Category: ‘Uncategorized’

Cars and taxing issues

Thursday, October 17th, 2019

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

Tuesday, October 15th, 2019

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?

Thursday, October 10th, 2019

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

Tuesday, October 8th, 2019

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.

 

About face by HMRC

Friday, October 4th, 2019

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.