A guide to The Annual Accounting Scheme

Dec26

UNDERSTANDING THE ANNUAL ACCOUNTING SCHEME
As an overview, the Annual Accounting Scheme allows you to complete just one VAT return per year. The VAT is paid in instalments, thus avoiding a VAT liability at the end of the year. This is one amongst a number of schemes offered by HM Revenue & Customs (HMRC) aimed at easing the administrative burdens small businesses face.

The scheme provides a number of advantages, such as:

less administrative burden by only requiring the submission of one VAT return per annum

a cash flow advantage as the instalments can be smaller than the larger quarterly payments
a longer time limit for submitting your annual VAT return is two months.

Please note that this scheme can be used together with ‘Cash accounting scheme’ and the ‘Flat rate scheme’. Repayment traders can enter the scheme, though it would generally put them at a cash flow disadvantage as they will only receive a repayment once a year. In addition, the scheme can be used with other retail schemes, margin schemes, Tour Operators Margin scheme and for partially exempt businesses.

Eligibility for the scheme

A business is eligible for the scheme providing you expect the value of your taxable supplies in the next year not to exceed £1,350,000.

The previous restriction of waiting for one year before registering under this scheme for newly registered businesses with taxable turnover exceeding £150,000 has been removed from 1 April 2006.

The taxable supplies figure is the total of your standard, reduced and zero rated supplies excluding VAT. For this purpose, exempt supplies or sale of capital assets can be ignored. If you exceed the threshold for the scheme, provided that the estimates were made on reasonable grounds, HMRC will not levy a penalty.

The scheme can be used until your taxable supplies including the disposal of stock and capital assets does not exceed £1,600,000. Once this figure has been exceeded, excluding ‘one-off’ increases in sales, you will have to leave the scheme at the end of your current tax period.

You cannot joint the scheme if:

you are part of a VAT group or divisional registration

you have stopped using the annual accounting scheme in the previous 12 months
you have an increasing VAT debt, unless it is small and have agreed with HMRC to clear it
you are insolvent

APPLYING FOR THE SCHEME

The scheme does not automatically apply, application is made by completing and submitting form VAT 600AA. This application form can be obtained from the following:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000068&propertyType=document

The application form together with a direct debit mandate (if applicable) has to be sent to:

Annual Accounting Registration Unit

Deansgate

62-70 Tettenhall Road

Wolverhampton

WV1 4TZ

Please note that if you wish to join the ‘Flat Rate Scheme’ as well as this scheme there is a joint application form available, which is submitted to the address mentioned above. The joint application form can be obtained from the following:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000073&propertyType=document

When joining the scheme, the start date will be usually be from the beginning of the VAT period in which the application to enter the scheme has been made. Unless the application has been applied for later within the VAT return period, the proceeding period marks the entry into the scheme. This is better demonstrated by examples.

Example 1

The VAT quarter starts 1 May and ends 31 July. An application to enter the scheme was approved on 1 June, therefore the annual VAT return starts from 1 May. The annual accounting year ends 30 April.

Example 2

The VAT quarter starts 1 May and ends 31 July. An application to enter the scheme was approved on 27 July, as the VAT return for that period will have already have been issued the annual VAT return will start from 1 August. The annual accounting year ends 31 July.

The accounting year end can be changed by request, which leads to shorter period VAT returns.

If you wish to leave the scheme notice must be made in writing to the Annual Accounting Registration Unit.

USING THE SCHEME

The mechanics of the scheme is to allow you to make usually 9 interim payments. Then a balancing payment is made together with the submission of the VAT return, 2 months after the VAT year end.

The nine instalments are calculated as 10% of your last VAT returns liability. They are paid in month 4 through to month 12. The final payment would be submitted with the VAT return two months after the VAT year end, i.e. month 14.

Quarterly instalments can be requested, however, the default position is monthly. Each quarterly instalment will be 25% of last years VAT return liability. Quarterly instalments are paid in month 4, 7 and 10. The final payment would be submitted with the VAT return two months after the VAT year end, i.e. month 14.

If the instalments are incorrect, too low, too high, or your business changes, amendments to the payments can be made. In addition, extra voluntary payments can be made. Any request for a change must be informed to the Annual Accounting Registration Unit.

The conditions of using the scheme are

interim payments are made by the date notified by HMRC

interim payments are made by either Direct Debit, Standing Order or other electronic means
the annual VAT return and the balancing payment are sent by the date shown on the VAT return

Record keeping and administration

In regard to record keeping, the same rules apply as to all VAT registered businesses, details of which can be found in VAT Notice 700/21.

FURTHER CONSIDERATION

Further details can be found on the HMRC website, as a source of reference please refer to the VAT Notice 732, produced by HM Revenue & Customs (HMRC).

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&columns=1&id=HMCE_PROD_010163

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Whose Fault is Underpaid Tax

Dec24

Have you received a tax calculation (on form P800) which shows you owe tax that you thought had been collected under PAYE? Every year the Tax Office undertakes a ‘PAYE reconciliation’ to check whether the tax collected from pensions and salary under PAYE was the correct amount. Where a taxpayer has a number of jobs or several pensions in a year, the PAYE system can get it wrong, leaving tax underpaid.

We can help you check any form P800 you receive, but we need to see the PAYE codes issued to you for the tax year, and payslips from your employer or pension provider to check what PAYE codes they have used. Where the employer/pension provider has not used the correct PAYE code and this causes any tax not to be collected, it remains their responsibility, not yours.

Unfortunately the Taxman is ignoring this piece of law and is demanding payment of the underpaid tax from employees and pensioners, where the error lies with the employer/pension provider. We can help you challenge the Taxman on this point.

Sometimes the fault lies with the Taxman who has ignored information you or your employer have provided on more than one occasion. The Tax Office may also have let tax arrears build up over two or more years without telling you. If either of these situations apply, you can ask the Taxman to write-off the tax owing under Extra Statutory Concession A19. The Taxman is very reluctant to use this concession, but we can help argue your case

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

A guide to The Non-Domicile Levy

Dec19

A SIMPLE GUIDE TO THE £30,000 NON-DOM LEVY

This is a basic guide prepared by the Technical Advisory service for members and their clients. It is an introductiononly and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.

Non-Dom Levy

Prior to the 2008 Budget, non-domiciliaries were not required to pay UK tax on income and gains generated from outside the UK provided that it was not remitted to the UK (remittance basis).

The 2008 Budget saw the introduction of the £30,000 non-domicile levy.

The basic premise of this levy is that it enables the non-domiciliary to retain the remittance basis of taxation beyond 5 April 2008 but at a cost. If the remittance basis is not opted for, the non-domiciled individual is taxed on their worldwide income and gains in the same way as a UK domiciled individual.

The remittance basis will apply automatically (with no levy), if:

The individual’s unremitted income and gains are less than £2,000 in a tax year; or
The individual has been resident in the UK for fewer than seven out of the last nine tax years.

From 6 April 2008, an individual who claims the remittance basis for a tax year will incur an additional tax charge of £30,000 for that year, if the following circumstances apply to them:

They are 18 years old or over at any time during the tax year; and
He has been UK resident for at least seven of the last nine tax years immediately preceding the tax year in question. (The preceding years may include years prior to 2008/09).

Finance Act 2012 changes

Legislation will be included in Finance Act 2012 to make the following changes to the remittance basis from 6 April 2012 onwards:

A higher annual charge of £50,000 will be introduced for those individuals who claim the remittance basis for a tax year and have been UK resident in at least twelve of the last 14 tax years
Non-domiciles will be able to remit their overseas income or capital gains to the UK tax-free where they do so for the purpose of making a ‘qualifying investment’. A ‘qualifying investment‘ is an investment in an unlisted company, or a company listed on an exchange regulated market, which carries on a trading activity on a commercial basis or undertakes the development or letting of commercial property. There will be anti-avoidance provisions to ensure the investment is made on proper commercial terms.

The decision whether to claim remittance basis and pay the non-domiciliary levy must be made by 31 January following the end of the tax year; i.e. 31 January 2013 for the tax year 2011/12. However, early consideration should be given to ensure the most beneficial treatment.

SCOPE OF THE LEVY

It must be noted:

UK trusts that receive income or gains from outside the UK may be subject to this levy if the settler or beneficiary is based in the UK
Spouses and civil partners are each liable to a separate levy
Money brought in to pay the levy will not be subject to UK tax
Works of art lent for public display are exempt from a charge to tax

Assets already in the UK that were purchased with foreign investment income will not give rise to a remittance charge.

The levy will be collected through the self assessment system with the deadline for being the remittance basis being 31 January following the end of the tax year, i.e. tax return filing deadline.

DOMICILE DEFINITIONS

Domicile of Origin

Normally where an individual is born, this would be the father’s domicile at the time of birth, where the parents are married; otherwise it defaults to the mother’s domicile.

Domicile of Choice

An individual may acquire a new domicile status by acquiring an new domicile of choice. To acquire a new domicile of choice requires positive action, such as settling in a different country and making a will under the laws of that country. HMRC may seek to establish that somebody who has settled in the UK has acquired a new domicile of choice.

Deemed Domicile

Where an individual is tax resident in the UK for 17 out of the last 20 years, this is only relevant for inheritance tax purposes.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Getting Assets or Shares

Dec17

If you plan to gift assets or shares to your relatives, there are several taxes you need to consider:

Capital Gains Tax

You won’t make an actual profit or gain when you give away assets or shares, so you may not expect to pay capital gains tax. However, when the gift is made to a person connected to you, such as your son or daughter, UK tax law deems you to have made a transfer of the asset at its market value. This means you could well make a paper gain on the gift, which will be subject to capital gains tax. This does not apply to a gift to your spouse or civil partner.

You need to calculate this gain to see if it needs to be reported on your tax return. Where the gain from the gift, together with any other gains you make in the year, exceeds your annual exemption of £10,600, all those gains must be reported on your tax return.

To calculate the amount of the gain you need to know the market value of the items given, at the date of the gift, and the cost or value when you acquired the items. If you acquired the assets before 31 March 1982, the value at 31 March 1982 is taken as your cost value, so you need a value at that date as well. We can help you with the calculation of the gain, but it would be wise to engage a specialist valuer to determine the value of the assets (particularly property) at the date of the gift and at 31 March 1982 if required.

Gift tax

If the asset (such as property) you plan to give away is located in another country you need to take local tax advice as to whether gift tax will apply. This is not a tax we have in the UK, so any gift tax paid in another jurisdiction will not be offset against UK tax paid on the same gift. Local transaction taxes such as VAT or stamp duty may also apply, so do your research first.

Stamp Duties

Stamp duty does not apply to shares which are transferred as a gift.

Stamp duty land tax generally applies to the transfer of land in the UK, but it will not apply if the recipient gives nothing in return for the property, i.e. it is a pure gift. However, if the recipient agrees to take on a mortgage attached to the property, the outstanding value of that mortgage will be treated as consideration for the property and stamp duty land tax will apply to that consideration.

Inheritance Tax

Most gifts of assets you make will be treated as potentially exempt transfers for inheritance tax, which means they escape inheritance tax as long as you live for at least seven years after the date of the gift. You can look to take out insurance to cover the cost of inheritance tax that will become payable in respect of the gifts made during your lifetime. Gifts made into a trust may be subject to inheritance tax immediately.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

A guide to Benefits in Kind – Vehicles

Dec12

A SIMPLE GUIDE TO BENEFITS IN KIND

This is a basic guide and should not be used as definitive guides, since individual circumstances may vary; specific advice should be obtained, where necessary.

Expenses and Benefits in Employment – Transport

Expenses and benefits received by reason of employment (whether paid by the employer or another person, e.g. tips) are generally taxable. This guide gives an overview of the following benefits:

Vans, cars and petrol
Mileage allowances

Company cars

The charge is based on a percentage of the car’s list price, graduated according to the car’s carbon dioxide emission levels, maximum 35%. www.vcacarfueldata.org.uk/

For a petrol car, the benefit is calculated by multiplying the car’s list price and the appropriate percentage, based upon the car’s CO2 emissions. Note that prior to 6 April 2011, the list price of the car was capped to £80,000 but this cap no longer applies from 2011/12 onwards.
Where a disabled driver must use an automatic car, the benefit is that for an equivalent manual car.
If the car is unavailable for part of the year, the charge is proportionately reduced.
If the employee makes a contribution towards private use, this will reduce the benefit in kind
HMRC have a useful car at fuel benefit calculator on their website at http://www.hmrc.gov.uk/calcs/cars.htm
.

Classic cars

Classic cars (more than 15 years old at the end of the tax year), where the market value is greater than the list price and is at least £15,000, the chargeable benefit is the relevant percentage of the greater of list price and market value.

Fuel benefit

Where an employer provides an employee with free fuel for private purposes, the taxable benefit is linked to carbon dioxide emissions. The percentage used for the fuel benefit is applied to a figure set by the Treasury, currently, £18,800 for 2011/12. If the free fuel benefit is withdrawn during the year, the taxable figure is apportioned. If the employee makes a contribution towards private fuel, this will not reduce the fuel benefit unless every drop of private fuel is reimbursed, i.e. it is an “all or nothing” benefit.

Vans used by employees

From April 2007, the scale charge for all vans with unrestricted private use is £3,000. If the employer provides fuel for unrestricted use, a fuel charge of £550 will also apply. Where vans are shared (other than pool vans, where there is no benefit), the employees are charged on their share of the use of all the employer’s vans. The maximum charge is reduced by any period of 30 days when a van was not available for use. Fuel for insignificant private use is disregarded.

Passenger payments up to the approved rate for business travel may be made to an employee carrying passengers in his or the company’s car or van.

Exemptions

The following transport benefits do not give rise to a taxable benefit in kind:

Works bus services

Benefits arising from an employer providing or subsidising a works bus service are exempt.
Where the benefit is provided by a ticket or voucher, any benefit under the voucher rules is exempt.
The bus must have a seating capacity of at least 12 and must be available to employees generally.

Other benefits

Parking facilities (car, motor cycle, or cycle) at or near workplace.
Emergency vehicles when employee is on call
Small loans totalling £5,000 or less, e.g. season ticket loans, can be disregarded.
Cycles and cycling safety equipment – For details of the Cycle to Work scheme, under which it is possible to provide cycles and safety equipment to employees in a tax efficient manner, visit http://www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkguidance/
Lunchtime use of works’ buses
Taxis for late working (exceptionally)

Mileage allowances

There is a tax-free approved amount, currently 45p per mile up to 10,000 miles and 25p thereafter, where an employee uses their own car for business use. If the employer pays more than that, only the excess is taxed. If the employee reimburses an employee with amounts that fall below the HMRC-approved rates, the employee may claim any deficit as a deduction from his earnings from employment under s336 ITEPA 2003.

Mileage payments within the HMRC approved rates do not need to be reported on form P11D.

Passenger Payments

If the driver of a vehicle carries at least one passenger on a business trip, he may claim an additional 5p per mile. This applies whether to both cars and vans and to use of an employee’s own vehicle OR a company vehicle.

Note, if the employer pays less than 5p per mile (or nothing at all), there is no equivalent to Mileage Allowance Relief, i.e. the employee is not entitled to claim a deduction under ITEPA 2003,s336 for the shortfall.

Dispensations

An employer can agree with his tax office that certain benefits e.g. business travel will not be taxable, if for example, only business expenses are reimbursed. This is known as a dispensation. A dispensation can be applied for using a form P11DX which can be accessed via the following link, http://www.hmrc.gov.uk/forms/p11dx.pdf

Changes to Car and Fuel Benefit:

With effect from 6 April 2012:

The 10% benefit category for cars with emissions of 120g/km or less will be removed.

Cars the emit 99g/km or less of CO2 will be subject to a 10% benefit charge
The benefit charge will increase by 1% over and above the 10% rate for every 5g/km increment in CO2 emissions over 99 g/km.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Child Benefit Clawback

Dec10

If your net taxable income last year was £50,000 or more you will shortly receive a letter from the Tax Office about child benefit. You can safely bin this missive if your children are no longer eligible for child benefit, but where you or your partner/spouse claim child benefit you need to pay attention.

This is because from 7 January 2013 the higher earner in the family (where that person has £50,000 or more of income) will be landed with a tax charge to clawback the child benefit claimed in respect of the children. The tax charge will equal 1% of the child benefit received by the family for every £100 of income over £50,000, so 100% of the child benefit will be clawed-back when the higher earner has net taxable income of £60,000 per year.

The tax charge only applies to child benefit paid from 7 January 2013 onwards, and will be calculated on your net taxable income for the current tax year: 2012/13. Net taxable income is income after deduction of losses, pension contributions and gift aid payments but before personal allowances. So there is some scope for reducing your net income below £50,000 by paying pension contributions, gift aid donations, or by taking a smaller dividend from your own company in the current tax year. But those strategies, and other ways to manage your income, need to continue until the children are no longer eligible for child benefit.

You will be given the option of declining to receive child benefit to avoid the tax charge, and this will be explained in the Taxman’s letter. However, this is not the same as not making a claim for child benefit. It is important to make a claim for child benefit (even if you decline to receive it) as the claim can help entitlements to the state pension for a non-working parent, and ensures the child receives an NI number at age 15.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

A guide to Benefits in Kind

Dec5

A SIMPLE GUIDE TO BENEFITS IN KIND

This is a basic guide and should not be used as a definitive guide, since individual circumstances may differ, in which case specific advice should be obtained, where necessary.

Expenses and Benefits in Employment – Overview

Expenses and benefits received by reason of employment (whether paid by the employer or another person (e.g. tips) are generally taxable.

The way in which a benefit in kind is provided will determine its tax treatment and the manner in which it should be reported, as follows:

Manner in which provided:	Tax/NIC due:	Report on:

Employer arranges and pays directly for benefit	Class 1A	P11D/P9D

Employee arranges benefit; employer pays for it	Class 1 (employee and employers)	Account for NIC through payroll; report benefit on P11D/P9D

Employee arranges and pays for benefit; employer reimburses cost	PAYE Tax and Class 1 NIC (employees and employers)	Through payroll; P35

RETURNS

An end of year return P35 has to be submitted by the employer before 20 May after the tax year:

P11D in respect of an employee earning £8,500 or more or
P9D in respect of an employee earning less than £8,500.
P11D(b) return of Class 1A contributions due on all benefits in kind for all employees.

A copy P11D or P9D must be given to the employee before 7 July after the tax year and the P11D/P9D returns must be submitted to HMRC by the same date.

Note: the £8,500 threshold includes the normal pay plus the amount of any benefit without deduction for business use, superannuation contributions or profit related pay.

TAX TREATMENT OF BENEFITS

Value of benefit

The normal value of a benefit is cost to the employer, less any contribution made by the employee. This cost includes VAT, even if the employer can reclaim the input VAT.

Where the benefit is shared facilities, only the additional (marginal) cost is charged (e.g. a schoolmaster whose child attends the school at which he teaches).

HMRC have a useful facility on their website (www.hmrc.gov.uk) which gives an “A-Z” of benefits in kind and the associated tax treatment. To use this, visit, http://www.hmrc.gov.uk/paye/exb/a-z/a/index.htm

Special Rules

There are special rules for:

Vans, cars and petrol
Mileage allowances
Beneficial loans
Directors’ tax paid by employer
Scholarships
Shares acquired at undervalue.

Exemptions

The following do not have to be included:

Mobile phones. From April 2006 only one mobile lent to an employee – not his family – is exempt (this does not affect arrangements entered into prior to April 2006). NB. HMRC previously used to regard iPhone, Blackberries and other smartphones as mini-computers rather than mobile phones and therefore not eligible for the exemption. HMRC has, however, recently changed its view. (Visit http://www.hmrc.gov.uk/briefs/income-tax/brief0212.htm for details).
In-house recreational benefits – extended to other persons working on the premises from 2005-06.
Accommodation on employer’s premises to enable employee to carry out his duties in very limited circumstances.
Lump sum pension/gratuity on death/retirement of an employee.
Canteen meals if available for all staff.
Workplace nurseries, accommodation on employer’s premises or approved premises arranged by him. This must not be in a private dwelling.
Childcare vouchers up to £55 per week. Note that for employees taxed at the higher rate or the additional rate of tax, who join a childcare voucher scheme after 5 April 2011, income tax relief is restricted to the basic rate.
Hospitality from third persons if not for specific services.
Medical treatment or insurance in respect of overseas business trips.
Parking facilities (car, motor cycle, or cycle) at or near workplace.
Incidental overnight expenses
Security assets and services
Contribution to employees working from home towards additional household costs.
Pension advice and information, up to £150 per year.

Minor benefits

These can be exempted. Under current regulations, the following are exempted:

Cycles and safety equipment and cyclists’ breakfasts
Lunchtime use of works’ buses
Welfare counselling
Hearing aids, services and facilities available to disabled employees to enable them to fulfil their duties.

Assets transferred

Assets transferred to ‘lower paid’ (under £8,500) employees are normally valued at second-hand value, less any contribution from the employee.

The value of an asset transferred to a ‘higher paid’ employee or director will depend upon whether the asset has been used or depreciated prior to the transfer.

A new asset is valued at the greater of:

Cost or
Second-hand value

less any contribution by the employee.

Used assets transferred are valued at market value at the date of transfer less any contribution made by the employee.

Assets previously made available to the employee are charged at the higher of:

Market value at the date of transfer, and
Market value when first made available to the employee, less any amounts already charged in respect of that use, less any contribution from the employee.

No charge is made where employees/directors buy computers or bicycles from their employer, provided they pay market value.

Assets made available to employees

Where an asset is made available to an employee for private use, the benefit is the higher of:

20% of the market value when first made available; and
the annual rent or hire charge of the asset,

together with any additional costs in association with the provision of the asset ( minus any amount made good by the employee).

Living accommodation and related expenses

Living accommodation provided by the employer is a taxable benefit whatever the rate of pay, but there are exceptions.

Where a director or ‘higher paid employee’ has the normal expenses of occupation paid by the employer, that will be a normal chargeable benefit.

For further details on accommodation benefit, visit http://www.hmrc.gov.uk/paye/exb/a-z/l/accommodation.htm

Job-related occupation

The amount of benefit charged for occupation is partially exempt where the employee is in job-related occupation. The partial exemption reduces the charge on what would otherwise be the full cost of expenses such as repairs, heating and lighting, cleaning, maintenance up to an amount not more than 10% of the emoluments of the employee, less any contribution made by the employee. ‘Emoluments’ includes any emoluments of employment with an associated company.

Vans used by employees

Where an employee has to take a van home and is not allowed any other private use, there is no benefit charge.
Where private use is unrestricted, a fixed benefit charge of £3,000 applies.
If the employer provides fuel for unrestricted use, a fuel charge of £550 will also apply.

Shared vans

Where vans are shared (other than pool vans, where there is no benefit), the employees are charged on their share of the use of all the employer’s vans. Maximum charge £3,000, is reduced by any period of 30 days when a van was not available for use.

For further details of van benefit, visit http://www.hmrc.gov.uk/paye/exb/a-z/v/vans.htm

Company cars

The charge is based on a percentage of the car’s list price, graduated according to the car’s carbon dioxide emission levels, maximum 35%. http://www.vcacarfueldata.org.uk/

For a petrol car, the benefit is calculated by the percentage charge of the car’s price and the appropriate percentage, based upon the car’s CO2 emissions. Note that prior to 6 April 2011, the cost of the car was capped at £80,000 but this no longer applies for 2011/12 onwards.
Where a disabled driver must use an automatic car, the benefit is that for an equivalent manual car.
If the car is unavailable for part of the year, the charge is proportionately reduced.
If the employee makes a contribution towards private use, this will reduce the benefit in kind.
HMRC have a useful car at fuel benefit calculator on their website at http://www.hmrc.gov.uk/calcs/cars.htm

Classic cars

Fuel benefit

Where an employer provides an employee with free fuel for private purposes, the taxable benefit is linked to carbon dioxide emissions. The percentage used for the fuel benefit is applied to a figure set by the Treasury, currently £18,800 for 2011/12. If the free fuel benefit is withdrawn during the year, the taxable figure is apportioned. If the employee makes a contribution towards private fuel, this will not reduce the fuel benefit unless every drop of private fuel is reimbursed, i.e. it is an “all or nothing” benefit.

If the free fuel benefit is withdrawn during the year, the taxable figure is apportioned.

Changes to car and fuel benefit

With effect from 6 April 2012:

The 10% benefit category for cars with emissions of 120g/km or less will be removed.
Cars the emit 99g/km or less of CO2 will be subject to a 10% benefit charge

· The benefit charge will increase by 1% over and above the 10% rate for every 5g/km increment in CO2 emissions over 99 g/km.

Mileage allowances

If the driver of the vehicle carries at least one passenger on a business trip, he may claim an additional 5p per mile.

Mileage payments within the HMRC approved rates do not need to be reported on form P11D.
Passenger Payments

Works bus services

· Benefits arising from an employer providing or subsidising a works bus service are exempt.

Where the benefit is provided by a ticket or voucher, any benefit under the voucher rules is exempt.
The bus must have a seating capacity of at least 12 and must be available to employees generally.

Beneficial loans

A tax charge arises on the benefit of a loan. Where it is a loan with little or no interest, the benefit is charged on the difference between the interest paid in a tax year and interest payable at the official rate.

In calculating this, the standard way is to multiply the average amount outstanding at the beginning and end of the year and apply the official rate of interest. An alternative method of calculation, based on the day-to-day outstanding balance may be used at the request of either HMRC or the taxpayer.

Small loans totalling £5,000 or less, e.g. season ticket loans, can be disregarded.

For further information on beneficial loans, visit http://www.hmrc.gov.uk/paye/exb/a-z/l/loans.htm.

Director’s tax paid by employer

Where the company fails to deduct PAYE from a director’s emoluments, but accounts to HMRC for the tax, the amount not reimbursed by the director is taxed as a benefit in kind.

Scholarships

Scholarships made to a child of a director or higher paid employee are taxed as benefits where made as a result of ‘arrangements entered into by an employer, or a connected person’.

There is an exception, where 75% of scholarships awarded from the fund are to scholars who are not children of employees e.g. where the connection is coincidental.

Workplace Nurseries

Childcare provided by an employer in a workplace nursery or similar facility is exempt:

The employee must have parental responsibility for the child, or reside with it, or maintain it at his expense;
The care is provided on premises which are not wholly or mainly used as a private residence;
Either the care is provided on premises made available by the employer or the care is provided under arrangements by the employer and others and make him responsible or partly responsible for managing and financing the care provision; and
Where the registration requirement applies, it is met, i.e. either the premises or carer must be registered and they are registered.

In order to satisfy the condition that the employer must be at least partly responsible for managing and financing the care provision, his role must be a real one which makes him accountable if things go wrong.

External Childcare

An employer may pay for employees’ childcare with a registered child-minder or nursery. The employee can receive benefit up to £55 per week towards the cost of childcare, in the following circumstances:

The employer contracts directly with the child-minder or nursery for the provision of the childcare, or

The employer provides childcare vouchers which the employee may then use to pay for childcare with a registered childminder or nursery.

Prior to 6 April 2011, tax relied on the provision of childcare vouchers was given at the taxpayer’s marginal rate of tax. This continues to be the case after 6 April 2011 where the taxpayer was already registered on a scheme.

For those joining a scheme after 5 April 2011, tax relief is restricted to the basic rate and the employer must carry out an assessment of the employer’s earnings to determine whether to restrict the tax relief to basic rate at source.

Eye tests and spectacles

The provision of eye tests and /or spectacles for VDU work is exempt if:

The test or appliances are required by the Health and Safety at Work Act 1974
The tests and appliances are available generally to employees working with VDUs.

Dispensations

An employer can agree with his tax office that certain benefits e.g. business travel will not be taxable, if for example, only business expenses are reimbursed. This is known as a dispensation. This obviates the necessity for the employee to report the ‘benefit’ on his return and for the employer to include it on the form P11D or P9D. Obtaining a dispensation agreement with HMRC can significantly reduce the administrative burden of having to report expenses on forms P11D/P11D and for the employee then having to make a cliam for the expenses to be non-taxable due to being incurred wholly, exclusively and necessarily in carrying out the duties of employment.

HMRC are keen to encourage the use of dispensations and have introduced a facility to apply for dispensations online at https://online.hmrc.gov.uk/shortforms/form/P11DX?dept-name=&sub-dept-name=&location=1&origin=http://www.hmrc.gov.uk

PAYE Settlement Agreements

This is another helpful scheme that allows an organisation to settle any PAYE and NIC’s on certain expenses and benefits, directly on behalf of its employees. Items covered by a PSA do not need to shown on forms P11D or put through the payroll.

The following expenses/benefits may be covered by a PSA:

minor items (e.g. small gifts s to employees)
- irregular items (e.g. non-qualifying business trip for spouse)
- items which are impractical or difficult to value for P9D/P11D purposes (e.g. items difficult to attribute to a single employee)

The employer calculates the tax due on the grossed-up value of the benefits in kind. A special class of NIC, Class 1B is payable on the grossed-up value of the benefit.

For further details, visit http://www.hmrc.gov.uk/paye/exb/schemes/psa.htm

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Home Usage

Dec3

Q. I want to buy a new business but the only way I can do that is to increase the mortgage on my house. Will the interest I pay on the extra mortgage be tax allowable for the business?

A. In principle yes, but there are restrictions to prevent improper use of this tax relief. Further restrictions are also proposed from 6 April 2013 (see above). Interest paid on loans used to buy into a partnership or to buy shares in a closely controlled company, or lend to such a company are generally tax allowable. However, it would be best to have a separate loan for this business investment, as when you repay any part of the mortgage the business part will be deemed to be reduced first. You will also have to hold at least 5% of the ordinary shares of the company and work for it for the greater part of your time.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

A guide to Child Tax Credits

Nov28

A SIMPLE GUIDE TO CHILD TAX CREDITS

This is a basic guide. It should not be used as a definitive guide, since individual circumstances may differ, in which case specific advice should be obtained, where necessary. There are two main tax credits:

working tax credit, available to working people on low incomes,
and child tax credit, which is for people with children, whether they are working or not.

Prior to 6 April 2012, the basic element of child tax credit was protected up to a family income level of £40,000 but this has now been removed. Child tax credits are now tapered away much earlier. The child tax credit calculation is very complicated. However, HMRC have a tax credit calculator on their website at http://taxcredits.hmrc.gov.uk/Qualify/DIQHousehold.aspx which enables people to check their entitlement. From 6 April 2012, the backdating provisions have been shortened to one month., so it is important to take prompt action to ensure credits due are not lost. It is possible to make a protective claim where a person is not eligible because their income is too high, but would otherwise meet the criteria. This gives them an identity for tax credit purposes and means that if their income falls, they may be entitled to tax credits recalculated to the start of the tax year, whereas if they do not claim until income does fall, the claim can only be backdated for one month. Tax credit applications have to be joint applications if the claimant is part of a couple. Child tax credit is made up of several elements: Maximum annual rate Element 2012-13 Family element £545 Child or young person element £2,690 Disability element – where the child or young person is disabled** £5,640 Severe disability element – where the child or young person is severely disabled** £6,830 *The child or young person elements, including the higher amounts in respect of disability or severe disability, are mutually exclusive: one element, the highest for which the child or young person qualifies, will be payable for each child or young person. The renewal deadline is 31 July. At the start of the tax year, tax credits are paid on a provisional basis, based on the previous year’s income and will be finalised and recalculated after the year end. If income has increased, tax credits will only be recalculated if the increase is more than £10,000 (£25,000 for years prior to 2011-12). A disregard of £2,500 for income falls has been introduced from 6 April 2012. Self employed income for this purpose will be the taxable profit for the tax year. If a loss is made, it will be set against any other income for that year, including that of any joint claimant. Losses carried back against the previous year’s income for income tax purposes will be treated differently for tax credit purposes. For tax credits, any loss will be set against other income in the same year, and any not so utilised can be carried forward. A capital allowances claim will reduce taxable profit, thereby reducing the level of income to be taken into account for tax credit purposes. Carefully timed capital allowances claims, taken in conjunction with the income disregard, can have an impact on the amount of tax credits that can be claimed, although the effects of this are now significantly less following the reduction in the income disregard.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Buying car being Director

Nov26

Q. My company is doing well and I’d like a new car, possibly a BMW series 5. Should the company lease or buy this car, or does it make more sense for me to take a dividend from the company and to buy the car personally?

A. As the car is available to you for personal journeys you will be taxed on the ‘benefit’ of driving that car giving rise each year to a tax bill for yourself and a NI bill for your company at 13.8%.

The company will get a deduction against profits for the cost of leasing the car, but that deduction is limited if the car has CO2 emissions over 160g/km (reducing to 135g/km from April 2013). Likewise the capital allowances are restricted for cars with CO2 emissions over 160g/km. The company can pay for the car’s insurance, servicing and repairs, with no further cost to you, the driver. However, if fuel is provided there is an additional benefit in kind to be taxed on you.

In reality the calculations need to take into account other factors such as the cost of insurance and whether you need to borrow money to buy the car.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.