Cars and taxing issues

We have listed below a number of issues that you will need to consider if directors or employees use a car for business purposes.

Essentially, if the car is owned by the business any private use of the vehicle will trigger a tax charge for the driver (car user) and a possible NIC bill for the employer.

Use of a car may be exempt from these possible charges in the following circumstances:

  • If the car is owned privately by the director or employee and any costs met by the employer relate to business journeys.
  • If the car is owned by the employer but no private use of the vehicle is allowed. Employers are required to notify employees that this is the case and check that these instructions are complied with.
  • If a car is adapted for an employee that is disabled. This use is only exempt if the private use is restricted to journeys between home and work and travel to work-related training events.
  • There is no fuel related tax charge if any personal fuel is paid for by the employee or if the employer pays, but the private element is reimbursed by the employee.
  • The use of pool cars is generally ignored. This assumes that there is no private use and that cars are kept at the business premises.

The way in which any taxable benefits are reportable to HMRC is complex. Partly, this depends on how the benefit is formalised. For example, is it a salary-sacrifice arrangement? Generally, any chargeable, private use of a company car is returned to HMRC each year on a form P11D. This will then determine the amount of tax payable by employees on the deemed benefit provided and also contribute to the amount of any NIC payable by the employer.

Paying tax if you are self-employed

If you are a sole trader or an individual member of a partnership you will likely be subject to income tax, and possibly National Insurance, on your earnings.

Unfortunately, tax being taxing, earnings for tax purposes may not be the same as the monthly drawings you take from your business.

For example, you may decide to take no “wages” from your business in order to build up cash reserves, but if your business is profitable you will still pay tax. Why is this?

HMRC will largely ignore any drawings you take from your business when considering how much tax and NIC you are liable to pay. Instead, they will look at your profit for the relevant trading period.

Accordingly, if you want to judge how much you will be paying to HMRC you will need to look at your business profit and loss account and not the amount of cash you have withdrawn to meet your private expenditure.

As with all matters relating to tax HMRC will not simply take your accounts profits as your income; they adjust your profits. Common adjustments include:

  • HMRC will add back any deduction you have made to depreciate your assets (plant, equipment, vehicles and other relevant assets) and replace this with a capital allowance claim. The amount of the claim allowed will depend on the amount and type of asset purchased.
  • Entertaining costs are generally disallowed.
  • Any costs you have claimed that have a personal use element: motor expenses for example; will be disallowed.

Your profits for tax purposes may also be increased if you have sold equipment.

As you will probably be paying any income tax or NIC from your business bank account it is sensible to prepare your accounts as soon as you can following your year end. In this way your adviser can calculate liabilities and you will have advance notice of the amounts payable. This will also give you time to accumulate funds to meet the tax and NIC payments when they fall due.

Disposing of a UK residential property?

UK readers who are anticipating the sale of a residential property on which a capital gains tax (CGT) charge may apply would be advised to consider the changes to the reporting and payment of this CGT charge from 6 April 2020.

The general rule will be that for relevant disposals on or after this date (6 April 2020) a return in respect of the disposal must be delivered to HMRC within a ‘payment window’ of 30 days following the completion of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes will take into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.

Gains on disposals reported on the new return can be ignored when determining whether to register for self-assessment. Enquiries into the return will be able to be made separately from any self-assessment return that may be due.

For disposals by UK residents, the new reporting and payment requirements will not apply where the gain on the disposal (or the total gain where more than one residential property disposal is made in the year of assessment) is not chargeable to CGT (for example where the gains are covered by private residence relief, unused losses or the annual exempt amount), arise from the disposal of a foreign residential property in a country covered by a CGT double taxation agreement, or arise to a person taxed on the remittance basis.

For non-residents, the reporting requirement is expanded from 6 April 2019 to include all companies. However, an exception from making a payment on account for those that make self-assessment returns will cease for disposals on or after 6 April 2020 in line with the introduction of payment on account for UK residents.

This is a radical change and will require taxpayers and their advisers to gather data, calculate and report the relevant gains within the 30 day reporting window.

Readers who are contemplating the sale of a residential property that may trigger a CGT charge might be advised to complete the sale before 6 April 2020. Sales before this date will be reported on your self-assessment tax return for 2019-20. The filing deadline for this return is 31 January 2021.

An update for hauliers

If you are involved in the transport of goods to and from the EU HMRC have posted useful guidance on what you will need to do to accommodate a no-deal Brexit on 31st of this month.

The guidance can be downloaded as a PDF from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/836920/transporting-goods-between-the-uk-and-eu-in-a-no-deal-brexit-guidance-for-hauliers.pdf

Transitional arrangements are in place regarding licenses and permits.

The EU has agreed that for a transitional period UK hauliers will be able to continue using their current licences to do journeys to and from the EU. This currently applies until 31 December 2019 and is likely to be extended to 31 July 2020.

Hauliers holding a Community Licence will be able to continue using these after a no-deal Brexit for the transitional period. Hauliers applying for or renewing a Community Licence after a no-deal Brexit will instead receive a ‘UK Licence for the Community’, which will give the same rights.

A copy of the Community Licence (or the new ‘UK Licence for the Community’) has to be carried on board all vehicles when working in the EU.

The Community Licence (or the new ‘UK Licence for the Community’) will not be valid for international road haulage journeys made by UK hauliers through the EU to countries outside the EU and EEA – these will require ECMT permits.

Some ‘cross-trade’ (movements between two EU countries) and ‘cabotage’ (movements within an EU country) will be permitted in the transitional period. Until 31 December 2019 at least up to 2 loaded cabotage or cross-trade journeys will be possible per week.

As there is still no “certain” outcome for Brexit, please note that the above comments only apply to a no-deal scenario. If you need help sorting the wood from the trees, please call.

 

Tax Diary October/November 2019

1 October 2019 – Due date for Corporation Tax due for the year ended 31 December 2018.

19 October 2019 – PAYE and NIC deductions due for month ended 5 October 2019. (If you pay your tax electronically the due date is 22 October 2019.)

19 October 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2019.

19 October 2019 – CIS tax deducted for the month ended 5 October 2019 is payable by today.

31 October 2019 – Latest date you can file a paper version of your 2018-19 self-assessment tax return.

1 November 2019 – Due date for Corporation Tax due for the year ended 31 January 2019.

19 November 2019 – PAYE and NIC deductions due for month ended 5 November 2019. (If you pay your tax electronically the due date is 22 November 2019.)

19 November 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2019.

19 November 2019 – CIS tax deducted for the month ended 5 November 2019 is payable by today.

The loan charge controversy continues

The following press release was published by HMRC last month. Extracts are reproduced below:

Sir Amyas Morse, the former Comptroller and Auditor General and Chief Executive of the National Audit Office (NAO), will lead an independent review of the Loan Charge…

The review will consider whether the policy is an appropriate way of dealing with disguised remuneration loan schemes used by individuals who entered directly into these schemes to avoid paying tax.

The disguised remuneration Loan Charge was introduced to tackle contrived schemes where a person’s income is paid as a loan which does not have to be repaid.

Disguised remuneration loan schemes were used by tens of thousands of people, and concerns have been raised about the use of the Loan Charge as a way of drawing a line under these schemes. The government is clear that disguised remuneration schemes do not work and that their use is unfair to the 99.8 per cent of taxpayers who do not use them.

The Treasury has asked Sir Amyas Morse to report back by mid-November, giving taxpayers certainty ahead of the January Self-Assessment deadline.

We will report on this issue as soon as the results of this review are published.

Enjoy a tax-free Christmas bash

Follow the outline below to ensure that the cost of your annual staff party will not create tax issues for you or your staff.

  1. The event must be open to all employees at a specific location.
  2. An annual Christmas party, or other annual event offered to staff, generally is not taxable on those attending, provided that the average cost per head of the functions does not exceed £150 p.a. (including VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be considered, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event, the input tax should be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

Property tax changes from April 2020

Although the Brexit process continues to throw a spanner into the normal workings of government, there are a few certainties from a tax point of view that will be effective from April 2020. A few property related changes are noted in this article:

 

  • Presently, the last 18 months of ownership of a residential property are ignored if a home has been let at any time. From April 2020, this will be reduced to 9 months.
  • If your home has been let at any time, or is let when you sell it, there is a letting relief you can claim that can make a significant impact on any Capital Gains Tax payable. From April 2020, you can only take advantage of this lettings relief if you are in shared occupancy with your tenant.
  • From April 2020, all finance costs, incurred by UK residents that let residential property, will be disallowed as an expense of their property business. Instead, tax relief on the disallowed finance charges will be restricted to a basic rate (20%) tax credit. This process started on a phased basis on 6 April 2017 and will complete on 5 April 2020.
  • UK residents that sell land or property in the UK, after 5 April 2020, will need to prepare a formal CGT computation and return this to HMRC within 30 days of the relevant sale. They will also need to pay any tax due in the same period.

About face by HMRC

Last month we reported the changes that CIS, VAT registered contractors and sub-contractors were about to face with the introduction of the “reverse charge” process from 1 October 2019.

Shortly after our newsletter was published, HMRC conceded that it was aware that the industry was struggling to adapt to the new rules and, as Brexit is also looming large this month, HMRC has agreed to defer the change until 1 October 2020.

This is a triumph for the construction industry lobby groups who have pushed hard to have this VAT change delayed.

Just in case you missed our alert on this topic last month the nuts and bolts of the reverse charge process for VAT registered businesses who are subject to HMRC’s Construction Industry Scheme, are:

From the 1 October 2020, you may need to change the way you account for VAT on supplies between sub-contractors and their contractor customers.

At present, sub-contractors registered for VAT are required to charge VAT on their supplies of building services to contractors. From 1 October 2020, this approach is changing.

From this date, sub-contractors will not add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers.

This does not mean that contractors, in most cases, are paying their sub-contractors’ VAT as an additional cost.

When contractors pay their sub-contractors’ VAT to HMRC, they can claim back an equivalent amount as VAT input tax; subject to the usual VAT rules. Accordingly, the two amounts off-set each other.

The change is described as the Domestic Reverse Charge for the construction industry. It has been introduced as an increasing number of sub-contractors have been registering for VAT, collecting the VAT from their customers, and then disappearing without paying the VAT collected to HMRC.

Affected contractors now have a year to make the appropriate changes.

If by chance you have already made changes to your account’s software and invoicing processes, you will need to reverse the process and moth-ball the changes for twelve months.

Do you need to file a tax return?

The following guidelines are reproduced from the government’s website:

You must send a tax return if, in the last tax year (6 April to 5 April), you were:

  • self-employed as a ‘sole trader’ and earned more than £1,000
  • a partner in a business partnership

You will not usually need to send a return if your only income is from your wages or pension. But you may need to send one if you have any other untaxed income, such as:

  • money from renting out a property
  • tips and commission
  • income from savings, investments and dividends
  • foreign income

Other reasons for sending a return

You can choose to fill in a tax return to:

  • claim some Income Tax reliefs
  • prove you’re self-employed, for example to claim Tax-Free Childcare or Maternity Allowance

If your income (or your partner’s, if you have one) was over £50,000, you may need to send a return and pay the High Income Child Benefit Charge.

Unfortunately, this is just the tip of the iceberg. For example, you may have to submit a return if you have made significant capital gains in a tax year.

If you are at all uncertain if you do need to file, please call. There are significant penalties for failing to register and submit a return. The deadline to register for the tax year 2018-19 is imminent, 5 October 2019, and so action should not be delayed.

If your circumstances have only recently changed – during the current 2019-20 tax year – you have more time, but it is worth getting the registration process completed so you can start to plan for any tax payments that may fall due 2020 and beyond.