There has been a lot of publicity lately about the tax advantages of running cars with low CO2 ratings. There are a number of benefits:

• possible 100% first year tax deduction for the cost of the vehicle,

• much reduced benefit in kind charges,

• lower road fund tax and so on.

But not all of us want to run such vehicles even if there are tax, VAT and running cost advantages.

Double cab pickups, sometimes described as crew cab pickups, are an anomaly!

For business users, especially the self

-employed, they present an unusual tax opportunity.

The HMRC web site describes double cab pickups as:

“… a front passenger cab that contains a second row of seats and is capable of seating about 4 passengers, plus the driver with four doors capable of being opened independently (two door versions are normally accepted to be vans, even those with rear doors that can only be opened after the front doors and that must be closed before the front doors) and an uncovered pick-up area behind the passenger cab.”

From the tax year 2002 -03 onwards a double cab pickup is classified as a van for both VAT and benefits purposes if it has a payload of 1 tonne (1,000kg) or more.

If your double cab pickup meets this definition:

You can reclaim any VAT added to the purchase price, and

The net capital cost (after VAT has been reclaimed) could be available for a 100% first year tax allowance as part of your Annual Investment Allowance up to a maximum of £50,000 each tax year.

If you are a director or employee, any significant private use of the double cab pickup will trigger a standard benefit in kind charge of tax on £3,000 per year. In addition if your firm/employer provides fuel to cover private use of the vehicle there will be an extra benefit charge of tax on £500 per year at current rates. The best way to minimise any risk of these benefits being applied is to restrict the use of the pickup to business use only, or make sure that any private use meets the HMRC definition of “insignificant private use”.

If you would like more information regarding this article, or any advice regarding tax effective strategies for running your business vehicles please call.

Image via Wikipedia

Changes have been announced to the company car advisory fuel rates with effect from 1 July 2009.

Unless you do a huge amount of private milage, you probably shouldn’t be provided with fuel for ‘private use’ because the tax charge on this is now very high. The rates below you can use to calculate the petrol cost of your private motoring, if you pay this back to your employer to avoid the fuel based benefit in kind charge.

Employers can also use the figure to isolate the petrol cost of car mileage claims in order to recover an appropriate amount of VAT – businesses still need to retain fuel receipts.

Some of the rates have been reduced in light of slightly lower fuel prices at the pumps.

Engine size: Petrol, Diesel, LPG

1400cc or less: 10p, 10p, 7p

1401cc to 2000cc: 12p, 10p, 8p

Over 2000cc: 18p, 13p, 12p

Petrol hybrid cars are treated as petrol cars for this purpose.

The fuel rates are usually reviewed twice a year effective 1 January and 1 July although may change more often where there is significant fluctuation in fuel prices. The rates are ‘advisory’ so if you have justification, you may use a different rate.

New tax rates – you have choices!

We all know the story. Banks not properly regulated by the Government, and bailed out to the tune of billions and billions of pounds. The figure given in the budget was £175 billion deficit up from an expected £38 billion expected deficit just one year ago. I think most people agree the increased figure is also going to be an under-estimate. Now we have to pay for it.

From 6th April 2010 personal allowances are gradually withdrawn for those earning over £100,000. For every £2 of income earned above £100,000 personal allowances will be reduced by £1. This makes the effective rate of tax for those with earnings over £100,000 of 60%. There is national insurance of 1% also, so the true rate is 61%.

The rate will go back to 40% (really41%) for earningas over £112,500.

Then from £150,000 the new rate of 50% plus 1%NI ie 51%will apply.

If you dont like the idea of paying 40%, 51% or even 61% tax rates, you do have choices.

Perhaps one of the most straightforward options is to organise your affairs so that some or all of your income goes into a limited company. A company will pay 21% tax on profits up to £300,000. Clearly a big saving on 61%.

There is much more detail to discuss than we would wish to include here and indeed other tax planning options. Please contact us to discuss the details.

HM Revenue & Customs have announced they will spend £1 billion on enforcement and compliance this year, in the hope that they will cut tax avoidance and evasion by £2.4 billion.see Times article

That is a huge quarter of its £4 billion budget to be spent on catching tax-dodgers. The clampdown comes after a  “litigation and settlement review” the Revenue promised to take more people to court to recover tax instead of cutting deals in out-of-court settlements. Beware the cost of   defending yourself or your company in court if the need arises can be frighteningly expensive. That is why we recommend all clients take up our professional fees insurance. This enables your fees to be paid in the event of HMRC enquiry.

Lesley Strathie, who took over as the HMRC’s chief executive and permanent secretary five months ago, said that the organisation would relentlessly pursue those who bent or broke the rules.

Last month on the ITV Tonight programme an HMRC employee claimed that HMRC staff routinely bin letters and ignore tax errors in order to meet performance targets.

He said “Staff have actually been told that when someone rings in with a tax enquiry and you spot a mistake on a person’s record, you have to ignore itunless they have actually asked you to look at the mistake. Its all about the Government target of answering so many calls a day. And if you write in, the post often goes missing. It just disappears, just gets binned, some letters simply aren’t seen by anyone.”

HMRC’s official comment was that anyone found to be binning correpondence would be subject to disciplinary action.

A client recently asked me why MP’s are able to claim for Widescreen TV’s, expensive rugs, leather setees etc etc and not have a tax liability. All these things wouldnt normally be allowed as expenses.

The reason is a piece of law that MPs have passed which applies only to their own expenses. It is S292 ITEPA 2003. This law gives exemption from tax to any expense paid in accordance with a resolution of the House of Commons.

So they are exempt from the usual test as applies to everyone else in terms of an expense being necessary for their duties as an employee. S292 states that allowance is given for expenses “expressed to be” in respect of additional expenses necessarily incurred by a Member…..in performing parliamentary duties.

The Green book explains for MP’s the code of conduct on expenses adopted in 1995. This states in respect of expenses for staying overnight away from their main home MP may claim for the following costs:

• Rent or mortgage interest
• Hotel expenses
• Utilities and telecommunications chages
• Furnishings
• Maintenance, service agreements, cleaning and insurance
• Subsistence

So providing an MP expresses an expense to be in performance of his or her duties and that expense is approved by the Fees Office then it is not subject to tax.

Isn’t it typical

• Dream up a law that applies only to them….600 odd people out of a working population of millions
• Make things complicated, so people can’t really see what is going on

Part of the problem of course is that the Fees Office have been approving expenses which the Inland Revenue would not dream of allowing. Duck islands, moat clearing, patio heaters, wisteria removal, tennis court repairs, dog food – the list is endless!

Why do we need such a complicated system?

Surely the solution is to adopt a simple transparent system?

If your constituency is outside London, then you need somewhere to stay in London. Some state owned accomodation could be made available, perhaps together with an alternative option to receive a fixed sum perhaps a maximum of say £100 per night. Transparent, simple but perhaps less lucrative for those involved!

Update 27th May 2009

The Daily Telegraph has reported that HMRC issued a statement yesterday (Tue 26th) to say that MPs were not exempt from tax laws and that tax must be paid on some expenses.

“It’s a general principle of tax law that accountancy fees incurred in connection with the completion of a personal tax return are not deductible.

“This is because the costs of complying with the law are not an allowable expense against tax. This rule applies across the board.”

So HMRC are clearly saying the Fees Office has been wrong in approving these expenses.

It seems to me MP’s are in the embarrassing position that these expenses are not taxable because of the law they have created just for themselves, even though HMRC is clearly saying they should be taxable.

From 2009/10 (i.e. from 1st  or 6th April 2009) the notion of an ‘Expensive Car’ will disappear for tax purposes. Instead of there being single asset pools for these vehicles, based on purchase cost to the business, cars will be added to the 10% or 20% pools depending on their CO2 emissions:

Over  160 g/km – 10% pool

110-160 g/km – 20% pool

Below 110 g/km – 20% pool but with 100% FYA (the significance of adding the 0% unrelieved expenditure to the pool is that any proceeds on the sale of the vehicle will be deducted from the pool on disposal)

The effect of pooling cars is that balancing adjustments will not be received on disposal and this will have a big effect on businesses that regularly replace expensive cars.

There is a transitional 5 year period where existing single asset pool cars are treated under the old rules. Thereafter these cars will be pooled.

Capital Allowances – Companies

A couple of examples below highlight that cases need to be assessed on their individual circumstances:

1) A company buying a £15,000 car in either March or April 2009, with the intention of keeping it (say) 5 years. CO2 emissions 159 g/km, disposal proceeds £4,500:

2) A company buying a £45,000 car with the intention to keep it 3 years. CO2 emissions 195 g/km, disposal proceeds £22,000:

In both examples, the residue of expenditure in the pool continues to attract annual writing down allowances in future years, meaning that the differences between the tax allowances claimed under the old and new schemes will be recouped eventually, but not for many years.

Capital Allowances – Unincorporated Entities

The rules for unincorporated entities mirror those for companies, but, due to the nature of unincorporated entities, there is one exception. It is possible for unincorporated businesses to own vehicles that have an element of private usage. Typically this applies to cars driven by the business proprietors. Cars with private use adjustments will continue to be dealt with via single asset pools, meaning balancing adjustments on disposal will still be available.

Consider a car costing £16,000, which will be kept for 5 years, with CO2 emissions of 165 g/km and expected proceeds of £5,000 on disposal:

As with the company example above, the difference in allowances claimed will be recouped over a number of years.

Motorbikes

Under the first year allowance (FYA) scheme motorbikes were treated as if they were cars. Under the new regime, they will be excluded from the definition of cars, meaning that they will be eligible for the annual investment allowance (AIA).

Company Cars and Benefits in Kind

We all know that providing company cars is generally considered to be less cost / tax efficient than providing employees with additional money to provide their own car. Whilst this rule of thumb continues to hold largely true, consider a car like the Toyota Aygo. A basic model costs c£6,950 and has CO2 emissions of 108 g/km. As such:

Employee: – Benefit in kind £695, equating to £278 (Higher rate) or £139 (Basic rate) tax per annum

Employer: – Ers NI £89 per annum – 100% first year tax relief on the vehicle – RFL £0 (CO2 < 100 g/km) or £35 (CO2 101-120 g/km) per annum

The only question is, how do you convince your sales reps that they want a 1.0 litre Toyota Aygo?!

Other manufacturers are also working on cheap, low emission cars and something like 106 of these are below the 110 g/km threshold for FYA’s) and more below the 120 g/km (for the minimum benefit in kind charge). See:(http://www.comcar.co.uk/newcar/companycar/poolresults/110tax.cfm)

All employers should be aware that changes have been introduced to the penalties that will automatically be levied after 6 April 2009 if you fail to observe your obligations regarding payment of National Minimum Wage rates.

From 6 April 2009, a new automatic penalty will be levied where HMRC compliance officers find arrears of the National Minimum Wage (NMW).

Penalties will range from £100 to £5,000 and those employers who settle within 14 days of notification will receive a 50 per cent discount of the penalty for prompt payment. The penalty must be paid in addition to any arrears owed to the workers. The most serious cases of non compliance may be tried in a Crown Court and subject to an unlimited fine.

To reflect this change, the current system of separate NMW enforcement and penalty notices will be replaced by a combined notice of underpayment and penalty. This will be issued whenever HMRC discover that arrears were outstanding at the start of their enquiries.

The notice will detail the amounts due to workers and any penalty due on those arrears. For PAYE reference periods starting on or after 6 April 2009 the penalty will be half the total underpayments shown on the notice. HMRC can pursue arrears claims for workers going back up to six years.

You will be able to appeal both the amount of the arrears and the penalty to an Employment Tribunal (an Industrial Tribunal in Northern Ireland) under new appeal rights. You can call the National Minimum Wage Help line in confidence on Tel 0845 6000 678.

The rates are as follows:

The rates set are based on the recommendations of the independent Low Pay Commission. The rates change on 1st October each year.

National Minimum Wage rates applicable from 1 October 2008

• Workers aged 22 and over – £5.73 per hour
• Workers aged 18-21 –         £4.77 per hour
• Workers aged 16-17 –         £3.53 per hour
• Accommodation offset –      £4.46 per day (£31.22 per week)

The basic rules for employers with new employees are important for any business.

There is no ‘Casual Labour’ exemption, if you take an employee on with intention of keeping them for just a couple of weeks on a temporary basis – the rules still apply.

If the correct PAYE and NIC is not deducted off employees, then the Employer will be held liable for any shortfall discovered.

If a new employee does not have a P45 from their previous job, then they must sign a P46 (or if they are students working only in the holidays, a P38S).

If they tick Boxes A or B – they will be on the emergency PAYE code (of 647L in 2009/10)

Employees on the basic code of 647L will pay no tax on earnings up to £125 a week, above that tax is deducted at 20%.

National Insurance Contributions are paid by the employee (11%) and employer (12.8%) on earnings above £110 per week.

If the week’s earnings are between £95.01 and £110.00 per week there are no contributions deducted but the employee is still credited with a basic National Insurance contribution. For this reason a form P11 (deduction sheet) must be maintained throughout the year for the employee.

If the employer does not pay an employee more than the NIC LEL (Lower Earnings Level) (of £95 a week in 2009/10), they do not have to prepare a P11 deductions sheet for them or include them on the year end P35. However, the employer must still have a record of wages paid to each employee in each week or month.

A dispensation removes the requirement to return to HMRC on P11d forms expense payments which are not taxable. If no dispensation exists the employee then has to submit a claim that the expenses reimbursed were incurred solely in relation to the business, and are therefore not taxable.
In short a dispensation can save work for the employer, the employees and HMRC.

For example the provision of business travel for an employee is often included in a dispensation. 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.)

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. It’s not too late to apply for 2008-09, call if you would like assistance to do this.

Any salaried employee of a business can be paid a long service award. The way in which the award is given can radically influence the tax treatment!

All cash awards are taxable. They will be treated as part of your remuneration and subject to deduction of tax and National Insurance. Cash awards include:

* a payment including a cheque (This also rules out National Savings Certificates, premium bonds and so on.)
* a cash voucher
* a credit token
* shares other than those issued by the company employing the person who receives the award
* an interest or rights over securities or shares

Non cash awards are tax free if certain conditions are met. The conditions are:

1. The award must be made to mark a period of not less than 20 years service with the same employer.
2. It must not be a cash payment.
3. The taxable value of the award must not be more than £50 for each completed year of service.

For most employees the amount of the award is determined as the cost to the employer. For lower paid employees it is the second hand value of the award.

If the award exceeds the £50 for each year of service limit, only the excess is taxable.

If an employer makes multiple awards to the same individual, say after 20 years and then again after 30 years; each award qualifies as a separate award – this further concession does not apply unless there is a gap of at least 10 years between the awards.

If you have clocked up 20 years service you could receive goods to the value of £1,000 and pay no tax or National Insurance – that buys a lot of golf equipment!