Taxing Times – January 2018

Welcome to the very first edition of Taxing Times for 2018 (yes, 2018, where does the time go?!) Here’s hoping it is a good one….

To kick-start the New Year we have the usual insights and updates in this edition, some timely reminders about upcoming deadlines and will take a look at how to avoid potentially costly tax issues relating to company pool cars.

 


Is it a Company Car? Or is it a Pool Car?

Getting HMRC to agree that a company car is a pool car is not as straightforward as some employers might think.

Providing a ‘company car’ to an employee can be costly (see our article in December’s issue of Taxing Times). However, provision of a pool car is treated very differently and so is much more attractive from a tax perspective.  A pool car is one which is generally made available to employees but not restricted to any one, or any few, employees and therefore it is treated as NOT having been made available for the private use of any employees, so that a company car benefit in kind (BIK) charge does not arise.  You can therefore see why employers might try to argue that a car is a pool car (without a BIK charge) rather than a company car (with a costly BIK charge).

However, just calling something a pool car does not make it so for tax purposes. There are a number of criteria which must all be met.  And HMRC know that tax issues around cars can be very lucrative for the Treasury so they will focus hard on pool cars and can and do often mount very stringent challenges to pool car treatment in employer compliance reviews.

The conditions are as follows:

1:- The car was made available to, and actually used by, more than one of those employees;

2: The car was made available, in the case of each of those employees, by reason of the employee’s employment;

3:- The car was not ordinarily used by one of those employees to the exclusion of the others;

4:- In the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee’s other use of the car in that year; and

5:- The car was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the car available to them.

HMRC has provided some guidance on how to meet the pool car conditions in practice. For example, in meeting condition 4 above, HMRC notes that an employee who has to make a business journey one morning, so takes the pool car home with her the previous night so that she can make an early start the next day, does not fail the condition (even though the office to home travel is private use). But too many instances of that occurring would be looked on with disfavour.

Often it is the 5th condition, the “overnight” rule, which causes the most difficulty.  Often people are tempted to use a vehicle but call it a pool car to avoid the BIK charge, when in fact it is really a company car available for private use.

Note that all five conditions must be met, not just some of them. If you as the employer feel that a car truly is a pool car and you can look HMRC in the eye and say so, make sure that you have evidence to back up your claim e.g. mileage logs/tracker reports showing the use of the vehicles, a booking out/diary system evidencing that it is available generally to all employees and has to be returned to the depot at night etc., and a written policy in place which expressly forbids private use – and a system for monitoring and checking this. Otherwise it could be your word against HMRC’s interpretation, which never ends particularly well.

If a pool car is not really a pool car, so a BIK would be due, then consider getting rid of it for a lower Co2 emission vehicle to minimise the BIK charge.

If you want to talk through any of the issues mentioned above, please call your usual Dodds contact and let us help.

Continuing the theme of cars and tax issues…

Let’s take a quick look at changes to car and fuel taxation from the November Budget

Diesel cars

A rise in the existing Company Car Tax taxation diesel supplement will occur, from 3% to 4%, with effect from 6 April 2018.  This will apply to diesel cars which do not meet the Real Driving Emissions Step 2 (RDE2) standards.

Benefits in kind: electric vehicles

From April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees’ electric vehicles.

The Car Fuel Benefit Charge

This will be increased by Retail Price Index (RPI) from 6 April 2018. This means an increase of £800 to £23,400.

Van and Van Fuel Benefit Charge   

From 6 April 2018, the flat rate van benefit charge will increase to £3,350 from its current rate of £3,230. The flat rate van fuel benefit charge will increase to £633 from £610.

Dates and deadlines for your diary

This month is all about self assessment – 31st January is Deadline day! And as HMRC expect a last minute rush for online filing, we suggest that you don’t leave it until 31st but get it out of the way with in good time.

What a quacking idea!

HMRC has employed farmyard ducks to encourage people to file their tax returns on time. An online billboard advert features a man in the bath being harassed by a duck quacking the word “tax”.

Also…note that HMRC will stop accepting personal credit card payments from January 13. The ban is in response to new rules which mean HMRC can no longer pass on the bank charges for processing the payments. However, the timing of the ban is likely to cause problems for some taxpayers, and seems a very strange approach for HMRC to take to their “customers”. After all, using a credit card may be the only way some taxpayers can afford to pay their tax bills. Therefore, if you were contemplating paying your tax bill with a credit card, getting your return prepared and the liability calculated and paid before 13th would seem a sensible move.

And moving forward…HMRC plans fines system for late filing

Plans to introduce a points-based system for those who fail to submit their tax returns on time have been outlined by HMRC. At present, self-assessment submissions up to three months late incur a fine of at least £100. Under the new plans, points would be incurred for filing late instead. HMRC said the government would legislate for a new system that would see a fine handed to anyone picking up too many points. Parliament would need to give approval and the system would be phased in for different taxes at different times.

PAYE update

The Employment Allowance – is your company eligible to claim?

The Employment Allowance (EA) reduces the amount of National Insurance (NI) employers have to pay by up to £3,000 per year.  But can every company take advantage of this incentive?

The Basics

You can claim the EA if you’re a business or charity paying employers’ Secondary Class 1 NI.  You can also claim if you employ a care or support worker but not if you employ someone for personal household or domestic work, for example a nanny.

If you have more than one employer PAYE reference, you can only claim the EA against one of them and if you are part of a group, only one company or charity in the group can claim the allowance.

The allowance will reduce your employers’ Secondary Class 1 NI each time the payroll is run until the £3,000 has gone or the tax year ends (whichever is sooner).

Limited Companies

From 6 April 2016, limited companies where there is one director who is the only person with paid earnings above the Secondary Threshold for Class 1 NI contributions will not be able to claim the EA.

The Secondary Threshold is set at £157 per week (£680 per month and £8,164 per annum) for the 2017/18 tax year.

Companies with several employees, where the director is the only one paid above the Secondary Threshold, will no longer be eligible for the EA.

If your company circumstances change and more than one employee or director earns above the Secondary Threshold, you’ll be eligible for the EA for the whole tax year.

This means that companies which are eligible for the EA include those where:

  • all employees are directors and more than one earns above the Secondary Threshold
  • the company employs husband and wife directors where both earn above the Secondary Threshold
  • the company employs seasonal workers where one or more is an employee earning above the Secondary Threshold in a week

The rules as they stand:

Changes to Business Entity

If your business entity has transferred during the tax year then you cannot claim any unused part of your allowance in the new entity.

For example – You were trading as a partnership and had employees on the payroll where you were paying over the Secondary Threshold and therefore claiming the EA.  Then during the tax year you ceased trading as a partnership and started trading through a limited company.  The employees become employed by the new company but any unused part of the allowance cannot be claimed.

The employers’ Secondary Class 1 NI liability becomes an “excluded liability” and you cannot claim any of the unused part of the allowance so there is no “splitting” it between the two different business entities; you simply lose any allowance you didn’t use in the partnership.

In the tax year of the incorporation, if a new employee is taken on who was not employed by the original partnership, then the company cannot have the allowance for that new person either as the NI liability is also seen as “excluded”.

In the first full tax year after the business transfer the company would be able to claim the EA if their circumstances at that time meant they were eligible.

The rules regarding who can and cannot claim the EA have changed and the most challenging aspect of claiming is determining whether you qualify.

 

What’s new in the world of tax?

‘Twas the season to be jolly…Over 10,000 people filed their tax returns on Christmas Day and Boxing Day

Figures from HMRC show that 2,590 people submitted their tax returns over Christmas Day and a further 7,655 submitted on Boxing Day. On Christmas Eve 6,033 returns were submitted and 92 were filed between 11pm and midnight.

Some people will do anything to get a break from the family!

Not so much of the “Hallelujah!”

Singer Alexandra Burke has been hit with a £230,000 tax bill after trying to close down her firm, Miss Contagious Limited. The firm’s liquidation was put on hold when HMRC probed its tax affairs. Liquidators had to hand over £228,940 to settle “an agreed liability due to HMRC” for unpaid income tax and National Insurance.

Firms named and shamed for underpaying workers

The government has named and shamed 260 companies for failing to pay the minimum wage, including Sports Direct and its employment agencies Best Connection and Transline, Primark, several football clubs, and a range of hospitality providers.

Playing the fiddle while Rome burns (the modern version): Tesco boss played golf as scandal broke

A court has heard that the former head of Tesco’s British business went to play golf instead of bringing a report into accounting irregularities to the attention of its new chief executive. Christopher Bush is said to have been aware for 48 hours of a document outlining that profits at the supermarket had been misstated by about £250m, but played golf instead of meeting to discuss the report.

Auto-enrolment limit could be lowered

A review of auto-enrolment is expected to see a reduction in the qualifying age from 22. Ministers are considering lowering the current threshold to nudge hundreds of thousands of 18 to 21-year-olds into saving for a pension. The review will also look at whether auto-enrolment should be extended to the 5m people who are self-employed and reformed to help people with multiple jobs.

Thought of the month:

It is far better to keep your mouth shut and let people think you are stupid, than it is to open your mouth and confirm it.

Speak Your Mind

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