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Maximise your VAT claim for road fuel

Adrian Mooy - Monday, March 09, 2020
If your business pays for fuel for work and private journeys, there are different methods to work out the VAT reclaimable. There are further complications if your business is partially exempt.


Different methods


Until 2014 if a business paid for road fuel for its owners or workers which they used for business and private journeys, it was expected to reclaim none of the VAT or all of it. If it opted for the latter, it had to account for VAT on the private use using HMRC’s scale charges. Some businesses did well out of the arrangement while others did badly. These days while the scale charges still exist and continue to be used, you can instead work out the amount reclaimable on fuel costs by applying the general VAT rules. These say you can use any fair and reasonable method of apportioning the VAT between business (reclaimable) and private (not reclaimable) use.


Scale charge pros and cons


One advantage of HMRC’s scale charge is that it’s simple to use. The drawback is you can end up paying too much VAT. As a rule of thumb, the less fuel paid for by the business the less likely it is that the scale charge will be the most VAT-efficient option. To use the apportionment method instead you’ll need to keep a record of business and total mileage for each car for which the business pays for fuel.


For each return period you can choose which method to use and opt for the most VAT efficient. What’s more, you can use different methods for each car for which your business pays the fuel.


Partial exemption


If you want to work out the most VAT-efficient method, and your business is partially exempt, you’ll need to consider another factor. You must decide if the cost of fuel is attributable to taxable or exempt supplies your business makes, or both. In virtually all cases car journeys will be for the business as a whole and therefore the VAT on the fuel falls in the last category. This is known as the “residual VAT” or “residual input tax”. You can now decide whether to claim/account for VAT using the scale charge or by apportionment.


You can change methods each VAT period and for each car for which your business has bought fuel. The options are to pay HMRC VAT based on its scale charges or account for private mileage. If your business is partially exempt you must reduce your claim according to the partial exemption rules. The scale charge can be similarly reduced.


HMRC’s new guidance on cryptoassets and business taxes

Adrian Mooy - Monday, March 09, 2020
Until now, HMRC’s guidance on the tax consequences of using or trading in cryptoassets, such as digital currencies like Bitcoin, was mainly aimed at individuals. It’s now published new guidance for businesses.


Types of cryptoassets


In November 2019 HMRC issued new guidance on cryptoassets. It prefers this name to cryptocurrencies because, in common with most governments and banks, it doesn’t recognise Bitcoin etc. as currency or money. Instead it views them as types of token: exchange tokens, utility tokens or security tokens. The differences between these three is subtle, but for now HMRC has limited its latest guidance to exchange tokens. HMRC says that an exchange token is ”intended to be used as a method of payment and encompasses cryptocurrencies like bitcoin” for which “there is no person, group or asset underpinning these, instead the value exists based on its use as a means of exchange or investment.”


Tax and exchange tokens


The tax treatment of crypto exchange tokens depends on how you use them, and whether your business operates through a company or is unincorporated.


Paying with cryptoassets


Where cryptoassets are used as a means of payment, the value on the transaction must be recorded in your books in a recognised currency. For example, for transactions in the UK the value must be recorded as sterling.


The value is that at the time of the transaction. This is especially important for VAT because invoices must show values in a recognised currency.


If your business owns cryptoassets at the end of an accounting period, it must show their monetary value at that date in your accounts balance sheet. For UK tax returns this must be shown in sterling.


No effect on VAT


VAT is due in the normal way on goods or services you sell in exchange for cryptoassets. It applies to the value of the transaction (in sterling) at the time of the transaction. If you’re the seller you’ll need to make the valuation to show the VAT amount in sterling (or for overseas sales another recognised currency) on your invoice. You can’t show the value of the sale or the VAT in, say, bitcoin.


Investing in cryptoassets


Other than where you use cryptoassets as a means of payment, buying or selling them is a capital transaction. That means gains resulting from buying, selling or changing values of cryptoassets by companies are liable to corporation tax. Owners of unincorporated businesses are liable to capital gains tax on gains made from the sale of cryptoassets. Gains from changes in value aren’t taxable until there’s an actual sale.


Buying and selling and data mining


If you or your company frequently trade in cryptoassets, or if you “mine” them, any gains you make are taxable as profits rather than as capital gains.


For VAT and direct tax purposes all transactions in cryptoassets must be given a value in a recognised currency, e.g. sterling. If your business makes a profit from owning cryptoassets, it usually counts as a capital gain and so is liable to corporation tax for companies and capital gains tax for other businesses.


Buying and selling, or mining cryptoassets - tax consequences

Adrian Mooy - Monday, March 09, 2020
Buying and selling cryptoassets
Buying and selling cryptoassets such as bitcoin may count as a trade. To decide you should consider to what extent the so-called “badges of trade” apply to the activity. The “badges” are the factors which the courts have over time determined need to be materially present for an activity to be considered a trade.
The main badges are:
 • degree and frequency of activity
 • level of organisation
 • intention to make a profit and the risk of making a loss.
You can find more information about the badges of trade in here:
Cryptoasset mining
The badges of trade are also the criteria that should be considered to determine whether cryptoasset mining is a trade or a miscellaneous activity. Organised frequent mining with the intention and likelihood of making a profit is probably a trade while ad hoc and infrequent mining is likely to be taxable as miscellaneous income.


New reporting procedure for cars

Adrian Mooy - Sunday, March 08, 2020
New tax rates for zero and low emission company cars mean that from 6 April 2020 employers must provide more information to HMRC.


Lower tax bills.


There is a significant reduction in tax bills for drivers of electric and hybrid company cars which will apply for 2020/21. The changes will also benefit employers by reducing the amount of car benefit on which you have to pay Class 1A NI. As a result, HMRC is making changes to its reporting procedures for employers.


New Forms P46 car.


If after 5 April 2020 an employee’s company car is changed or they have use of one for the first time, and it’s a zero or low emissions car, you’ll need to notify HMRC in the new box that will be added to the P46 car. If it’s a hybrid with CO2 emissions of between 1g/km and 50g/km you must enter the vehicle’s zero emission mileage, i.e. the maximum distance it can be driven in electric mode without recharging. If you payroll your company car benefits, there will be a new field on the PAYE full payment submission in which to enter the mileage details.


If you use a paper P46 car rather than the online version, make sure that you download and use the new-style form. Destroy any old-style forms. The new forms will be available to download from 6 April 2020.


Hybrid information.


If you’re leasing a hybrid vehicle, the leasing firm is required to provide you with the mileage information. If you own the vehicle, the zero emission mileage figure can be found on its “certificate of conformity”. If this isn’t available you can obtain the figure from the manufacturer.


Existing company car users.


You aren’t required to notify HMRC about employees who currently use electric or hybrid cars and continue with the same vehicle after 5 April 2020. However, it would be helpful if you notified the employees that their tax bills might reduce and that they should contact HMRC as soon as possible to check if their code number needs to be amended.


There will be a new P46 car (online and paper versions) from 6 April 2020. Destroy any old paper versions. For hybrid cars you must provide details of the vehicle’s electric only range as shown on the certificate of conformity.


What is the small company exemption?

Adrian Mooy - Saturday, March 07, 2020
When the Government confirmed the April 2020 private sector extension of the off-payroll rules in October 2018, the Budget documentation contained a notable exclusion for small companies.


Small organisations will be exempt, minimising administrative burdens for the vast majority of engagers, and HMRC will provide support and guidance to medium and large organisations ahead of implementation.


Although there was initially some confusion over the definition of the term ‘small’, the Government has since confirmed that it will use the same criteria contained in the Companies Act 2006.


During a 12-month period, a business is deemed to be a ‘small’ company if it meets 2 or more of the following criteria:


Turnover – not more than £10.2 million


Balance sheet total – not more than 5.1 million


Number of employees – no more than 50


Any contractors engaged by small companies will continue to operate the IR35 rules as they do currently – and the responsibility for determining their employment status will not pass to their clients.



Capital allowances - integral features

Adrian Mooy - Saturday, March 07, 2020
Since April 2008 some types of equipment or plant fitted to or in a building count as “integral features”. As such they qualify for capital allowances as “plant and machinery” to which the special rate (6% per annum from 1 April 2019) of writing down allowances applies.


The rules (Capital Allowances Act 2001) list the items which qualify as integral assets. They are:


a. electrical systems (including lighting systems);


b. cold water systems;
c. space or water heating systems;
d. powered systems of ventilation, air cooling or purification;
e. any floor or ceiling comprised in the systems described in c. or d.;
f. lifts, escalators or moving walkways; and
g. external solar shading.


However, where the primary purpose of an item is the insulation or enclosure of the interior of a building, or provide means of permanent internal divisions within a building, they will not qualify for plant and machinery allowances but if the expenditure on the item is incurred on or after 29 October 2018 they can qualify for the structures and buildings allowance.


Should I buy a rental property through a limited company?

Adrian Mooy - Saturday, March 07, 2020
Landlords hit by recent and forthcoming tax changes may wonder if it is better to buy a rental property through a limited company, rather than holding it personally.
Holding it personally


Where a property is held by an individual, the property income tax rules apply. The profits of the property rental business are charged to income tax at the individual’s marginal rate of tax. If a loss is made, this can only be carried forward and set against future profits of the same property rental business. The personal allowance is available if not used elsewhere.


Interest relief restrictions have been phased in progressively from 6 April 2017. For 2019/20, 25% of interest can be deducted in computing taxable profits (attracting relief at the landlord’s marginal rate), with relief for the remaining 75% given as a tax reduction at the basic rate. From 6 April 2020, relief for all interest and finance costs will be given in this way.


When purchasing the investment property, if it is a residential property and the landlord already owns at least one other residential property, the 3% Stamp Duty Land Tax (SDLT) supplement applies.


On sale, capital gains tax will be charged on any gain. The higher residential rates apply – 18% where total income and gains do not exceed the basic rate band and 28% thereafter. The individual can set his or her annual exempt amount – set at £12,000 for 2019/20 – against any chargeable gain where available.
Owning it through a company


Where a property is owned through a company, any profits are charged to corporation tax rather than income tax. There is no equivalent of the personal allowance – so profits are taxed from the first pound. However, at 19%, corporation tax rates are lower than income tax rates. The interest rate restrictions do not apply to companies, and interest is deductible in accordance with the corporation tax rules.


Companies pay corporation tax on chargeable gains and any gain on disposal of the property is subject to corporation tax. There is no annual exempt amount, and basic rate taxpayers pay capital gains tax at a lower rate than the corporation tax rate payable by companies; however, at 28%, the rate payable by higher rate taxpayers is more.


If the value of the property is more than £500,000, the company will also have to pay the annual tax on enveloped dwellings. The amount depends on the value of the property – ranging from £3,650 for a property in the £500,000 to £1 million band to £232,350 for properties valued at £20 million or more (2019/20 rates).
Where the property is brought by the company, SDLT will be payable, with the 3% supplement applying to the purchase of residential properties.
Buying through a company will also raise the issue of how best to extract the profits, and once personal and dividend allowances have been used, this will trigger personal tax liabilities in the hands of the recipient.


Do the sums
The best option will depend on personal circumstances, and there is no substitute for doing the sums. Remember to take account of the non-tax considerations, such as the additional costs associated with running a company and higher borrowing costs.


Putting a commercial property in a SIPP

Adrian Mooy - Friday, March 06, 2020
A SIPP is a self-invested personal pension plan, which is available to individuals. A SIPP can be an attractive option as individuals have the opportunity to choose where their pension funds are invested rather than this decision being made by the fund manager.


The range of investments that can be held within a SIPP is wide and includes commercial (but not residential) property. It can be tax efficient to invest in a SIPP, particularly if the individual has a need for business premises.


Permitted property


Properties that can be held through a SIPP include offices, shops, business units, hotels and care homes. The fact that the property has a residential element, such as a shop with a flat above it, does not necessarily preclude the property from being held in a SIPP. The property will count as commercial property as long as the flat is not occupied by a member of the SIPP.


If the SIPP does not have sufficient funds to buy the property outright, the SIPP can borrow to fund the purchase. Rental income can be used to meet the loan repayments and associated interest.


Renting it to the business


The commercial property can be rented to a business run by the SIPP member, as long as rent is paid at a commercial level. This can be an efficient way of building up pension savings – instead of the business renting a property from a third party and paying the rent to them, the rent is paid into the SIPP, building up the pension savings. The SIPP also benefits from any capital appreciation on the property.




Harry runs a web design agency. He sets up a SIPP to save for his retirement and builds up some funds. He decides to invest in a unit on an industrial estate from which to run his business. The SIPP purchases the unit for £50,000, funded in part by a £20,000 loan.


The business rents the unit from the SIPP paying the market rent of £500 a month. The loan repayments and interest are paid from the rent and the balance of the rent builds up in the SIPP.


This is a win-win situation as Harry benefits from the rental income and any increase in value in the unit.


Stamp duty land tax on mixed-use properties

Adrian Mooy - Friday, March 06, 2020
Stamp duty land tax (SDLT) is payable on the purchase of land and buildings in England and Northern Ireland over a certain value. SDLT does not apply in Scotland and Wales; instead land and buildings transaction tax (LBTT) applies in Scotland and land transaction tax (LTT) applies in Wales.
As far as SDLT is concerned, there are different rates for residential and non-residential properties. The residential rates apply where the consideration for the property is more than £125,000, with different rates applying to different slices of the consideration. The rates range from 2% to 12%. For individuals, a 3% supplement applies to second and subsequent residential properties costing more than £40,000. Relief is available for first-time buyers. Where the property is purchased by a company, a 3% surcharge applies to the residential rates.


No residential rates are much lower and only apply where the consideration exceeds £150,000. The next £100,000 is charged at 2%; thereafter the rate is 5%.


Mixed use properties


A mixed-use property is one that incorporates both residential and non-residential use. The non-residential rates apply to mixed use properties. As these are considerably lower than the residential rates, the SDLT may be considerably less on a mixed-use property than on a residential property.


Identifying the type of property


It will not always be clear whether the property is a residential property (to which the residential property rates apply) or a mixed-use property (to which the lower non-residential rates apply).


A residential property is one which is used as a dwelling or which is suitable for use as a dwelling. The test is applied at the effective date of the transaction. The physical attributes of the dwelling are important in determining whether it is ‘suitable’ for use of a dwelling, irrespective of whether it is actually being used as a dwelling.


Where a building is used partly as a dwelling and partly for other purposes, it may not be straightforward to determine the SDLT rates that apply. A distinction is drawn between a property where certain rooms of a building that would otherwise be a dwelling are used for work (such as a spare room being used as a home office) and one where the building is divided into separate areas, with part used for residential accommodation and part adapted for business or commercial use (such as house part of which has been converted into a surgery).


In the ‘home office’ situation, the building remains a dwelling and the SDLT residential rates apply. However, the position is less clear cut where the property is converted or used without specific conversion. It is important to note that the actual use is not important – what is important is the degree of conversion required and the degree of separation from the residential areas. If the property is sold as a single building and it consists of or includes land that is not residential property, SDLT will be applied at the lower non-residential rates. Where the property meets the test for a residential property, the residential rates will apply.


Employer provided food in the workplace

Adrian Mooy - Friday, March 06, 2020
Apart from the exemption from the benefit in kind rules for free or subsidised food provided to employees in staff canteens meals or light refreshments provided in the workplace may also be exempt under s.317 Income tax (Employment and Pensions) Act 2003. For the exemption to apply the following conditions must be met:


 • The meals/food must be provided of a “reasonable scale”, HMRC manuals say that inspectors should not interpret the rules narrowly. For example, a glass of wine with a meal is accepted but not “the provision of an elaborate menu, fine wines and cigar”; and


 • all the employees working at that location must be entitled to either free or subsidised food.