There are three ways to reduce the tax payable by an employee or director who is provided with a company car: choose electric or hybrid, a ‘clean’ diesel, or take a van.
Electric and hybrid cars with CO2 emissions of up to 50g/km currently attract a taxable benefit of 16% of their list price, which doesn’t encourage companies to buy the more expensive electric models. However, from 6 April 2020 the taxable benefit of having a purely electric car will be only 2% of its list price.
Hybrids with emissions of less than 51g/km which can drive 130 miles or more on electric power, without recharging, will also be taxed at 2% of list price next year. The taxable benefits of such hybrid models will increase as the electric-only range decreases.
New ‘clean’ diesel cars are now being sold that meet the Euro standard 6d. This gives them two advantages:
- the taxable benefit is calculated as if it was a petrol vehicle; and
- the £12.50 daily charge in London’s ultralow emissions zone does not apply.
Diesel cars which don’t meet the Euro 6d standard have a 4% supplement on the percentage of list price, up to a maximum of 37%. This will also apply to diesel hybrids from April 2020.
An employee is taxed on a flat amount of £3,430 if they use a company van for private journeys, or £2,058 for an electric van. This applies irrespective of the list price of the van. So providing a commercial vehicle instead of a car can save the driver a lot of tax.
However, you need to check whether a multi-purpose vehicle was primarily designed to carry goods rather than people. A van with two rows of seats may fail this test. The definition of a van for VAT purposes is different again, and will depend on how much weight it is designed to carry.
We can help you work through the many tax implications of buying a company car or van.
Married couples tend to pool their resources and share fiscal burdens, but the UK tax system treats every individual as an independent person. This can lead to families paying more tax overall.
Where one person earns the majority of the family income, he or she may pay more tax than if both individuals each earned approximately half of the same total, and hence use their full personal allowance and basic rate bands.
Such inequality can be eased by the lower earner transferring 10% of their unused Personal Allowance to their higher earning spouse. This transferred amount is called the Marriage Allowance, as it can only be claimed by married couples or those in a civil partnership.
The marriage allowance is worth £250 for 2019/20. The person who is transferring their Personal Allowance must claim, and the recipient must be taxed at no more than 20% (21% for Scottish taxpayers). Claims can be back-dated to 2015/16, when the Marriage Allowance was introduced.
If you were widowed in the last four years, you can still claim the marriage allowance for years in which your partner was living from 6 April 2015 onwards.
You can claim the Marriage Allowance in your tax return, online, by calling 0300 200 3300, or by writing to HMRC. We can help you with this.
When you cash in a life assurance policy or bond, the taxable amount you receive is treated as the highest slice of your income. The taxable portion won’t be the full proceeds, but it can increase your marginal tax rate so you pay more tax in one year than you would have if you’d made regular withdrawals over the life of the bond.
Top-slicing relief attempts to put you in the position you would have been in, had the lump sum been paid in equal amounts in each year of the bond’s life. It doesn’t exactly achieve that, but it’s a good approximation.
The problem is, HMRC’s computer hasn’t calculated the top-slicing relief correctly in every case. For example, where the taxable part of the bond pushed your income for the year over £100,000, part or all of your personal allowance is withdrawn. However, in the top slicing relief calculation your Personal Allowance should have been reinstated. It is this step the HMRC computer missed.
A recent tax tribunal case has determined that HMRC was wrong. If you received taxable income from a life assurance bond in the last eight years, or you were an executor of an estate that received income from an offshore bond, ask us to double check the tax due.
People who complete a Self-assessment tax return and owe more than £1,000 of tax, generally have to make two payments on account of tax due for the 2018/19 year, by 31 January 2019 and 31 July 2019.
Those on account bills are based on the total amount of tax calculated as payable for 2017/18 in the tax return submitted by 31 January 2019. The HMRC computer should send taxpayers demands for those on account payments in good time to allow you to find the money before January and July 2019, but this year it has failed to do this in every case.
If you didn’t see a request on your tax statement to pay an on account amount in January 2019, you may have paid just the balancing payment due for 2017/18 in January. In this case you will either have to pay all of your 2018/19 tax due by 31 January 2020, or make a voluntary payment on account.
There is a risk that a voluntary payment will be automatically repaid by the HMRC computer, as it won’t be expecting it. So it may be easier to deposit all the tax due into a savings account and pay over the entire sum in January 2020.
If your tax statement didn’t include demands for payments on account for 2018/19, you won’t be charged interest for late payment, as long as the full amount of tax due for 2018/19 is paid by 31 January 2020.
If you did pay the correct amount of tax as we advised by 31 January 2019, including payment on account for 2018/19, and your tax statement doesn’t show a demand for 2018/19 tax due by 31 July, we can fix that. We can ask HMRC to added the payment made on account to your record, which will ensure the tax is not repaid.
Please let us know if you receive an unexpected repayment of tax, as it may not be correct
But forgiveness is not the HMRC way. Taxpayers are expected to get their tax returns right first time, and to diligently preserve all records relevant to their tax affairs for at least six years. However, HMRC has been shown to make systematic mistakes in tax computations, to provide incomplete information to taxpayers, and to have a lower standard of record retention than the courts would normally expect.
Examples of all these HMRC short comings are included in this newsletter. If you feel you have been treated unfairly by the tax system, you can usually appeal against the penalty or HMRC’s decision. Appeals have to be submitted within 30 calendar days of the date HMRC made the decision or issued the penalty notice. However, the tax tribunals are sometimes sympathetic to taxpayers who submit a late appeal, so don’t give up even if you have apparently run out of time.
The tax rules are constantly changing, and this normally means there is more tax to pay. There are big changes for Capital Gains Tax coming in for homeowners who sell from 6 April 2020, as we explain below. You may wish to sell before that date to take advantage of existing tax reliefs.
Company car drivers, on the other hand, will be delighted if they drive an electric or hybrid vehicle, as the taxable benefit for very low emissions vehicles is reducing significantly from 6 April 2020. In that case it may be better to wait until April 2020 to take up the offer of a new company car.
The next Budget is likely to be presented by a different Chancellor of the Exchequer, as the new Prime Minister will choose their own right-hand man, or woman, for that post. The new individual in charge of the nation’s coffers is likely to have some radical ideas about tax rates and reliefs. Hold on tight, it’s going to be a bumpy ride!
When you sell some or all of the shares in your company, you should expect to pay Capital Gains Tax (CGT) on any profits you make. This tax is normally charged at 20% for higherrate taxpayers, but Entrepreneurs’ Relief can reduce the CGT payable to 10%.
To qualify for Entrepreneurs’ Relief you need to be a director or employee of the company and own at least 5% of the ordinary share capital and the related voting rights. New additional conditions require the investor to have a right to either:
1.at least 5% of the dividends and assets on a winding-up, or
2.at least 5% of the total proceeds should 100% of the company be sold.
These conditions must be met for at least two full years ending with the date your shares are sold, or one year where the sale occurred before 6 April 2019.
When new shares are issued to new investors, this can dilute your own shareholding to below the crucial 5% threshold. Where your company issues new shares after 5 April 2019, you can make an election to protect your Entrepreneurs’ Relief.
Don’t forget to tell us if your company is issuing more shares or converting debt into shares, as there is a time limit for making the relevant elections
A business must register for VAT when its turnover for the last 12 months exceeds £85,000. It must also look forward and judge if its turnover in the next 30 days alone will exceed £85,000. This threshold has been frozen since 1 April 2017, and it will remain at that level until at least 1 April 2022. This means that more businesses will be drawn into the VAT net simply by increasing their prices by inflation every year.
If you don’t want to register for VAT, you either have to keep your total sales low by working fewer hours, or consider splitting your business into two entities which each have a turnover of less than £85,000. Business splitting is legal but HMRC will pursue cases where they believe the split is artificial.
You can only effectively split the business if you have separate products or services which you could deliver from different legal entities. It helps if the separate products are bought by different groups of customers. For example, cleaning commercial buildings for business customers and cleaning domestic premises for non-business customers.
Step 1: Set up two legal entities to deliver your two strands of business, such as a company for the commercial cleaning, and a partnership or sole tradership for the domestic cleaning. You can effectively control both entities.
Step 2: Split the back-office support for the two businesses to ensure HMRC sees that two businesses exist in practice. You will need to set up separate bank accounts and insurance for each entity. Also purchase supplies through distinct orders in the name of each business, and make sure the correct business bank account is used to pay for the goods acquired. Bank the sales income in the correct bank account for each business.
Step 3: Split the cost of commonly used assets. If both businesses operate from the same address, set up a formal lease so that one business sublets part of the area to the other entity. Where some employees work for both businesses, the costs should be charged from the main employer to the other business.
We can help you split your business, but the costs will require continuous monitoring
The one fact many people think they know about termination payments is that the first £30,000 is tax free. However, it isn’t any longer.
From 6 April 2018 the tax-free £30,000 cap doesn’t apply in full, as the amount that the person would have been paid if they had worked their full notice period is taxable as earnings. Only the residue of a termination award, after deduction of these taxable amounts, can be covered by the £30,000 tax-free amount.
There is a complicated formula which works out what elements are treated as salary. This takes into account the individual’s basic pay for the last pay period they worked, any contractual pay provided in lieu of notice, and how long the normal pay period and the notice period were.
Any statutory redundancy paid must be deducted from the tax-free capped amount of £30,000. The exemption for periods spent working overseas no longer applies.
We can help you work out the taxable element of any termination payments you need to make to your employees.
If you were once persuaded to take a loan in place of part of your pay, you may have recently received a letter from HMRC warning that you have more tax to pay.
Where you took one or more loans from your employer or employment agency, and never repaid the amount borrowed, you are now technically liable to pay a new tax called the loan charge on 5 April 2019. This taxes all the loans received by you as income in one tax year, 2018/19, which may well push some of your income into higher rate tax bands.
The loan charge won’t be due if you agree with HMRC, before 5 April, to pay the tax due on the salary received as a loan. You won’t have to pay all the outstanding tax in one go, as HMRC will automatically offer you an arrangement to spread the payments over up to seven years where your current annual income is less than £50,000.
However, HMRC will charge interest of 4.25% on the outstanding amount, so it will be to your benefit to pay as quickly as possible. Any Income Tax you have already paid on the benefit-in-kind in respect of a low-interest or zero-interest loan should be deducted from the loan charge tax due.
We can help you negotiate a settlement with HMRC.
Stamp Duty Land Tax (SDLT) is payable when you buy land or property in England or Northern Ireland. Buyers of property in Scotland pay Land and Buildings Transaction Tax (LBTT) and, for purchases in Wales, Land Transaction Tax (LTT) is due.
Until recently all of these taxes were payable within 30 days of the completion date, but the deadline for SDLT has been halved to 14 calendar days from 1 March 2019. This is also the period for submitting the land transaction return which reports the SDLT payable.
When a company buys a residential property for over £40,000 it must pay an additional 3% SDLT on the entire value. This supplementary rate also applies if you buy a second home. If the property is not defined as ‘residential’ it is a commercial property and the extra 3% tax doesn’t apply.
A derelict property which is in such a poor state that it’s not suitable to be lived in when purchased can’t be treated as a residential property for the purposes of SDLT. If you buy a derelict home to develop, you shouldn’t have to pay the additional 3% rate of SDLT on that purchase.
This ‘not fit to live in’ rule should also apply for purchases subject to LBTT and LTT in Scotland or Wales, as those taxes have similar supplementary rates for purchases of second homes. However, the additional rate of LBTT increased from 3% to 4% on 25 January 2019.