To August’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice on your own specific circumstances. We’re here to help!
Mileage rates for electric and hybrid cars
Some confusion has been reported over how businesses should calculate mileage expenses rates for electric and hybrid company cars. This confusion has arisen largely because HMRC’s advisory fuel rates, or approved mileage allowance payments, only cover petrol and diesel cars. There are no separate ‘approved’ rates for electric or hybrid vehicles.
Currently, whilst HMRC do recognise that employees should be reimbursed for costs incurred for business travel, they do not currently recognise electric charging costs as a ‘fuel’ expense and do not therefore, currently publish separate rates.
HMRC’s advisory fuel rates can be used to work out mileage costs in certain situations, for example, where an employer reimburses an employee for fuel they have used on business travel in a company car, or where an employee is required to repay the cost of fuel used for private travel. Where the employer uses the advisory fuel rates (or lower rates) then no liability to tax or NICs will arise on the payments and they do not need to be report to HMRC.
The treatment of mileage rates is relatively straight-forward for hybrid cars – they are treated as either petrol or diesel for the purpose of the advisory fuel rates, so employers can just use the appropriate current rates.
The situation is more difficult for employers with employees who drive electrics car as company vehicles. Such employers could use the advisory fuel rate based on the lower of the petrol or diesel tariff, or the calculated cost of the electricity used from a domestic supply to charge the car. Another option would be to pay a rate that can be calculated accurately as a true cost to the employee. Whichever method is used to reimburse mileage, it is imperative that the employer maintains adequate records to substantiate that the correct amount has been paid. Failure to keep adequate records may lead to additional tax and NIC liabilities, and penalties.
Switching to the cash basis
Many small, unincorporated businesses choose to use the ‘cash basis’ for working out taxable income. Under this method, participants will be taxed on the basis of the cash that passes through their books, rather than having to undertake complex and time-consuming calculations designed for larger businesses, who generally have to use ‘traditional’ methods for tax purposes. Whilst easing the administrative burdens of preparing ‘traditional’ accounts, using the cash basis can also help with cash flow.
For the 2017/18 tax year onwards, the eligibility income threshold for using the cash basis has been significantly raised – it is now £150,000 (previously £83,000), meaning that many more small businesses can now use the scheme. The exit threshold, above which businesses must cease to use the cash basis, has also been raised from 6 April 2017 to £300,000. This means that many businesses will be able to continue using the scheme as they continue to grow. – read more >>
SDLT on second homes
Stamp Duty Land Tax (SDLT) is payable on the purchase of residential property in increasing portions of the property price above £125,000.
Current rates of SDLT on individual and additional properties are as follows. – read more >>
Paying voluntary NICs
There are various reasons as to why gaps may arise in an individual’s national insurance contributions (NIC) record, for example, because that person has been on low earnings for several years, they have been living abroad, or because they have been unemployed and have not been claiming benefits. In certain circumstances therefore, it may be possible, and beneficial, to pay voluntary Class 3 National Insurance Contributions (NICs) as this can safeguard entitlement to a future state retirement pension and certain other state benefits. – read more >>
HMRC looks at Making Tax Digital alternative late submission penalty modules
Although the government has yet to make any formal announcement following the recent general Election, the Making Tax Digital programme for business is still expected to be rolled out by April, 2018. – read more >>
Half of small business owners have not made a Will should the worst happen
If you are in a relationship, have a family or own a property, the chances are you have already made a Will. As any accountant would tell you, it’s the prudent thing to do and it makes absolute financial sense; after all, wouldn’t you want the peace of mind of knowing that your assets will go those you love most after your death? Now, you would assume that those people who were savvy enough to make a personal Will would also do the same for their businesses. Yet, it appears that isn’t necessarily the case. According to a recent study by Legal & General more than half of Britain’s small business owners have left no instructions in their Will or made any special arrangements regarding shares. – read more>>
August Question and Answer
Q. My wife has a part time job but doesn’t earn enough to pay tax. Can she get tax relief on contributions made to a pension scheme?
A. Yes, even if you are not earning enough to pay income tax, you still qualify to have tax relief added to any contributions you make to a pension plan. However, the maximum you can pay in is £2,880 a year, or 100% of your earnings, subject to the ‘annual allowance’ restrictions.
Tax relief is added to the contributions at the basic rate of tax (currently 20%), so if you pay in £2,880 net, tax relief of £720 will be added, meaning that the gross contribution into the pension will be £3,600 (£2,880 x 100/80).
Q. I am a qualified doctor and pathologist. I have recently registered for VAT as my turnover has exceeded the current VAT registration limits. In addition to my regular doctor’s practice, which I understand is still exempt for VAT, I also write medical reports for insurance companies. I understand that this service is standard rated. However, I have also recently been requested to carry out post mortems. I am statutorily obliged to carry out this work, but I am paid for it. Should I charge VAT on my invoices for this service?
A. As you state, some services will be taxable or exempt, depending on their primary purpose. This is particularly the case in the area of medical reports and certificates, and in these cases, it is necessary to establish their principal purpose, before liability can be determined. Where the service is principally aimed at the protection, maintenance or restoration of health of the person concerned, the supply is exempt. However, where a medical report is done solely to provide a third party with a necessary element for taking a decision for insurance or legal purposes, the supply is taxable at the standard rate.
Where a doctor is compelled by statute to perform a statutory service and charges a fee for it then the supply is outside the scope of VAT (see VAT Notice 701/57, para 4.13). Under Section 19 of the Coroners Act 1998 a coroner can appoint a doctor (pathologist) to carry out a post mortem if necessary. As this is a statutory requirement and the doctor must provide the service, any payment received will be outside the scope.
Q. I started my own business as a sole trader on 1 December 2016. Although it has been quite a slow start, my profits are slowly going up and I am hopeful that they will continue to rise steadily over the next few years. Should I use 30 November or the tax year-end as my accounting year-end?
A. As a general rule of thumb, choosing a year-end earlier in the year, will generally give a business longer to pay its annual tax bill. This, in turn, can help considerably with the business cash-flow.
Taxpayers are generally required to make two equal payments of their income tax liabilities including any Class 2 and Class 4 NIC liability) on account:
– by 31 January in the tax year; and
– by 31 July following the tax year,
based on the total income tax payable directly in the previous tax year.
The balance, together with any capital gains tax, is normally payable (or repayable) by 31 January after the tax year.
August Key Tax Dates
2 – Deadline for PAYE settlement agreement for 2016/17
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/8/2017