Business use of employees cars

Many employers pay their employees a monthly car allowance to compensate them for the business use of their private vehicles. In most cases this car allowance is treated as remuneration and is subject to PAYE and National Insurance deductions.

Additionally, employers may also pay a nominal amount per mile as a contribution to fuel costs.

Employers are entitled to pay their employees a tax free mileage allowance for the business use of their private vehicles. The rates are:

·         45p per mile for the first 10,000 miles in any tax year, and

·         25p per mile for any additional use.

In a recently decided case, an employer that paid less than the 45p (25p) tax free rates, was enabled to deduct the difference between the actual rate paid and tax free rates available, from the monthly car allowance, before working out any employer’s or employee’s National Insurance Contributions due on the monthly car allowance.

If the amount being paid for business use of fuel is nominal, this can make quite a difference to National Insurance Contributions that are due.

Employers reading this article, whose circumstances match the following criteria, may be able to claim refunds for overpayment of past NIC deducted from car allowance payments. The outcome of such claims will depend on how closely their circumstances mirror the decided case mentioned above, and HMRC’s interpretation of the ruling:

The criteria are:

·     You pay or have paid employees a regular car allowance.

·     You have also paid nominal mileage rates to cover business related fuel costs, below

      the current tax free rates of 45p (25p) per mile.

Please note that in the decided case discussed the allowance was only paid to employees travelling more than 2,500 business miles each year though the mileage rate they received was correspondingly reduced to 12p per mile from 40p. It was thus aimed at compensating those incurring additional costs for using their cars substantially for business purposes.

The End of Private Residence Elections?

At present taxpayers, who own more than one property used as residences by them, can make a formal election to determine which of their properties should be considered their private residence for tax purposes.

The election needs to be based on the facts – how has each property been used as a private residence - and HMRC has a right to challenge an election if it looks as if the taxpayer has never really taken up residence in a property and is simply trying to obtain a tax advantage.

HMRC is presently consulting on a range of issues that affect owners of residential property in the UK. One of the changes they have under consideration is to scrap the present right to make an election, and to give HMRC the right to determine private residence status based on “demonstrable” evidence.

If this change is enacted it could take effect from as early as April 2015.

Home owners with more than one property should consider their options now.

 

 

HMRC's second income campaign

HMRC have published details of their latest campaign to encourage taxpayers to declare and pay unpaid tax on second incomes.

HMRC will expect settlement of any taxes due four months from the date of declaration of untaxed income sources to HMRC.

The types of income highlighted by HMRC include:

·         consultancy fees, for example, providing training

·         organising parties and events

·         providing services like taxi driving, hairdressing or fitness training

·         making and selling craft items

·         buying and selling goods, e.g. at market stalls or car boot sales

If you have undeclared income, making use of this disclosure opportunity should reduce any penalties HMRC may charge you. If you don’t make a voluntary declaration, and are discovered by HMRC, then the penalties you will be charged will be much higher.

·  If you make a voluntary disclosure penalty rates are 0%, 10% or 20% depending on the circumstances.

·  If you don’t make a voluntary disclosure these rates can rise to 100% of the tax underpaid.

·  If the non-disclosure involves offshore liabilities the penalties can increase to 200%.

Landlords targetted by HMRC

A new scheme aimed at landlords who may owe tax due to misunderstanding the rules or deliberate evasion was launched last Autumn. Unusually, the campaign does not currently have a finish date and will run until at least March 2015. HMRC will allow landlords to come forward voluntarily throughout the entire time period that the disclosure opportunity remains open.

HMRC has confirmed that taxpayers that do come forward voluntarily as part of the initiative will receive better terms and lower penalties than if approached first by HMRC. From this year, any landlords that have not declared all their rental income may be contacted by HMRC. The landlords will then lose the opportunity to make a disclosure as part of the campaign. Landlords who are targeted by HMRC can face penalties of up to 100% of the tax due together with possible criminal prosecution.

The campaign is open to all residential property landlords. According to HMRC, this includes those that have multiple properties and single rentals as well as specialist landlords such as student or workforce rentals and holiday lets. HMRC estimates that up to 1.5 million landlords may be underpaying up to £500 million in tax every year.

Renewing tax credit claims

Families and individuals that receive tax credits must renew their tax credit claims by 31 July 2014.

HMRC has begun sending tax credits renewal packs to about 5.8 million households. The packs are being sent out between April and June.  Taxpayers are being urged to renew as soon as possible in order to avoid a last minute rush. Claimants who do not renew on-time may have their payments stopped.

Claims should be renewed by completing the renewals pack. Claimants need to notify HMRC where there have been changes to the family size, child care costs, number of hours worked and salary. Details of previous year's income also need to be completed on the form to allow HMRC to check if the correct tax credits have been paid.

Any further changes which take place during the year should be notified to HMRC immediately, such as significant changes in salary or the birth of a new child. Any changes in income of more than £5,000 must be notified to HMRC without delay.

It is advised that People should check their details and renew early to make sure they get the right money. People who don't renew on time risk losing their payments.

The importance of Receipts

Most business owners are aware that they need to keep receipts if they want to secure a deduction for expenditure for business tax purposes, assuming that the expenditure is allowable for tax purposes.

This is particularly important if you purchase an asset: a vehicle, equipment, computers and so on, as these can be high value items and the loss of tax relief would be significant.

Property owners, who would be subject to Capital Gains Tax (CGT) when the property is sold, are in a similar position.

Although they may keep the receipts for annual expenses that they write off against rents received they should also keep adequate records if they improve their property. Improvement costs are generally taken into account when the property is sold – they reduce any CGT payable.

Imagine, therefore, the consternation of Mr Tobias Ridpath who was denied CGT relief for expenditure on his properties for this reason. Here’s an abridged version of the comments made by the Judge in her summing up.

“We can see it is very likely the Appellant (Mr Ridpath) incurred some expenditure on the properties. The difficulty is that we have no idea how much was spent. We are invited to find that some or all of the bank withdrawals were used in this way. The appellant was unable to point to a single item and explain by way of illustration how the money leaving his account had been spent. [He was given] ample opportunity to provide evidence of expenditure. Indeed we can see that the Appellant was treated very tolerantly... We have no idea why the Appellant was so vague about the expenditure. It is impossible for us to conclude, ..., that he spent some reasonable figure on these works and then guess how much that is or accept what seems to us equally to be guess work by the Appellant about the expenditure.

It is very unfortunate that the Appellant was unable to provide some details of expenses but that was not the case and we have no alternative but to dismiss the appeal.”

Property owners should carefully document any improvements to their properties and keep the records to present to their advisors when the calculation of any capital gains on sale is being considered. In the absence of evidence, it is likely, as Mr Ridpath discovered, that tax relief for capital expenditure will be denied.

Comimg soon - the first year-end under RTI

This tax year has been one of transition; one in which the vast majority of employers began to successfully report information about their PAYE schemes in real time. 
  
With April approaching, you need to start thinking now about preparing to make your final submission for the 2013-14 tax year. 
  
It will be a different process to previous years and it's always best to get ahead of the game.
  
For most employers, the final submission will be their final Full Payment Submission (FPS)showing the very last employee payment for 2013-14.
  
Don't try to send forms P35 or P14 for 2013-14 or later tax years - if you do they'll be rejected !
  
The start of the new tax year will see a number of changes including new in-year penalties for late payment and late filing which were scheduled to be introduced from this April. However, having listened to customer feedback, HMRC has decided to stagger the start of these penalties to give everyone involved more time to adapt to reporting in real time.
  
Under the new extended timetable, employers who are late sending their submissions won’t be charged late filing penalties as long as they bring themselves fully up to date by 5 October 2014.