasonable contribution to UK tax revenues, new legislation is to be introduced from 6 April 2013 that limits access to certain tax reliefs. Taxpayers will be denied relief(s) if the claim exceeds 25% of their income or £50,000, whichever is the greater.

This will not affect tax reliefs which are already capped such as Enterprise Investment Scheme and pension reliefs, but may affect “open-ended” reliefs such as interest relief on qualifying loans and gift aid relief. The Chancellor has said that he will consult to make sure that charities are not negatively affected by such a move.

Ironically, this may mean that tax planning opportunities available to 50% rate tax payers in 2012-13, may produce more tax savings than if applied, and capped, in 2013-14 when the top rate of tax is reduced to 45%.

50% tax rate payers therefore have one more fiscal year, 2012-13, to take advantage of certain, unlimited reliefs.

 

HMRC to stamp on residential property transactions

How much Stamp Duty Land Tax will you pay when you buy residential property in the UK following the Budget?

Firstly the extension of the nil rate band to £250,000 for first time buyers ceased 24 March 2012.

The current Stamp Duty Land Tax (SDLT) rates are:

Residential property purchased outside disadvantaged areas

Zero charge – £0 to £125,000

1% charge – £125,001 to £250,000

3% charge – £250,001 to £500,000

4% charge – £500,001 to £1,000,000

5% charge – £1,000,001 to £2,000,000

7% charge – Over £2,000,000

15% charge – on properties over £2m held in a “corporate envelope” (see below)

 

The 7% and 15% charges were introduced in the Budget last month. The 7% charge applies to property purchases completed after 22 March 2012.

 

The 15% charge has been introduced to counter a tax device that aimed to avoid SDLT charges on high value residential property purchases. The scheme involved purchasing through offshore companies, so-called “corporate enveloping”. The 15% charge will apply from 21 March 2012. In his Budget speech George Osborne made it clear he would close any variants of the scheme that are created in the future; if necessary the Government would introduce retrospective legislation.

 

Residential property purchased in a disadvantaged area

If a property you are purchasing is inside one of the 2,000 disadvantaged areas you may qualify for Disadvantaged Areas Relief. The only change to the SDLT rates listed above is to the nil rate band. If a property is located inside a disadvantaged area the nil rate band applies to property transactions up to £150,000. The 1% charge is adjusted accordingly, and applies to the band £150,001 to £250,000.

 

If you want to see if a property you are about to purchase qualifies for Disadvantaged Areas Relief you can use HMRC’s search tool at http://www.hmrc.gov.uk/so/dar/dar-search.htm

Salary v Dividends in 2012/13

UK income tax and National Insurance as a perc...

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It is common for owner managers to take income from their own company through a mixture of salary and dividends.

For 2012/13 the maximum salary at which no tax or NI is payable is £7,485.

Although no employee’s or employer’s NI is due on this level of salary, the employee does still receive a full years credit to their state pension record.

The personal allowance for 2012/13 is set to increase to £8,105 (from £7475).

To avoid going into the band at which higher rate tax becomes payable, the maximum figures for 2012/13 are:

Salary                                                         £7,485

Dividend                                                 £31,491

(before tax credit)

If you have paid pension contributions or made gift aid payments, then the amount of dividend can be increased.

Note dividends can only be paid if the company has distributable profits.