Taxing Times – December 2017

Well, the festive season is here!  Enjoy this issue of Taxing Times, and as Bing Crosby sings, may your days be merry and bright!! Until the New Year….

In this edition:

  • The perils of second hand company cars
  • An update on PAYE
  • Upcoming & important dates for your diary 
  • What’s new in the world of tax?

The perils of second hand company cars

The tax treatment of providing company cars to employees is an area which is often misunderstood, with the consequence that employers can face shockingly high tax bills when errors come to light in routine HMRC PAYE compliance checks.

It is probably fair to say that most if not all employers are very familiar with the fact that providing a company car (which the employee can use privately as well as for business) means that a benefit in kind (BIK) charge arises, which has to be reported on the form P11d by 6 July each year.  The employer has to pay class 1A NIC on the value of the benefit in kind, and the employee will pay tax on it (via their PAYE code notice – as long as all goes well with HMRC being informed of the provision of the car in real time and then coding it out properly!)

However the two most common – and very expensive mistakes – on company cars are as follows:

1 – The BIK value is based on the list price of the car, not the cost of the car to the company. This means that a fairly low value second hand car can give rise to a disproportionately large benefit in kind charge.  For example (and this is a real life example), a high mileage used VW Golf is bought for £10k and provided to an employee.  P11ds are duly filled in based (incorrectly but totally in good faith) on the £10k cost to the company.  A few years later, a PAYE compliance visit takes place and an eagle eyed Inspector notices that the value which should have been used on the P11d is actually £29,000, almost three times as much (being the list price when it was brand new NOT the price paid when it was bought in its used and old condition).  So an assessment is raised for tax and NIC which is twice again as much as that actually paid across. Add to that the cost of grossing up the tax bill (because most employers will bear the tax on behalf of their employee rather than seek to recover the costs of a genuine mistake from them, which is itself a benefit in kind on which more tax is due!) and you have a very costly mistake.

2 – Private fuel is “accidentally” provided. I say “accidentally” because often employers think that employees are fully repaying the cost of private fuel so a BIK is not applicable.  But often a fuel card is provided so all fuel is paid for.  Then the employee works out how many private miles he has done and repays it to the employer at approved HMRC rates.  The issues come when the employee “guesstimates” and doesn’t actually keep mileage logs to prove his private miles, so there is an under-repayment of private fuel AND/OR the wrong reimbursement rates are used (again leading to an under-repayment of private fuel).  In either case, HMRC can (and will) argue that private fuel has been provided despite the employer’s best intentions.  And if even one pound has been provided the FULL fuel scale charge benefit of £22,600 (multiplied by the Co2 emissions rate) kicks in – which seems grossly unfair but is what the legislation says so there is no getting round it.

Needless to say, fuel scale charge benefits are extremely lucrative for HMRC and very expensive for unlucky employers.  So the best thing to do is ask your employees to keep a mileage log of business miles travelled and then reimburse them at the HMRC approved rates for the business miles they do.

The message here (sorry, not a very festive one) is “be company car and car fuel savvy” – providing cheap cars to employees is NOT cheap from a tax perspective!

PAYE Update

Budget Update

Whilst stamp duty changes and slower growth of the economy were the bigger headline news in the recent Autumn Budget 2017 there were some announcements of which employers should be aware.

The Chancellor announced a rise in the National Living Wage and National Minimum Wage rates for the 2018/19 tax year.

 

The rates for the current tax year, 2017/18, and the rates announced for the next tax year, 2018/19, are shown below:

The Personal Tax allowance will increase to £11,850 and the National Insurance rates and threshold are as follows for the 2018/19 tax year; the lower earnings limit for Class 1 National Insurance will increase to £116 per week, the primary and secondary thresholds to £162 per week and the upper earnings limit, upper secondary threshold and apprentice upper secondary threshold to £892 per week; the main primary rate of Class 1 remains at 12%, the additional rate is set at 2% and the secondary rate at 13.8%.  Class 1A and Class 1B NIC are also unchanged at 13.8%.

The Employment Allowance remains at £3,000.  The student loan (plan 2) threshold will increase to £25,000 for the 2018/19 tax year.

Proposed rates  for Statutory Maternity/Paternity/Adoption/Shared Parental Pay will increase from the standard rate of £140.98 to £145.18 per week.

Proposed Statutory Sick Pay will increase from £89.35 to £92.05 per week.

The Autumn Budget confirmed rumours that the government would launch a consultation in 2018 regarding the issue of IR35 tax rules in the private sector. The budget report explained that since the rules were extended to the public sector in April there are indications that public sector compliance is also increasing.   Extending the regime to the private sector would ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.

Automatic Enrolment changes from April 2018

The minimum contributions that employers and employees pay into their automatic enrolment workplace pension scheme are increasing.  Minimum contributions are increasing in two phases. The first increase must be in place from 6 April 2018 and the second from 6 April 2019.

By law a total minimum amount of contributions must be paid into the scheme.  The employer must make a minimum contribution towards this amount and employees must make up the difference.

This table shows the minimum contributions (based on qualifying earnings) and the date when they must increase:


Sleep-in shift pay compliance scheme launched

The government has launched a new compliance scheme for social care providers that may have incorrectly paid workers below legal minimum wage hourly rates for sleep-in shifts.

The scheme has been designed to help ensure workers are paid what they are owed, while also maintaining important services for people who access social care.

Social care employers will be able to opt into the new Social Care Compliance Scheme (SCCS), giving them up to a year to identify what they owe to workers, supported by advice from HMRC.  Employers who identify arrears at the end of the self-review period will have up to three months to pay workers.

HMRC will write to social care employers who currently have a complaint against them for allegedly underpaying minimum wage rates for sleep-in shifts to encourage them to sign up to the scheme.  Employers that choose not to opt into the scheme will be subject to HMRC’s normal enforcement approach.

The government is exploring options to minimise any impact on the sector.  Earlier this year the government waived further penalties for sleep-in shifts underpayment arising before 26 July 2017. This was in response to concerns over the combined impact which financial penalties and arrears of wages could have on the stability and long-term viability of social care providers.  Enforcement action for sleep-in shifts in the social care sector was temporarily suspended between 26 July and 1 November 2017.

Details of the National Minimum Wage in the Social Care Sector – Interim Enforcement can be found at https://www.gov.uk/guidance/tell-hmrc-if-youve-underpaid-national-minimum-wage-in-the-social-care-sector

Upcoming Dates for your diary

31 January 2018 – A huge month!

Income tax self assessment:

  • Filing deadline for 2016/17 personal, partnership and trust returns filed online, and for paper returns which cannot be filed online.
  • Due date for balancing payment of tax liability for 2016/17, plus first payment on account for 2017/18.
  • Due date for class 2 NIC for 2016/17.
  • Deadline to amend a 2015/16 tax return.
  • Deadline to file an outstanding 2015/16 return to avoid a tax geared penalty.

NIC: deadline to notify liability for class 2 NIC where self employment began in 2016/17, to avoid a penalty.

Tax credits: last day to renew tax credits for 2017/18 (if the 31 July 2017 deadline was missed and the claimant can show good cause) or to provide final income figures for 2016/17 (if renewal was done by 31 July 2017 using an estimate).

Corporation Tax: company tax returns for accounting periods ending 31 January 2017 should reach HMRC.

Accounts: Private companies with 30 April 2017 year ends must file their accounts with Companies House.

Topical Tax News

HMRC to stop accepting credit cards

HMRC is to stop accepting credit cards from next year following a government crackdown on excessive charges. From January, “rip-off” fees charged to consumers by companies and government bodies when they pay by credit card will be completely banned in the UK. HMRC said the move means it will be unable to absorb the cost of credit card fees.

Abolition of Class 2 NICs delayed by a year

The government has announced that there will be a one year delay before the removal of Class 2 national Insurance contributions (NICs) – which is now moved to 2019 – to assess the impact of its abolition on self-employed individuals with low profits.  The one-year delay has been implemented to allow government to consult with interested parties to ensure there are ‘no unintended consequences for the lowest paid’.

Class 2 NICs are being removed to simplify the system. Those with profits below the small profits threshold (£6,025) will have to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they want to build up an entitlement to contributory benefits such as the state retirement pension. The Low Incomes Tax Reform Group (LITRG) wants the government to introduce a lower rate of Class 3 NICs so that low-income self employed can continue to make affordable savings towards their pension at a rate similar to the present Class 2 NICs.

Carry on Spying: HMRC sees through spy excuse

A £1.6m VAT cheat who claimed he had no paperwork because he was a spy has been jailed for four years. Raymond Thomas, 71, said the US Secret Service told him to destroy documents. HMRC called Thomas a “fantasist”, adding: “This was an astonishing case.”

Tolkien estates lost out on Lost of the Rings success

JRR Tolkien sold the film rights to his Lord of the Rings fantasy novel for £100,000 in 1969 to help settle a tax bill. The move left his family unable to fully benefit from the success of Peter Jackson’s film trilogy.  The Tolkien estate had pursued Warner Bros for years for a share of millions earned from video games and apps based on the Lord of the Rings books. The case was reportedly settled for about $100m. Now they are negotiating a deal worth about $200m with Warner Bros, which is talking to Amazon and Netflix about bringing Lord of the Rings to the small screen.

Taxpayers warned to check HMRC repayment arrangements

In the run up to January’s online self assessment tax return deadline, the Low Incomes Tax Reform Group (LITRG) is warning of the risk that HMRC will issue any repayments due to last used debit or credit card, rather than the bank payment instructions entered on the forms. Discussions with HMRC suggest there is no way of stopping HMRC’s system automatically attempting to repay a card in this way, so it is very important that taxpayers are aware of this and that they understand that their tax repayment may not be made where they are expecting it to be.

Mrs Brown’s Boys in tax scheme

Leaks from the so called “Paradise Papers” leaked after the hacking attack on law firm Appleby, which has which has offices in Bermuda, the Isle of Man and a number of tax havens, show that three actors in the show Mrs Brown’s Boys have put their fees into companies they controlled in Mauritius which then repaid them in loans.

What would mammy say?

Tax Joke of the month:

What is Father Christmas’s tax status?
Elf-employed.

Motivational thought of the month:

Remember to move forward and stop looking back otherwise the good things will pass you by…

Speak Your Mind

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Dec 13

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