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)

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!

Following changes to the law, H M Revenue & Customs now have much stronger powers to require that you provide evidence to back up entries on your tax returns. For business owners this means your accounting records and supporting documentation need to be of very good quality.

If HMRC can demonstrate that your records are less than effective you will face penalties.

The legislation requires you to:

“keep all such records as may be requisite for the purpose of enabling him (you) to make and deliver a correct and complete return for the year or period.”

In future you will need to keep a careful eye, not only on the results generated by your accounting software, but also on the completeness of the underlying records. It may well be the case that we offer you advice to improve the way you process and maintain records.

Records include supporting documentation such as, accounts, books, deeds, contracts, vouchers and receipts.

We are now delighted to offer all clients an easy to use online accounting system. We have held off from doing this for a long time, in an effort to ensure that the solution we offer is the best. That means easy to use, and useful information graphs, and reports at your fingertips.

If you would like us to review your accounting systems and record keeping prior to the tax year end please give us a call.

On 20 November 2008 HM Revenue & Customs confirmed that it is to launch a second campaign in 2009 to collect unpaid tax in offshore accounts. The Offshore Disclosure Facility (ODF) will target account holders with money in building societies and any of the 300 UK-based banks that have offshore operations. Last year’s similar campaign focused solely on customers of the five largest high-street banks. According to an HMRC spokesman,

“The intention of the new facility will be to provide an opportunity for account holders to inform us of their own accord of any unpaid tax or duties and to settle their debts in a similar way to the original offshore disclosure facility.”

Taxpayers affected will face threat of prosecution and higher fines if they do not come forward. It is likely that fines may be capped at 20 to 30% of the tax due to encourage people to come forward. They were capped at 10% under the previous ODF. However, HMRC stressed the campaign will not be a tax “amnesty” as all unpaid tax and interest will have to be paid in full.

The Revenue will write to the 300 banks and building societies requesting names and addresses of all their UK resident customers with offshore accounts. It will then write to customers requesting any unpaid tax. The first ODF identified some 400,000 accounts as suspicious. It raised £450 million from 45,000 people but a further 50,000 are still being investigated and some may soon be prosecuted.

“HMRC has made follow-up checks of the disclosures made and has started a programme of checks on those who did not take the opportunity to come forward,” the Revenue spokesman said. “In the most serious cases, we are carrying out criminal investigations and we will bring some prosecutions before the courts.”