Tax relief at Christmas

Tax Relief at Christmas

As thoughts turn to all things Christmassy, I thought I would write a few words on tax issues relevant to the forth coming festive season. I hope this will give you some ideas while planning treats for your customers and staff!


 Christmas Parties

• The cost of a staff party or other annual function for employees is an allowable tax deduction for businesses. This does not apply to sole traders and business partners of unincorporated organisations.
  
  As long as the function meets the following criteria, there will be no chargeable taxable benefit for the employee:

• It must be open to all employees, or to all at a particular location.
• The cost per head must not exceed £150. If more than one annual function is provided the aggregate cost per head must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head of attendees.
• If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending.
• Cost is calculated as the total cost of the party or function including any transport or accommodation provided and VAT.
  
  
  

VAT is recoverable on staff entertaining expenditure but this does not extend to staff partners/spouses so input VAT will need to be apportioned.

Client Entertaining

Client entertaining (i.e. hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.

Business Gifts

Gifts to customers are only allowable as a tax deduction if:

• The total cost of gifts to any one individual per annum does not exceed £50 and
• The gift bears a conspicuous advert for the business and
• The gift is not food, drink, tobacco or exchangeable vouchers.
  
  

However samples of a trader’s product are allowable even if they are food, drink or tobacco. 

Gifts to Staff

In some cases HMRC will consider a benefit exempt on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing. HMRC have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of ordinary wine or bottle of fine wine or a hamper is unlikely to be considered trivial.

This concession also applies to seasonal flu jabs which are also considered trivial but your employees may not be quite so appreciative of the “gift”!

Some employers give staff vouchers at Christmas; these are subject to tax and NI on the individual.

Christmas Bonus for staff

This will count as ordinary earnings and be subject to PAYE and NI as if it were additional salary.

 I hope this has given you some ideas and information on festive tax matters.

Mark

Tax on classic company cars

As mentioned in our mileage versus company car blog, if you purchase a car through your Limited Company and it is available for private use, (for example you park it at your home) then you have a taxable benefit. As a recap this is calculated from taking the price of the car if it was brand new, known as the list price, and multiplying it by a percentage based on the CO2 emissions of the car.

However, if you have car that was registered before the 1^st January 1998, then there would be no CO2 data, making it impossible to calculate the taxable benefit. Cars that fall into this category are known as “Classic Cars”. HM Revenue & Customs have an alternative way of calculating the percentage based on the engine size -15% for engines up to 1400cc, 25% for 1401cc to 2000cc and 35% for any engine larger or if it has a rotary engine. Just like with the CO2 percentages, you add 3% if the car is a diesel.

But that’s not all, if the current market value, i.e. how much the car is currently worth, is at least £15,000 and also higher than the list price of the car (which is possible depending on how old the car is) then you would use the cars current value instead of the list price.

Fuel benefit is the same as regular cars, with the figure for 2013/14 being £21,100 which is multiplied by the above percentage.

If you have a company car that falls into the requirements to be a classic car, and you would like help calculating any benefit that may be due, please get in touch.

Mark

Mileage allowances

Travelling expenses

The Inland Revenue (HMRC) have guidelines when it comes to paying motor expenses. The basic concept is that no tax relief is available for ‘ordinary commuting’, i.e. an employee travelling between their home and their permanent workplace. A permanent workplace is a place an employee regularly goes to work unless it is for a limited duration or for some other temporary purpose.

Temporary workplace

An exception to this is where the employee travels to a workplace that is not the usual place of work, or a temporary workplace. HMRC refers to people who have no permanent workplace, by referring to them as ‘site based’ employees and now accepts that such employees have no ordinary commuting journeys between home and their temporary workplace.

Where the employee’s contract of employment requires him to work from home so that home is the normal workplace, then the employee is entitled to relief for all journeys between home and any other places of work.

In order for a workplace to qualify as ‘temporary’, the employee must expect to be working there for 24 months or less. As long as this is the case, the journey from the employee’s home to the site is not ordinary commuting and the employee is entitled to tax relief for the full costs of the journey. After 24 months then it will become a permanent workplace and the employee is entitled to no tax relief on all of their travel expenses.

Where at first, an employee expects to be at a site for 24 months or less, but this subsequently changes and he becomes aware that he will be working there for longer then, at that point, the site becomes a permanent workplace on the day that the employee becomes aware of the change. From that date onwards, he is no longer entitled to tax relief on the travelling expenses, but he is entitled to tax relief from home to site before that date.

Mileage rates

The mileage rates that can be paid are claimed at the rate of 45 pence per mile for cars and vans, for the first 10,000 miles in a year, any additional miles are claimed at a rate of 25 pence per mile. A table of mileage rates can be found below.

Vehicle	First 10,000 miles	Miles above 10,000
Motor cars and vans	45 pence per mile	25 pence per mile
Motorbike	24 pence per mile	24 pence per mile
Bicycle	20 pence per mile	20 pence per mile

 

If you are employed and your employer pays you more than the above rates, then the excess payment is counted as a benefit in kind and will be liable for tax. If you are paid less by an employer, you could get some additional tax relief.

It is important to keep a  detailed log of your journeys and mileage claimed as HMRC may require access to the information.

There are other expenses that can be claimed, such as parking, congestion charges and tolls, but you must have the original receipts to back up your claim. You cannot claim tax relief for parking fines or speeding fines.

If you are working at a temporary workplace, then you can also claim amounts for subsistence and accommodation expenses caused by working at the temporary workplace.

As with the other expenses, always be sure to keep receipts as evidence of your claims, as HMRC may request to see them.

If you feel that any of the above is relevant to you and you would like to claim the relief but not sure how, just give me a call and I will be happy to help.

Mark

Universal tax credit

Universal credit – an introduction 

Universal Credit is a new simpler, single monthly payment for people looking for work or on a low income. It will replace some of the benefits and tax credits you might be getting now. 

What is Universal credit?

Universal Credit is a new simpler, single monthly payment for people in or out of work, which merges together some of the benefits and tax credits that you might be getting now.
Universal Credit will replace:

• Income-based Jobseeker's Allowance
• Income-related Employment and Support Allowance
• Income Support
• Child Tax Credit
• Working Tax Credit
• Housing Benefit 

If you're on a low income, you will probably still get Universal Credit when you first start a new job or increase your part-time hours.

Your Universal Credit won't suddenly be taken away, but steadily withdrawn as your earnings increase. This means that you will be better off for every additional hour you work.

All Universal Credit claimants will have a claimant commitment which clearly sets out your responsibilities and the consequences if you fail to meet them.  

What’s different about Universal credit?

Universal Credit will be paid in a different way to current benefits:

• it will be paid monthly into an account you choose
• if you and your partner are both eligible, you will get one monthly payment for the household
• if you get help with your rent, this will be included in your monthly payment – you’ll then pay your landlord yourself 

Universal Credit will generally be managed online. You can make your claim online, then check on your payments and updates through your online account. 

When does Universal credit start?

Universal Credit will be introduced in stages between October 2013 and 2017, although it will start for some people in selected areas from April 2013.

April 2013 - Universal Credit begins in selected areas of Oldham, Tameside, Warrington and Wigan.

October 2013 - The national introduction of Universal Credit begins as groups of newly unemployed will be able to make their claim. Claims for existing benefits and credits will be gradually phased out.

From spring 2014 - Universal Credit will expand to accept new claims from people who are in work as claims to tax credits are closed down. Current benefit claimants will be moved onto Universal Credit in a phased approach.

2017 - Universal Credit roll-out complete. 

Changes to other benefits in 2013

There will be some important changes to a number of other benefits in 2013.

• Disability Living Allowance will be replaced by Personal Independence Payment from 2013.
• Council Tax Benefit will be abolished in April 2013 and replaced by a system of localised support.
• Pension Credit will be amended from October 2014 to include help with eligible rent and dependent children.
• Social Fund is also being reformed to introduce new local assistance.
• A cap on the total amount of benefits that can be claimed will be introduced in April 2013.

If you are interested in how the Universal tax credit work and would like to know more, be sure to get in touch.

Mark

Child benefit withdrawal

As part of the reforms to the welfare system, Child Benefit will be withdrawn from households that include certain higher earners beginning from 7^th January 2013. In other words these rules will already apply from this tax year 2012/2013. This is regardless of whether you are a single parent or have a partner.

How will they do this?

This will take the form of a tax charge at a rate of 1% of the child benefit per £100 above an adjusted net income of £50,000. Once the adjusted net income exceeds £60,000 the tax charge will be equal to the Child Benefit. This applies even if one partner is earning over the limit and the other one is under and is receiving Child Benefit.

For example if someone has child tax benefits of £1,752 and had an adjusted net income of £57,750, you would first calculate the percentage by taking 57,750 minus 50,000 and divide the remaining 7,750 by 100 which equals 77% (rule of rounding is to round down to nearest whole number). Then you would take 77% of £1,752 which equals a Child Benefit tax of £1,349.

The tax is calculated by reference to weeks therefore it will only apply in the weeks you are eligible for it. For example if a couple gets together and child benefit is already being paid, then the tax will apply for those weeks from the date the couple started living together until the end of the tax year.

Who is a partner?

HMRC have decided that a partner is defined as a spouse or a civil partner or someone that you are living with as if they were a spouse or civil partner.

As long as one partner is in receipt of Child Benefits and either partner has an adjusted net income greater than £50,000 then it is the partner with the income over £50,000 who will be responsible for paying the tax.

What is the effect of the tax charge?

The following table shows how this income benefit tax will affect three different couple with different amounts of adjusted net income.

Couple	Partner 1 Income £	Partner 2 Income £	How much	Who pays the tax
A	40,000	45,000	None	N/A
B	30,000	55,000	50% of benefit	Partner 2
C	65,000	20,000	100% of benefit	Partner 1

There is of course concerns that this system is flawed, in the above examples, all three couples earn between them £85,000 yet Couple B is charged 50% of their benefit and Couple C loses all of their benefit. While Couple A retains all of their Child Benefits.

Therefore the most beneficial scenario would be where both partners earn up to £50,000 each for a total adjusted net income of £100,000 with no Child Benefit tax becoming due.

Another potential flaw is who is responsible for paying the tax. With Couple B Partner 2 will pay the tax regardless of who is receiving the child benefits, and with Couple C it will be Partner 1. Therefore you will need to discuss with your partner how much each of you is earning.

What to do if you meet the requirements for the tax charge.

Should you meet the requirements for the income tax charge, you will need to inform HMRC as soon as possible or no later than 5^th October 2013, failure to do so can result in a penalty equal to the amount charged to your income tax.

If you feel you would like more information or advice on this subject, help is only a phone call away on 01761 436 436.

Mark

Company car or mileage allowance?

One question we come across in the field of taxation fairly often, is what is the best way to reduce tax using a car when you own a limited company?

The problem is that there is a substantial number of things to consider that makes the question a lot more complicated. So we will look into each option and show which situations would make each option the most suitable.

Summary

After many calculations, we believe that mileage allowance would be the better option in most cases partly because its simple to work out and tax deductible. However if you must have a company car (because you don't want to pay the expenses out of your own bank account, for example) then you better make sure you buy a 'brand new' car, that is cheap to buy, with low emissions (so its going to be small and without any optional extras!) and you don't use it privately at all (not even a penny of fuel for private travel).

Conversely if you buy an expensive used car for less than its original list price (say two or three years old), with a big diesel engine, with only small private use (and you cant be bothered to repay the private miles to your company) and if you normally earn enough to pay tax at 40% - you are generally going to pay a lot more personal tax on the car even if there is some tax relief claimed by the company.

Company car

The main advantage of having a company car is that you can put the running costs through your company and therefore reduce the amount of corporation tax you are due. Unless your car happens to be less than 110g/km carbon emissions or an electric car, you will not be able to claim back the whole amount in the first year as with other assets. You may only claim back 18% of the cost per year, (on a reducing balance basis) or if your emissions are more than 160g/km only 8%. This means the tax relief you can gain on your car will come through at a slow rate over a long period of time.

Private taxation of a company car

If your car is put through your company and is made 'available' to you for private use (whether or not you actually use it privately) triggers the 'Car benefit' rules. If you you do use it for private trips you will find yourself hit with a taxable 'fuel' benefit.

The Car benefit is calculated by taking the list price of your car (how much it would cost brand new) and then multiplying it by a percentage determined by the emissions of your car (with an  additional 3% added for diesel cars) to a maximum of 35%. This means that if you buy a second hand car, you will still be charged as if you bought it brand new, this can quickly outweigh the capital allowances claimed by your company as these are determined by how much the company paid for the car.

In addition to the Car benefit,  you will be hit with a Fuel benefit determined by a basic price of £20,200 multiplied by the same percentage as used for Car benefits. This means that on a 35% car you would need to have private fuel costs of more than £7,000 to have a net gain in your favour. You can repay any private miles to your company and in so doing there is no Fuel charge - but you have to work out your private miles each month and reimburse the company - you cannot do this retrospectively after the end of the tax year!

You can reduce the Car benefit by paying some of your personal money towards buying the car, this will reduce the list price by the same amount, and annual contributions will reduce the benefit calculated by the amount you spend. 

So to make the most of your company car, you will want to either avoid using it for private purposes, or buy a brand new petrol/electric car, with low emissions and list price, and reimburse any fuel you use. If you need some actual figures to help you in your decision, you can click on this link to view a car benefit calculator provided by comcar.co.uk, you can also find a list of percentages for different emissions by clicking here.

Mileage allowance

The other mentioned method was to own the Car privately and claim a mileage allowance. This means you do not put any of the costs through the company, but instead charge an expense depending on the number of business miles you do - and the company will get tax relief as an expense for the mileage claim.

The rate begins at 45p per mile for the first 10,000 miles, and 25p per mile afterwards. You must make sure you don’t charge any more than this, otherwise you will have to pay tax on the excess amount.

The disadvantage of a mileage allowance if that if you have a lot of running costs then you will not be able to claim them against your profits to reduce tax, same goes for the cost of buying the car, you will not be able to claim this either, even if you have bought a car with zero emissions.

So to make the most of a mileage allowance you will need to do a lot of business travel, and have low running costs for the year that can be exceeded by your mileage claim.

The discipline of record keeping

Whichever method you choose, you will be required to keep track of expenses, either costs and personal contributions relating to your company car, or the number of business miles you make, both of which can take up valuable time.

If you feel you still need a bit of advice on the matter, or have any questions about this article, then feel free to call me to shed some light on the subject.

Mark