HMRC has updated its guidance to clarify that there is no taxable benefit when an employer reimburses employees who charge their electric company cars at home. Previously, HMRC maintained that the relevant exemption did not apply.
There is a general rule that no income tax liability arises where an employee is reimbursed for expenses incurred in connection with a company car – such as repairs, insurance and car tax. Although this exemption does not apply to car fuel, electricity is not treated as fuel for tax purposes. Exemption The exemption applies whether a company car is used solely for business mileage, solely for private mileage or where there is mixed use. · Although HMRC’s guidance has been updated, at the time of writing their tool to check if you need to pay tax for charging an employee’s electric car is still giving incorrect answers, unless a company car is used solely for business mileage. · National insurance contribution (NIC) guidance is in line with the income tax guidance, so there are no class 1 or class 1A NICs on reimbursements for charging an electric company car at home. Employers do, however, need to ensure that the cost of electricity reimbursed is solely for the company car. Employers, directors and employees who have previously followed HMRC’s incorrect guidance should be entitled to a refund of the tax and NICs that have been overpaid. Other charging situations There is no taxable benefit if an electric company car is charged at work, if a charge card is provided so that public charging points can be used, or if the employer pays for a charging point to be installed at an employee’s home. If the employer does not reimburse for charging an electric company car at home, the employee can claim a deduction from earnings for the electricity cost of business mileage. The relevant section of HMRC’s employment income manual can be found here. Powers of attorney move one step closer to the digital age
The administration of lasting powers of attorney (LPA) is on its way to becoming fully online. In an ideal world, you should have an LPA (or its Scottish or Northern Ireland equivalent) sitting beside your will. The absence of either can complicate matters considerably for your family. Without a will, the distribution of your estate defaults to the laws of intestacy, which may not match your (or your family’s) wishes. Similarly, if illness means that you cannot manage your own affairs, then in the absence of an appropriate LPA, the Court of Protection will be your family’s first port of call to make decisions on your behalf. Going to the Court can be an expensive and slow process. In England and Wales, the LPA process is dealt with by the Office of the Public Guardian (OPG). Over the years, technology has gradually crept into what has traditionally been a heavily paper-based system. You can now prepare an LPA for property and financial affairs and/or health and welfare matters online (https://www.lastingpowerofattorney.service.gov.uk/lpa/type). These LPAs are basic, government-drafted documents, but you may prefer to use a solicitor to include specific provisions that the standard issue version does not contain. However your LPA is prepared, it will need to be registered before it can be used. While in theory registration can be delayed until your attorney needs to act on your behalf, in practice it is best to register your LPA as soon as it has been completed. That involves signing the document and sending the paperwork to the OPG (with a fee of £82 per LPA). The OPG says that it takes “up to 20 weeks” to register an LPA, provided there are no mistakes in the application. The Powers of Attorney Act 2023, which received Royal Assent in September, paves the way for LPA registration to be completed online (as is currently possible in Scotland with powers of attorney). The paper option will also remain available. If you do not have an LPA, then do not let the passing of the Act be an excuse to carry on without one until the technology is in place. Even the Chief Executive of the OPG says “…it’s important to recognise that we’ve still got a long way to go.” You – and your family – could need an LPA before that journey is over. Footnote: In October, the Law Commission launched a consultation on allowing wills in England and Wales to be made and stored in electronic form. More information can be found here. HMRC is moving ahead with its ‘digital by default’ ambition by pushing VAT registration to online only. Any business unable to use the online registration service will have to call HMRC’s VAT helpline to obtain a paper registration form.
According to HMRC, more than 95% of businesses already register online, but there are some circumstances when registration by post is the only option. HMRC recently made an almost immediate U-turn after concerns were raised when it tried to remove the option for downloading paper self-assessment tax returns. the forms continue to be available to download. Paper-only option Online registration is not possible where a business wants to: · Apply for an exemption from VAT registration (where turnover has gone temporarily over the registration threshold); · Join the agricultural flat rate scheme; or · Register a company’s divisions or business units separately for VAT. In these circumstances, businesses must contact HMRC’s VAT helpline to ask for a VAT1 form. The digitally excluded will need to do likewise. Other registration issues The compulsory VAT registration threshold has been frozen at £85,000 since 1 April 2017, so not surprisingly the number of new registrations has risen considerably – over 300,000 in each of 2020/21 and 2021/22. The threshold will remain unchanged until 31 March 2026. With more smaller businesses being drawn into the VAT net, it doesn’t help that HMRC closed its VAT registration helpline earlier this year. Anyone with a registration query can now end up waiting well over a month before HMRC responds. Currently, it can take HMRC 30-40 working days (although sometimes longer) to process an online VAT registration. However, VAT must still be accounted for from the date when the obligation to register arose, so sending out invoices in the interim can be problematic. HMRC’s guide to VAT registration can be found here. The 31 January 2024 deadline for submitting a 2022/23 self-assessment tax return is not far off, especially for those not yet registered.
Anyone who has not previously registered for self-assessment – but needs to submit a tax return for 2022-23 – should do so as soon as possible. · A self-assessment activation code can take a week to arrive (three weeks if overseas); and · It can take two weeks (again, three weeks if overseas) to obtain a unique taxpayer reference, although using a personal tax account or the HMRC app can speed things up. For anyone who has not previously submitted a tax return, the deadline for informing HMRC of the need to do so for 2022/23 has already passed. Individuals who have missed the deadline might face a fine. First-time registration There are a number of reasons why a taxpayer might fall into the self-assessment system for the first time. For example, anyone who has: · Started part-time self-employment, including work in the gig economy, trading on eBay and similar websites, or earning money as an influencer (although the first £1,000 of self-employed income is exempt); · Disposed of cryptoassets (any profits are subject to capital gains tax); or · Rented out property for the first time, possibly through sites such as Airbnb (again, the first £1,000 of rental income is exempt). · Become liable to the High Income Child Benefit Charge as a result of their income exceeding £50,000. Sooner rather than later Leaving registration to the last moment will mean there is no time to deal with any unforeseen problems. You might need to consult HMRC’s self-assessment helpline, which is now available again after its summer closure. There will also be little time before the related tax bill is due for payment, and this could be an issue if the amount payable is higher than expected. More information about whether you need to submit a self-assessment tax return can be found here. You do not have to take your state pension at state pension age
The current state pension age (SPA) – the earliest age at which you can draw your state pension – is 66. It will be gradually increased to 67 between April 2026 and April 2028. A further rise to 68 is due, probably between 2037 and 2039, but the confirmation of that timing has (conveniently) been delayed until after the next general election. Most people draw their state pension as soon as it becomes available, which requires a claim to be made. If you do not make that claim, your state pension is automatically deferred until you choose to claim it. Up until then your deferred pension will increase every week you defer, provided you defer for at least nine weeks. The rate of increase is the equivalent of 1% for every nine weeks, which works out at just under 5.8% a year. For example, if you defer the current state pension of £203.85 a week for 52 weeks you would receive an extra £11.82 a week once it started before adding the normal inflation related uplift. The increase is not compounded, so for two years’ deferral the extra would be £23.64, and so on. 5.8% a year does not sound bad, but don’t forget, your higher pension will be paid for a shorter period, as it started later. It can take a long time for the extra payments to overtake the loss of the full pension in the deferred period. For example, for a one-year deferral you will need to wait until you are about 81 before the total pension payments you have received are higher because of deferral, assuming 2.5% CPI inflation. Nevertheless, there can be good reasons to defer. For example, if you are still working, your state pension would attract tax at your highest rate(s) which could be lower once you fully retire. There are other tax planning situations where being able to minimise income in a tax year can be useful, for example when cashing in an investment bond. Before you claim your state pension, make sure you take all your circumstances into consideration. Government guidance on deferring your state pension can be found here. The 50th anniversary of the UK’s introduction of VAT was earlier this year, but despite being around for a while, many VAT-registered businesses still find VAT too complex and confusing. No surprise then that more businesses than ever are getting hit with penalties for inaccuracies.
Inflation and frozen thresholds Two things that are not helping are the high rate of inflation combined with a freeze on various VAT thresholds. Since 2017, the registration threshold has been £85,000, so with increased prices it is easy for a business to become liable for VAT despite staying the same size. Meanwhile the thresholds for remaining within the flat rate, cash accounting and annual accounting schemes, have remained virtually unchanged for around 15 years, so, again, it is easy to mistakenly continue with a scheme when no longer eligible to do so. Beware penalties With HMRC aiming to close the tax gap for VAT, the risk of penalties for inaccuracies will only increase; for 2021/22, the number of penalties issued was already substantially higher than for the previous year, a trend which is sure to continue. HMRC is able to charge a penalty of up to 30% of the extra VAT due if an error arises due to lack of reasonable care. In HMRC’s view, it is reasonable to expect a business to find out about the correct VAT treatment or to seek appropriate advice when encountering a transaction with which they are not familiar. A get out of jail card? Incurring such a penalty is somewhat careless. However, there may be a get out of jail option if this arises. HMRC have the discretion to suspend a penalty, for period of up to two years, during which time a business must comply with certain conditions. The aim is to prevent further penalties in the future, so a business could, for example, be asked to improve its record keeping. If this is done, the penalty will be cancelled at the end of the suspension period, but best to avoid such a scenario in the first place. HMRC’s guidance on VAT errors can be found here. The level of fraudulent claims being made for research and development (R&D) tax relief has prompted HMRC to introduce a new procedure: companies must provide detailed information ahead of making their claim.
HMRC figures show that nearly 20% of claims for R&D tax relief are fraudulent, so it is no surprise they are tightening up on the claim process. Non-compliance is a particular problem when it comes to small value claims, with nearly 80% of claims for less than £10,000 being suspect. The new requirement will mean having to submit an additional information form to HMRC to support a claim for R&D tax relief or for expenditure credit. This new form is a separate requirement to the claim notification form a company must submit to HMRC in advance of a claim for R&D tax relief. Notification applies for accounting periods beginning on or after 1 April 2023. Submitting the new form The additional information form must be sent to HMRC before the company’s corporation tax return is filed. If the tax return is filed without the additional information being provided, HMRC will simply remove the claim for R&D tax relief from the company’s tax return. · HMRC has set up an online portal for submitting the additional information form. · The new process will allow HMRC quickly to assess the validity of a claim, especially the level of expertise of those involved in preparing the claim. · The form requires detailed information on the R&D project, including a breakdown of the costs involved. For SMEs with just one to three projects, a full description of each project is required. HMRC now require a considerable amount of additional information to be submitted, and this will be a challenge for SMEs. Companies should therefore start preparing for their R&D tax relief claims as far in advance as possible to avoid any last minute surprises. HMRC guidance about the new requirements can be found here. The Bank of England base rate increase is impacting on the government’s tax takes, with more taxpayers paying tax on savings income due to higher interest rates. Increased mortgage rates are contributing to rocketing capital gains tax (CGT) takings too.
The impact of savings on tax National Savings & Investment is offering a 5% return on its one-year bonds, and some financial institutions are offering 6% for a similar investment. So, a higher rate taxpayer with £10,000 or more invested will easily exceed their £500 savings allowance. In fact, it is estimated that the number of taxpayers paying tax on their savings income for 2023/24 will be a million more than the previous year. There are two options to minimise tax liabilities: · You could move savings into ISA accounts, up to an annual investment limit of £20,000. This limit could restrict the scope of such planning for some. · You could invest in tax-free premium bonds. Although not paying interest as such, the expected annual return for larger investments is 4.65% – equivalent to a gross 7.75% for a higher rate taxpayer. It’s advisable to keep careful track of your savings income for tax purposes. If tax is owed, it will be paid through self-assessment or via a PAYE coding adjustment. Why is capital gains tax revenue increasing now? The substantial increase in CGT receipts reported recently is partly explained by the number of buy-to-let landlords who are selling up. A buy-to-let was a good investment choice when mortgage costs were low, property prices were increasing, and cash savings accounts offered a very poor return in comparison. But all three of these factors are now in reverse, and landlords will often be able to get a better return investing their funds elsewhere. Uncertainty around possible future increases to CGT is also pushing landlords to sell sooner rather than later. If selling up, landlords can keep CGT bills as low as possible by: · Making sure any qualifying expenditure is claimed, including any enhancement expenditure which hasn’t qualified as a deduction against property income. · Disposing of any other investments standing at a loss in the same tax year, because capital losses cannot be carried back to earlier tax years. · Putting property into joint ownership with a spouse or civil partner prior to disposal. These measures can help alleviate some of the seemingly punitive rates of CGT. HMRC information on the taxation of savings income on can be found here [savings interest] and we are always happy to advise you on your options. HMRC is chasing taxpayers who have submitted tax returns for 2021/22 containing unresolved provisional figures, while also extolling the benefits of filing early for 2022/23.
What are provisional figures? A provisional figure is not the same as an estimated one. · An estimated figure is used when it is not possible to provide a more accurate figure – so it is intended to be final. For example, small amounts of income might be estimated, or records could have been lost, making an accurate figure impossible. · A provisional figure, on the other hand, is one that is used temporarily, with the intention to submit a more accurate figure later. On a tax return, a box needs to be checked if a provisional figure has been supplied. HMRC will then be aware that an amended tax return is due. HMRC is not chasing taxpayers directly, but via letters to tax agents. The strict deadline for amending a 2021/22 tax return is 31 January 2024, but HMRC is pushing for amendments by 30 November (if actual figures are now available), or otherwise by 31 December. If the missing information is now too old to obtain, it will instead be necessary to confirm the provisional figure as final. Why filing early is often a good idea The deadline for submitting 2022/23 tax returns is also 31 January 2024, but there are benefits to earlier filing: · Tax liabilities will be established sooner, enabling more accurate financial planning throughout the year. · Using HMRC’s budget payment plan, as a taxpayer you can make regular weekly or monthly savings towards your tax bill. · Any tax refunds you are owed will be received earlier. · It is always advisable to contact HMRC well in advance if it’s not going to be possible to pay a tax bill in full. If you submit your tax return early, you will avoid the worry of last-minute filing – always a stressful task and especially so if your record-keeping is not all that it should be. HMRC’s guidance on self-assessment tax returns can be found here. |
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