If a company makes a loan or loans to an employee or director and the combined outstanding value to an individual never exceeds £5,000 there is no personal tax or National Insurance contributions to pay. However, beware; loans to employees who are also shareholders and directors may create a corporation tax charge for the company even if the loan does not exceed £5,000.

If the combined amount exceeds £5,000 a potential benefit in kind charge may arise if no interest is charged to the loan account or interest is charged at a lower rate than the official rate published by H M Revenue & Customs.

The official interest rates for the last three years are:

From 6 April 2007 to 28 Feb 2009 – 6.25%

From 1 March 2009 to 5 April 2010 – 4.75%

From 6 April 2010 – 4%

As we are now approaching the deadline for filing forms P11D, the forms that declare employees’ and directors’ benefit in kind, it is essential that loans are examined to reveal any benefits due. Overdrawn directors’ loans can create difficulties where the amount of loans fluctuates during a tax year.

If you would like clarification on the amount of benefit in kind you may have to pay please contact us as soon as you can. P11Ds have to be filed by 6 July 2010.

As the name suggests, tax free long service awards are tax efficient. If you provide an employee with a non-cash award to reward long service, the payment can be made without deduction of tax or National Insurance contributions, as long as the following criteria are observed:

1. As this is a reward to employees it is not available to self-employed sole traders or partners. It is available to directors who receive a salary for their services.
2. The award has to mark at least 20 years of service.
3. You must not have made a previous long service award within the last ten years.
4. The value of the reward cannot exceed £50 per year of service – so the maximum value of an award to an employee with 20 years of service is £1,000.
5. As pointed out in the opening paragraph of this article the award has to be made in a non-cash form. Cash awards are taxable as earnings in the usual way. You should also be wary about awards that can quickly be converted into cash, for example marketable stocks or shares or precious metals – these do not fulfil the non-cash criteria.

There are a number of complicated rules to abide by if your payment falls outside the above five points – for instance if you exceed the £50 per year or if the employee has less than 20 years of service.

If you are thinking of making use of this potential tax-free perk it is best to check with us before making the award.

Now we have 0.01% growth, and the recession is officially ‘over’, HM Revenue & Customs (HMRC) seems to be toughening its stance on payment and appears to be rejecting an increasingly large number of applications for the scheme.

Chancellor Alistair Darling stated that ‘Time-To-Pay’ will be there “for as long as is needed” but this is questioned by figures obtained by

accountancy firm Wilkins Kennedy – the money owed under the scheme has reduced from £1.15billion in April 2009 to £1.01billion at the end of November 2009.

It seems that arranging a ‘Time-To-Pay’ deal in the current climate is now more difficult than ever before.

Some key ‘Time-To-Pay’ statistics:

• To date c. 240,000 businesses have been able to reschedule their crown debt;
• 60 per cent of these arrangements are for three months or less;
• 1 per cent of arrangements are for 12 months or more;
• 8 per cent of businesses which have an arrangement under the scheme have failed to make ANY monthly payments.

Presenting a workable, robust and deliverable case to HMRC will greatly improve your chances of obtaining their support.

’Time-To-Pay’ developments:

• Following the Pre-Budget Report the ‘Time-To-Pay’ scheme has been extended to include partnerships;

• From 31 January 2010 all unincorporated businesses from sole traders to large partnerships will be required to make payment on account for their self-assessment tax;

• The VAT rate has returned to 17.5 per cent leading to a rise in payments due to the revenue;

• The 0.5 per cent rise in National Insurance (NI) contributions will further increase the crown liabilities burdening businesses;

• Where tax arrears exceed £1million there will be a requirement for an Independent Business Review (IBR) to be conducted to establish a company’s needs.

We are happy to assist in arranging time to pay agreements.

If you are employed

It is well established through legal cases that employees cannot claim the cost of travel between home and their normal place of work. H M Revenue & Customs consider this cost merely puts the employee in a position to perform their duties. The definition of employee in the examples that follow includes salaried directors of private limited companies.

However, there are a number of important exceptions to this general principle, that home to work travel costs cannot be claimed:-

• Travel costs from home to a temporary workplace can be claimed – a temporary workplace can be a place of continuous work for up to 24 months, if this period is likely to be exceeded from the start, then the workplace would be considered permanent from the start and no relief would be due. (Note: If it isn’t known that the contract will exceed 24 months, then relief will be due up to the 24 month point, or up to the point when it is known that the 24 months will be exceeded if earlier.) A temporary workplace is one where less than 40% of working time is spent; if this is the case, the 24 month rule doesn’t apply and relief will be available in full.
• Travel between two places of work required by the same employer.
• Travel to attend an appointment required by an employer. This cost is allowed even if the journey starts at home.
• Travel between home and work where home is a workplace and the location of home is dictated by the requirements of the job.

If you are self-employed

Many self-employed business people have set up their businesses to run from their home address. If you are self-employed you can claim for any travel expense which is required by your trade as long as the business element can be separated from any private element. For instance you may use your car for a trip into town to bank your business cheques and call at the supermarket on the way home.

To meet the HM Revenue & Custom’s requirement of reasonable care in apportioning such costs, you must keep appropriate records. For car users this would normally be a written log of business miles and a record of the vehicles recorded mileage at the beginning and end of each trading year. In this way an accurate assessment of average business use can be calculated and applied to total running costs.

And don’t forget, if you run your business through a limited company you are not self-employed. The comments in the first section of this article would apply to your business.

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.

HMRC have indicated that they are considering reclassifying self-employed construction workers as employed. They have actually launched a consultation process with interested parties. Reclassified workers would be taxed through the PAYE system regardl

ess of the length or brevity of each employment assignment.

HMRC are convinced that a significant number of construction workers are taxed as if self-employed even though they are providing their ser

vices to contractors effectively as if they were employees.

HMRC are calling this status issue “false self-employment”. HM

RC plan to introduce legislation to protect income tax and national insurance revenue that they feel is being lost.

The consultation document that HMRC have published assumes that these changes will happen and simply seeks input as to how such changes should be introduced.

Comments on this proposal have to be sent to HMRC before the 12 October 2009; so change, if it is coming, may not be that far away!

Ten bite sized online video guides from HMRC for new and small businesses

Topics include setting up in business, record keeping, income tax, corporation tax and VAT.

The new Business Support service continues to offer tax payers deferred terms for settlement of their tax liabilities. Nationally the feedback from businesses and individuals who have made applications has been promising – HMRC have been sympathetic and supportive in most cases.

However there is a circumstance where the Support Service staff have been unable to assist and that is when businesses are making losses in the current tax year.

Under recent concessions from HMRC it is now possible to carry back some tax losses for 3 years. Of course it is not possible to quantify the tax effects of these losses until accounts are finally submitted with the relevant claims.

The Budget announcement last week now includes powers that will allow the Business Payment Support Service to take these losses into account when negotiating deferred payment arrangements.

We recommend that you call us if you need to quantify the effects of possible loss relief in the current year, and carry backs to previous years.

Some tax saving tips for parents

• From 6 April 2009 expectant mothers can claim a lump sum of £190 in the 25th week of pregnancy. Claim forms are only available from the midwife or doctor. The midwife or doctor will need to complete their parts of the form and sign and date it before giving it out.
• Up to £55 per week can be paid to employees in the form of Childcare Vouchers. Save tax and NI, and no cost to the employer (depending on provider chosen).
• From 6th April the standard rate of maternity/paternity pay increased to £123.06 per week.
• Make sure you claim for tax credits if appropriate. There is a calculator on the HMRC website . Make sure you keep HMRC up to date with any changes in circumstances eg new child.

In the current harsh economic climate, many companies are making losses.

It is very common to find small companies paying modest salaries to the director / owners and also paying dividends, this is the most tax efficient way to extract profits from the company.

If the company is making losses then be aware that paying dividends could be dangerous! Dividends need to be paid from available profits – this could be profit earned this year or profits earned in earlier years but retained in the company rather than paid out as dividends.

Pay a dividend when there are no available profits and this is ‘ultra vires’ or invalid, this can have the following nasty consequences:

Firstly, the shareholders can be required to repay the invalid dividend to the company. This can happen after the company has gone into liquidation, and can be a very unexpected and financially painful experience.

Secondly, the Inland Revenue will treat the invalid dividend as a loan to a participator. Where such a loan is outstanding more than 9 months after the end of an accounting period, there is a tax charge of 25% on the value of the loan. This is commonly known as S419 tax (S419 ICTA 1988 is the legislation). There is also a tax charge on the benefit of an interest free loan (unless the amount of the loan is below £5,000)