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61 Friar Gate  Derby  DE1 1DJ

 

Registered to carry out audit work Association of Chartered Certified Accountants.

www.auditregister.org.uk under number 8011438

Member of the Association of Chartered Certified Accountants
Phone

01332 202660

Blog

Reporting low emission vehicles – Changes from April 2020

Adrian Mooy - Wednesday, February 05, 2020
 
From 6 April 2020, new appropriate percentage bands – and new lower charges for low emissions cars – will apply for company car tax purposes.
 
From the same date, the way in which carbon dioxide emissions are measured is also changing. This means that in order to find the correct appropriate percentage for working out the taxable benefit of a company car, you will need to know whether the car was registered on or after 6 April 2020 or before that date, as well as the level of the car’s CO2 emissions. As a transitional measure, with the exception of zero emission cars, the appropriate percentage for cars registered on or after 6 April 2020 is 2 percentage points lower than cars registered prior to that date for 2020/21 and one percentage point lower for 2021/22. The figures are aligned from 2022/23. For zero emission cars, the charge is 0% for 2020/21, 1% for 2021/22 and 2% from 2022/23, regardless of the date on which the car is registered. The maximum charge is capped at 37%, and the diesel supplement applies as now.
 
More information will be needed to work out the appropriate percentage where the car’s CO2 emissions (however measured) fall in the 1—50g/km band. From 6 April 2020, this band is sub-divided into five further bands, each with their own appropriate percentage. The band into which the car falls depends on its electric range (also known as its zero emission mileage). This is the maximum distance that the car can be driven in electric mode without having to recharge the battery.
 
The relevant bands are as follows:

 

 • more than 150 miles 
 • 70 to 129 miles
 • 40 to 69 miles
 • 30 to 39 miles
 • less than 30 miles

 

The greater the car’s zero emission mileage, the lower the appropriate percentage.

 

Splitting the 1—50g/km band introduces additional reporting requirements. The precise nature of those changes depends on whether car and fuel benefits are payrolled.

 

Payrolled benefits

 

Where car and fuel benefits are payrolled, information on cars provided to employees is submitted to HMRC on the Full Payment Submission (FPS), rather than on form P46(Car). From 6 April 2020, where an employee has a car with carbon dioxide emissions that fall within the 1—50g/km band, the car’s zero emission mileage must be reported to HMRC in the new field that will be available from that date.

 

P46(Car) changes

 

If car and fuel benefits are not payrolled, form P46(Car) provides the mechanism for letting HMRC know when an employee has been given a car for the first time or given an additional car. The form can be submitted in various ways – on paper, using the online service or PAYE online.
From 6 April 2020, the form will have an additional field for zero emission mileage which must be completed when providing an employee with a car with CO2 emissions in the 1—50g/km band. The deadlines for submitting the form are unchanged and are as shown in the table below.
Period in which change took place & Deadline for reporting it to HMRC
6 January to 5 April - 5 April electronic form
                                  3 May printed form
6 April to 5 July - 2 August
6 July to 5 October - 2 November
6 October to 5 January - 2 February

 

NLW – Is your business ready for 1 April 2020?

Adrian Mooy - Tuesday, February 04, 2020
 
From 1 April 2020, nearly three million workers are set to benefit from increases to the National Living Wage (NLW) and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission.

 

From 1 April 2020, the NLW will rise from £8.21 per hour to £8.72 per hour.

 

The new rates should mean a pay rise of some £930 over the course of the year for a full-time worker on the NLW. Younger workers who receive the National Minimum Wage (NMW) will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24 year olds seeing a 6.5% increase from £7.70 to £8.20 an hour.

 

Employers need to make sure they are ready for the new rates.

 

The compulsory NLW is the national rate set for people aged 25 and over. The NLW is enforced by HMRC alongside the national minimum wage which they have enforced since its introduction in 1999.

 

Generally, all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:

 

 • employees
 • most workers and agency workers
 • casual labourers
 • agricultural workers
 • apprentices who are aged 25 and over

 

The NMW is the minimum pay per hour that most workers are entitled to receive by law. The rate to which they are entitled depends on a worker's age and whether they are an apprentice.

 

The rates from 1 April 2020, the NMW will rise across all age groups, including increases:

 

 • from £8.21 to £8.72 for over 25 year olds
 • from £7.70 to £8.20 for 21-24 year olds
 • from £6.15 to £6.45 for 18-20 year olds
 • from £4.35 to £4.55 for under 18s
 • from £3.90 to £4.15 for apprentices

 

NMW calculations

 

Payments that must be included when calculating the NMW are:

 

 • income tax and NICs
 • wage advances or loans and repayments
 • repayment of overpaid wages
 • items that the worker has paid for, but which are not needed for the job or paid for voluntarily, such as meals
 • accommodation provided by an employer above the offset rate (£7.55 a day or £52.85 a week)
 • penalty charges for a worker’s misconduct

 

Some payments must not be included when the NMW is calculated.

 

These are:

 

 • payments that should not be included for the employer’s own use or benefit, for example if the employer has paid for travel to work
 • items that the worker has bought for the job and has not been refunded for, such as tools, uniform, safety equipment
 • tips, service charges and cover charges
 • extra pay for working unsocial hours on a shift

 

Entitlement

 

There are a number of people who are not entitled to the NMW, including:

 

 • self-employed people
 • volunteers or voluntary workers
 • company directors
 • family members, or people who live in the family home of the employer who undertake household tasks

 

All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.

 

Compliance

 

Businesses should make regular checks to ensure compliance with NLW/NMW obligations including:

 

 • checking that they know who is eligible in their organisation
 • taking the appropriate payroll action where relevant
 • letting employees know about any new pay rate
 • checking that staff under 25 are earning at least the right rate of NMW

 

The penalty for non-payment of the NLW can be up to 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment is £20,000 per worker.

 

The government is currently committed to raising the NLW to £10.50 per hour by 2024 on current forecasts.

 

Employers need to take action over the coming weeks to ensure that they are ready for the increase in rates on 1 April 2020 and beyond.

 

Company year-end tax planning

Adrian Mooy - Tuesday, February 04, 2020
 
As a director shareholder of your company you’re in a good position to arrange your income for maximum tax efficiency.

 

Whatever arrangements you put in place to maximise tax efficiency for your income, February is a good time to review them before the end of the tax year.

 

Start by checking that you’ve used your lower tax rate bands

 

Draw enough income from your company so that together with that from other sources the total is at least equal to the basic rate threshold. For 2019/20 that’s £50,000 (£12,500 tax-free personal allowance plus the normal basic rate band of £37,500). It’s possible to increase your income further but be taxed at the basic rate using tax reliefs, such as for pension contributions.

 

Tax reliefs don’t all work the same way. Essentially, there are two types, those which:

 

 • are tax deductible and increase your basic rate threshold pound for pound; and

 

 • those which only increase your basic rate band.
 
The first type includes tax allowances (apart from the personal allowance and blind person’s allowance) and tax-deductible costs, e.g. business expenses for which you aren’t reimbursed, and interest on tax-allowable loans, such as those to fund working capital for your business.

 

The second type includes tax allowances related to marriage, pension contributions and gift aid payments.

 

Example. In February 2020 Dan projects that his income for 2019/20 will be £56,000. He’s entitled to tax relief for expenses of £2,000 which he incurred in his job and for which he has not claimed reimbursement from his company. His taxable income is therefore £54,000 which exceeds the basic rate threshold meaning he’ll pay higher rate taxes on £4,000 (£54,000 - £50,000)

 

If on or before 5 April 2020 Dan pays an extra pension contribution of £4,000 his basic rate threshold will increase by that amount and he won’t have to pay any higher rate tax. This would save Dan tax of £800.

 

Suggestion - Between now and 5 April 2020 pay pension contributions. The effect will be to reduce your tax bill by up to 40p in the pound. The same applies for gift aid payments. But if overall you don’t want to spend more on pensions or gift aid you can instead bring forward such payments you intend to make after 5 April.

 

Suggestion - If your income has already passed the basic rate tax band and you don’t want to make further pension or gift aid payments you can limit the higher rate tax damage by simply deferring any further salary or dividends until after 5 April 2020. Instead, if you need the income to survive, borrow it from your company and repay it when you take the deferred salary.

 

Year-end checking of directors' NICs

Adrian Mooy - Monday, February 03, 2020
 
To prevent manipulation of the NIC earnings period rules to reduce contributions, directors liable to Class 1 contributions will have an annual earnings period, however often they are paid.

 

The non-cumulative nature for calculating employee Class 1 NICs makes it possible to manipulate earnings to reduce the overall amount payable by taking advantage of the lower rate of primary Class 1 contributions payable once the upper earnings limit has been reached. For example, an employee who is paid £3,000 for each month of the tax year will pay considerably more in primary contributions than someone who is paid £600 for 11 months and £29,400 for one month, even though their total earnings for the year are the same.

 

Since company directors often have greater scope to influence the time and amount of payments they receive as earnings, special rules exist which provide that a director’s earnings period is a tax year. As the end of the tax year approaches, it is worthwhile checking to make sure that all company director NICs have been calculated correctly.

 

There is an exception to the above rule where a director is first appointed during the course of a tax year. Where this happens, the earnings period will be the period from the date of appointment to the end of the tax year, measured in weeks. The calculation of the earnings period includes the tax week of appointment, plus all remaining complete weeks in the tax year (i.e. week 53 is ignored for this purpose). This is known as the pro rata earnings period.

 

Example

 

Mr Green is appointed to the board of directors of A Ltd in week 44 of the tax year. The primary threshold and upper earnings limit are calculated by multiplying the weekly values by 9, because the earnings period starts with the week of appointment. This means that in 2019–20, Mr Green will pay NIC at the main rate of 12% on his director’s earnings between £1,494 (9 × £166) (the primary threshold) and £8,658 (9 × £962) (the upper earnings limit) and at the additional 2% rate on all earnings above £8,658 paid up to 5 April 2020.

 

Leaving the company

 

It is also worth checking as to whether any directors have left during the year. Again, to prevent manipulation of the rules, directors ceasing mid-year retain an annual earnings period for the remainder of that year and the next year in relation to earnings from the same employer.

 

Who does the annual earnings basis affect?

 

Towards the end of the tax year, a check should be made to ensure that the annual earnings basis is being used for the correct people. There may be people within the organisation who are called directors, but for whom that is just an honorary title.

 

The definition of ‘director’ is wide and extends beyond someone registered as a director with Companies House. For these purposes a director means:

 

 • in relation to a company whose affairs are managed by a board of directors or similar body, they are a member of that board or similar body

 

 • in relation to a company whose affairs are managed by a single director or similar person, that director or person

 

 • any person in accordance with whose directions or instructions the company’s directors (as defined above) are accustomed to act

 

However, a person giving advice in a professional capacity is not treated as a director.

 

Companies often find it easier to calculate directors’ NIC in a similar way to other employees, spreading contributions throughout the year. A recalculation on an annual basis should be performed when the last payment of the year is made and any outstanding National Insurance due can be paid at that time.

 

Avoiding the 2020 AIA trap

Adrian Mooy - Monday, February 03, 2020
 
At the end of 2020 the annual investment allowance (AIA) reverts to £200,000. If your financial year spans the change, transitional rules can unexpectedly restrict your entitlement further. Why, and what steps can you take to work around this?

 

The annual investment allowance (AIA) is a capital allowance (CA) which gives you a tax deduction for 100% of qualifying expenditure, e.g. purchase of equipment, incurred in the accounting period. With a few exceptions the AIA is allowed for the cost of all equipment which would qualify for CAs.
 
The maximum amount of expenditure which can qualify for the AIA is usually £200,000, but this was temporarily increased to £1 million from 1 January 2019 until 31 December 2020. There are transitional rules to work out the AIA for an accounting period which spans one of the change dates, i.e. 1 January 2019 or 31 December 2020.
 
The formula for working out the AIA for any accounting period which spans 31 December 2020 is (a/12 x £1,000,000) + (b/12 x £200,000), where “a” is the number of months in the accounting period falling on or before 31 December 2020, and b is the number of months after 31 December. The maximum amount of expenditure which can qualify for the AIA is capped to the proportion of the AIA limit applicable to each part of the accounting period.
 
Example. A Ltd’s next accounting year runs from 1 April 2020 to 31 March 2021. It has planned to renew some equipment over the twelve months. As it expects to spend around £180,000 the directors assume there will be no problem in claiming the AIA for all of it because it’s less than the temporary limit of £1 million and the normal limit of £200,000. But the transitional rules could prevent this.
 
The AIA for expenditure in the period 1 January to 31 March 2021 is capped proportionate to the normal amount, i.e. 3/12 x £200,000, which is £50,000.
 
If A Ltd were to incur all the £180,000 of expenditure on equipment in the period between January and 31 March 2021 it would only be entitled to the AIA on £50,000. The balance would qualify at the normal CAs rates of 6% or 18% per year on a reducing balance. This means it would take a minimum of twelve years to obtain even 90% of the tax relief it’s entitled to.
 
To avoid the trap and obtain the AIA for all its expenditure A Ltd should incur at least £130,000 (£180,000 - £50,000) of it on or before 31 December 2020.
 
The date on which capital expenditure is treated as incurred is the date that you commit to the purchase, i.e. usually the date you sign a purchase order or equivalent document.
 
After 1 January 2021 the maximum AIA is a fraction of the normal annual amount, e.g. if your financial year ends on 31 March 2021 it’s just £50,000 (£200,000 x 3/12). If you’re considering capital expenditure in excess of the restricted AIA, aim to spend on or before 31 December 2020 when the maximum AIA is much greater.

 

Advisory and approved fuel rates

Adrian Mooy - Sunday, February 02, 2020
 
The subject of allowable mileage rates for tax purposes often causes confusion as different rules apply depending on whether a car is employee or company owned.

 

Broadly, employees can only claim mileage allowance tax relief where their own vehicle is used for business purposes. If the employee is provided with a company car, a mileage claim can be made for business travel to cover the cost of fuel where this is paid for by the employee. There are different rules if the company pays for the fuel.

 

Approved mileage allowance payments (AMAPs)

 

An employee using their own car for work can claim a mileage allowance from their employer, which is designed to cover the costs of fuel and wear and tear for business trips. The mileage allowance will be tax-free if it does not exceed HMRC’s Approved Mileage Allowance Payment (AMAP) rates, which are currently as follows:

 

 • Cars and vans: first 10,000 business miles per year – 45p per mile; over 10,000 miles – 25p per mile

 

 • Motorcycles: first 10,000 business miles per year – 24p per mile; over 10,000 miles – 24p per mile

 

 • Bicycles: first 10,000 business miles per year – 20p per mile; over 10,000 miles – 20p per mile

 

For NIC, the 45p per mile rate is used for all business miles in the tax year, not just the first 10,000 miles.

 

Actual costs of business journeys made in the employee’s private car cannot be claimed as a deduction by the employee as the legislation specifically prevents this where mileage allowance payments are made to that employee.

 

AMAPs are designed to cover any general or mileage-related expenses in relation to the car itself (such as fuel, servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle. The employee cannot claim any additional relief for expenses of that type.

 

AMAPs do not cover other expenses specific to the particular journey (such as parking charges, road tolls or accommodation) and the normal rules for deductions apply to expenses of this type.

 

Reporting

 

Unless the employer reimburses employees at a higher rate than the AMAP rate, the payments do not need to be reported on annual forms P11D as a benefit-in-kind.

 

If an employer pays less than the approved rates, the employee can claim income tax relief from HMRC for the shortfall. This can be done via a self-assessment tax return or by completing form P87.

 

Company vehicles

 

The AMAP scheme does not apply for company cars. However, employees can still claim fuel expenses for all business mileage where they pay for the fuel. The rates are lower than the AMAP rates and are updated quarterly. Current and previous rates can be found on the Gov.uk website at https://www.gov.uk/government/publications/advisory-fuel-rates.

 

Amounts paid in excess of HMRC’s advisory rates will be taxable.

 

If the company pays for all fuel (business and private), the fuel benefit will be charged, which is based on the cash equivalent of the benefit each tax year. The fuel benefit is fixed each year (for 2019/20 it is £24,100). This figure is multiplied by the CO2 percentage figure applicable to the company car.

 

Claims

 

It is the employee’s responsibility to claim tax relief due on mileage allowances. Form P87 can be used where an employee is not within self-assessment but has allowable employment expenses of less than £2,500 for a tax year. Current year claims are usually made via the employee’s PAYE tax code. However, employees have four years from the end of the tax year to make a claim for earlier years.

 

HMRC publishes Factsheet for contractors

Adrian Mooy - Sunday, February 02, 2020
 
With only weeks to go before the new rules for off-payroll working apply, HMRC has produced a factsheet for those working through intermediaries.

 

If you provide your services to a client through an intermediary, e.g. a company, and you would be an employee if you worked directly for the client, the off-payroll rules apply. These require you to account for PAYE tax and NI on fees you receive from the client. But from 6 April 2020 if your client is a medium-sized or large business, it will be responsible for deciding if IR35 applies and if so will deduct the PAYE tax and NI before it pays your fees. HMRC’s new factsheet summarises what you can expect.

 

A review of the April 2020 changes to IR35 promised by the government in December 2019 is already underway. The bad news is it’s very limited in scope. It only aims to ensure a smooth transition from the old to the new regime. HMRC’s Factsheet, published days after the review was launched (7 January) devotes just two sentences to it.

 

HMRC explains that you, as the contractor, don’t need to take any action in preparation for the changes. However, it goes on to say that if you think you will be affected by the new rules you can ask each of your clients for a Status Determination Statement which will indicate if your client plans to apply the new rules, and their reasons.

 

We strongly recommend you ask for a Statement unless you’re happy to have PAYE tax and NI deducted from your fees from April.
 
If you disagree with you client’s determination, you are entitled to formally challenge it. They are required to reply within 45 days which means time is short if you need to negotiate the terms of your work so that it’s not caught by the new rules.

 

Is HMRC holding on to your PAYE refund?

Adrian Mooy - Saturday, February 01, 2020
 
Don’t rely on HMRC’s online records of PAYE liabilities and payments to check for refunds. They are often out of date and sometimes inaccurate.
 
Getting your hands on a refund depends on two factors; what year it relates to and the amount involved.

 

If the refund of PAYE relates to the current tax year and you have further PAYE and NI payments to make, the best way to recover the money you’re owed is to simply knock it off your next PAYE and NI payment.

 

Where the refund is for a prior year, or if it’s too large to be recovered by reducing your PAYE payments for the remainder of the tax year, it might be trickier to get your money back:

 

 • if the refund is less than £500, HMRC is unlikely to argue. Call its employer helpline (0300 200 3200) and simply ask for the money to be refunded

 

 • if the amount you’re owed is more than £500, you’ll need to provide HMRC with an explanation of why you overpaid PAYE. And even after HMRC has agreed the amount, you could be in for a long wait - HMRC is currently taking around four months to process repayments.

 

HMRC will usually want a detailed account of the circumstances which caused the overpayment.

 

HMRC’s guidance on how to “Fix problems with running payroll” includes examples of possible reasons why an overpayment might occur, which might help you formulate your explanation and secure your refund with the minimum of trouble. It also includes information about the process of making a claim.

 

When claiming a PAYE refund, it will speed things up if you set out details of your PAYE liabilities and payments for the year in which the overpayment occurred in an easy-to-follow format. For example, a table showing PAYE and NI due according to your RTI reports, your payments and an explanation of any differences in separate but corresponding columns.

 

Rule change to shorten tax deadline for property sellers

Adrian Mooy - Saturday, February 01, 2020
 
Experts are warning that buy-to-let landlords and other property owners are at risk of financial penalties due to an obscure change to tax rules.

 

From April, the deadline by which property owners with taxable gains on residential properties are required to pay tax will decrease from up to 22 months to just 30 days.

 

This means that after 6 April, UK residents who sell a residential property which that creates a capital gains tax (CGT liability) will be required to submit a one-off tax return to HM Revenue & Customs (HMRC) within 30 days of the sale being completed.

 

Under the current system, property owners have until January 31 (the self-assessment tax deadline) in the tax year following the sale to complete a return and pay any CGT. Therefore, depending on the date of sale, the tax is due between 10 and 22 months after the disposal of the property.

 

The rule changes were first announced by the Government back in 2015, but they were then pushed back to 2020 in the 2017 Budget and many in the industry are worried that sellers may be unaware of these new rules.

 

The reforms apply to properties sold after 6 April 2020 and will only affect property owners who have sold a residence which creates a capital gain, such as buy-to-let landlords and those selling second homes.

 

People who own one property that they live in as the main residence, or those who are selling a property and exchanged contracts in the tax year before 5 April, but completion takes place after 6 April, will not be affected.

 

Those who miss the tax deadlines will face penalties for both late filing of returns and late filing of tax. Late filing of returns results in an initial £100 penalty, plus additional charges of £10 per day after three months.

 

Paying late is covered by a different penalty scheme where individuals are fined 5 per cent of the unpaid tax at 30 days, six months and 12 months.

 


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