Is it worth buying an electric company car?
With petrol prices at levels not seen before, even during previous oil and global crises, it comes as no surprise that the economics of owning and buying an electric car are improving. But are there any other HMRC incentives that may ease the costs of purchase that individuals and company employees can consider in their calculations? It turns out that there are.
While this article will focus on the business considerations of electric vehicles, for the time being, it should be noted that the government is also offering purchase incentives to private individuals on new electric vehicles.
Price of electric vehicles are coming down and choices are expanding
Over the past couple of years we’ve seen the growing introduction of a range of electric cars, e-cars. New models and even completely new new manufacturers have appeared alongside new electrified versions from the well known car manufacturer brands. Until now they’ve been expensive to buy compared to their petrol drinking cousins. Although they still are comparatively expensive, they are getting cheaper as the technology matures, economies of scale improve and competition increases.
The government has for the past year offered favourable tax treatment on electric vehicles purchased for business use. This is set to continue, albeit at slightly reduced levels, but with other favourable market conditions factoring in, the company car is now an interesting prospect once again.
Tax in Benefits in Kind for company electric cars
- 2021/22: 0%
- 2022/23: 1%
- 2023/24: 2%
Considerations when buying an electric car
Should I buy a new or used electric vehicle for business use?
Most of the benefit for a business buying an electric vehicle is achieved by buying a new vehicle. New electric vehicles qualify for 100% first year allowance (FYA). That means you can deduct the full cost of the vehicle purchase price from your profits - potentially a significant tax saving.
Buying a second hand electric car can still be advantageous, but the cost won’t receive the same FYA benefit. Currently, you’ll be able to claim 18% of the purchase price.
Can my business claim for electric vehicle charging points and electricity?
This is an interesting one. A business can claim a 100% first year allowance for installing new charging points at or close to an employee's place of work. This incentive is currently available until March 31 2023.
How a business chooses to let the employee use the charging point is also interesting.
Charging an electric vehicle at the place of work - private or company owned.
Currently, there is no chargeable benefit to an employee if the company allows them to recharge their own vehicle (private use) at their place of work. This is because electricity isn’t considered a fuel. If it were, simply charging your phone or a laptop might be a chargeable benefit. This is a similar treatment to that of tax free car parking. Naturally, an employee cannot claim for recharging their personal vehicle from other locations, such as a service station.
Charging at third party charging points
Similarly, if an employer pays for the cost of charging a company owned electric vehicle at other locations, there is no chargeable benefit, again because electricity is not considered a fuel.
If an employee pays to recharge a company vehicle from a third party source such as at home or a service station charging point, they can make a claim of 4p per mile.
Can I lease an electric vehicle and claim similar benefits?
Yes, but there are a couple of points to note here. The type of contract is important. Only operational lease contracts are able to qualify for full relief on rental payments. Operating leases differ from the other type of lease - typically a personal contract purchase (PCP), in that once the operational contract ends, the vehicle concerned is simply returned to the lease company. In short, there’s no ownership.
Can I claim back VAT on an electric vehicle purchase?
The answer is yes and there’s no difference here to that of a business buying a regular vehicle. The catch though, is that it must be for 100% business use. HMRC will likely ask you to prove this too, which is notoriously hard to do. if the vehicle is used by employees for personal reasons, then only 50% can be claimed.
The other point to note is that this only applies to vehicles that are classified as low emissions - less than 50g/km CO2. Not a problem for an electric vehicle and the business can claim full relief on rental payments. Above this figure though, only 85% can be claimed.
What can I claim if I used my personal electric vehicle for business use?
Since it became unattractive to have a company car, many people use their own vehicles for business use from time to time. As such regular vehicle owners have been able to make an expense claim for mileage use. If you use your electric vehicle for business use, the rates are exactly the same. The normal tax free mileage allowance is 45p per mile up to 10,000 miles, thereafter 25p per mile.
What about the benefits of electric vans?
Many small business owners and self employed people can benefit here by being an electric van as opposed to a ‘car’.
A van is different from a car because its sole purpose is trade or business related. Also, it qualifies for the same FYA as electric cars do. Accordingly, a van can be used from both business and private use, without the employer or employee incurring a benefit in kind.
What are ‘super-deductions’ and do they apply to electric vehicles?
Super-deductions were announced in the March 2021 budget and relate to ‘qualifying assets’. A super-deduction 130% FYA can be deducted on the full cost of such assets.
But what are qualifying assets? Where electric vehicles are concerned, they are not qualifying assets, which are normally assets acquired to carry on a trade - e.g. office equipment, machinery, computers, etc. Cars are not treated as ‘main pool’ plant and machinery and thus do not qualify for capital allowance purposes.
The good news though is that if your business plans to install charging points for company electric vehicles, these do qualify for a super-deduction of 130%. In other words, for every £10,000 spent, your business can claim back £13,000.
This benefit lasts through 31 march 2023.
What government grants and schemes are currently available ?
Buying an electric vehicle through an employer’s salary sacrifice scheme.
This represents a method by which an employer can offer an employee an electric vehicle in a cost-neutral way through salary deductions. This takes advantage of the employer’s VAT deductions and the employee’s ‘pre-taxed’ salary. This is no different from the way a company may attract top talent by offering healthcare, gym membership, childcare, etc. It is an attractive option because it reduces the employee’s overall taxable income. In some circumstances it could move an employee into a lower tax band.
However, while still an attractive scheme, the government made changes in the scheme in 2017. Since then an employee is required to pay income tax on the value of the car or the amount of salary sacrificed. Those employees on salary sacrifice schemes prior to April 2017 lost this income tax allowance in April 2021.
Fully electric cars however, renew the attractiveness of this scheme as the incentives for electric vehicle purchase and company use remain. The grants offered though only apply to vehicles with a purchase price of less than £32,000.
Here are a few examples. Note these are based on ‘no salary sacrifice scheme implemented’.
Higher value vehicle examples
Example: A regular petrol vehicle
- Purchase price: £45,000
- Engine size and CO2: <1400cc)- 125g/km
- Car benefit charge : £13,050
- Tax liability: 20% = £2610, 40% = £5220
Example: Similar value e-car
- Purchase price: £45,000
- Car benefit charge - £450
- Tax liability - 20%=£90, 40% = £180
- Government grant: Does not apply.
Typical lower cost cars
Example: Fully electric: e.g. Vauxhall Corsa-e
- Purchase price: £25805 inc options
- Car benefit charge - £258
- Tax liability - 20%=£51.6, 40% = £103.20
- £1500 government grant
Example: Regular petrol Cosa (<1400cc - 125g/km)
- Purchase price: £16,445
- Car benefit charge - £4769
- Tax liability - 20%=£953.80, 40% = £1907.60
Other grants available
For vans
- A grant of £3000 available for small vans up to 2500kg.
- A grant of £6000 for vans between 2500kg and 3000kg.
Homecharge scheme
- Employees can make use of the Electric Vehicle Homecharge scheme. This provides 75% towards the cost of and installing a single charge point, up to a maximum of £350 per household per eligible vehicle.
Road tax
- Electric cars are exempt from road tax
- Hybrid vehicles are taxed between £0 and £135 per year depending on CO2 emissions.
How tax Agility can help your business navigate the electric vehicle opportunity
We’ve been assisting small businesses and the self-employed in and around Richmond and Putney for many years. We’re intimately familiar with the issues faced by businesses looking to offer benefits to their employees in a tax efficient manner and also improving the business’s own tax efficiency.
E-vehicles are or have come of age, depending on your point of view. However, there’s no denying that at present there are some significant attractors to a business (or individuals) purchasing a new electric vehicle for business use. We can help you assess the value and benefit to your business, as each business is different.
Call tax Agility today and talk to us about electric vehicle ownership and how it can benefit your business.
Living Overseas - Do I need to pay tax if I leave the UK?
On the face of it, this seems like a simple question and is indeed one many people ask. For some it’s because they are genuinely emigrating to another country, for others, they plan on being away for extended periods of time, perhaps because they are ‘snow birds’, choosing to winter in warmer climes. And then, there are others that look to understand how they can reduce their tax burden because they move around, such as ‘digital nomads’. The reality is though, it’s not that simple.
A common question from UK tax payers spending time overseas in different countries, sometimes for relatively short periods is: “Do I still need to pay tax and if so, to whom?” The answer is “most likely and to somebody”. It all depends on where you are, where you’re considered a tax resident and how much time you have spent there. A common mistake is in interpreting what is known as the 183 day rule. We’ll explore that and other points to consider in this article.
Necessity is the mother of invention
Over the past few years, much about everyday life has changed, especially where work and travel is concerned. Some people have been forced out of necessity to make changes, others driven more by lifestyle changes. Taxation is on the rise in the UK and likely so in many parts of Europe. It’s only natural then, for people prepared to move overseas to think about where they will get the best value for money, where their assets may be taxed less and the impact of tax on their retirement plans. Resourceful savers will seek out the best overseas locations with attractive taxation regimes and likely move.
As people retire, some consider the option of retiring abroad. While in the past, as part of the EU, retiring to the warmer climates of Spain and Portugal was high on the list for British people, Brexit and other restrictions have made for an uncertain future resulting in more than a few people returning to the UK, potentially complicating their tax affairs. Still though, consider plans further afield, such as South East Asia or even Central America. A number of countries offer attractive expat or retirement opportunities for those who can afford the residency and immigration fees.
The key question though remains - what will be my UK tax liability and how do i figure this out?
Enter the Digital Nomad
Even before recent pandemic issues, a new breed of worker emerged - the digital nomad. Digital nomads vary greatly in demographic; some are young adventurous travellers seeking to combine work and the joy or travelling, or even just to be based in a different country for an extended period. Others maybe more mature in years, seeking to leverage overseas property or even rent for an extended period to afford a new work location, or perhaps to avoid the inclement weather in the UK.
A number of countries offer attractive digital nomad packages - often for up to 12 months. For these adventurous individuals, it’s natural to ask the question about tax or indeed if they are able to reduce their tax burden by making such changes to their location and lifestyle, and the specific benefits their own circumstances my lead to in regard to UK tax.
So how do you figure out what tax you owe to whom?
Let’s start by considering when you cease to become a UK Tax Resident.
Many people have heard of the “183 day rule”. Simply applied, this means that if you spend 183 days or more in the UK you become a tax resident and need to pay taxes here. If this is the case for you, then the trail stops here. But what does it mean if you spend less than 183 days in the UK - are you automatically treated as a non-tax resident? This is where mistakes are made and people get caught out. Being out of the UK for more than183 days does not automatically mean you are non-tax resident. To work this out we need to refer to the Statutory Residence Test, from which the 183 day rule emerges.
Introducing the Statutory Residence Test - SRT
Ultimately, whether you are tax resident or not will come down to how you fare when you take the “Statutory Residence Test” or SRT.
There are four main parts to the SRT:
- How much time you have spent in the UK in a tax year.
- Automatic Overseas Test.
- Automatic UK Tests.
- Sufficient Ties Test.
Part one: How much time you’ve spent in the UK during the tax year
As we said earlier; if you spend 183 days or more in the UK then you’re a UK tax resident and the test stops here. However, the problem people experience is more evident if the 183 day rule is stated another way: If you’re in the UK for less than 183 days, then you’re not a tax resident. It comes down to how you count, why you’re actually in the UK and what you are up to.
On the face of it, the 183 day rule seems easy to comprehend. In practice though, how HMRC calculates the number of days is not so simple. Let’s start with what HMRC consider as a day? Generally, HMRC considers you as having spent a day in the UK if you were in the UK from Midnight onwards. But, as you’ve probably guessed, other factors apply. In fact, three other considerations need to be made:
- The ‘deeming rule.
- Transiting the UK - transit days.
- Exceptional circumstances.
The deeming rule
As one might reasonably expect, not everyone may spend a full day in the UK if they are not permanently based here. They may be here for meetings or to visit a relative. Perhaps not too surprisingly, HMRC needs to be sure that people are not trying to avoid tax by being based outside of the UK and coming in on a regular basis for part of a day - always a possibility if somebody is based in a close neighbouring EU country or other tax haven.
The deeming rule assesses the following conditions:
- Whether you have been a resident in the UK for 1 or more years in the past 3 tax years.
- Whether during the tax year under consideration, you had more than 3 ties to the UK. These include: A family tie, an accommodation tie, a work tie or a 90 day tie. See Ties Test.
- Whether you were present in the UK on more than 30 days without being present at the end of the day (qualifying day) in the tax year of interest.
More on the deeming rule can be found here.
What’s the impact of the deeming rule?
It basically means that if you meet all the deeming rule’s conditions, after the first 30 qualifying days, all subsequent days within the tax year are treated as days spent in the UK. HMRC gives examples as to how this applies, but in summary, it means that although it may appear that under the SRT you are a non-resident for tax purposes, because of your ties here and previous tax status in the UK, even though you spend less than 183 days here, you may still be treated as a tax resident.
This is quite a complicated consideration and so it is best that you consult with a Tax Agility expert on this issue.
Note: You should still check your tax liabilities with the country you have spent time with though, as their rules may be different and you may still owe tax there. Also check out whether they have a dual taxation agreement with the UK, as this means that any tax you have to pay overseas may be eligible for a tax credit in the UK, lessening your tax liability here.
Transit days
A transit day is a day where you travel to and from other countries via the UK. These are usually not considered full days under the SRT. However, care must be taken here as it may appear tempting to use a transit day as an opportunity to conduct business in the UK or see friends and family. HMRC is quite clear that any activity that is ‘to a substantial extent unrelated to your passage through the UK’, means the day concerned can be counted as a qualifying day. Simply meeting your boss for breakfast or going out on the evening of your arrival with friends, could turn a non-qualifying day into a qualifying day and count towards your allowance. If in doubt, talk to us.
Exceptional circumstances
Sometimes people are forced to return to this country, perhaps because of a death in the family or a sick parent. HMRC are not blind to this and you may be granted special conditions in regard to the total number of days you can spend in the UK.
This may be affected by the number of days you have already spent in the UK, how much work you have engaged in, the location and the type of work involved. Be sure to get clarification on this first though.
Part 2: The Automatic Overseas Test
There are three parts to this test.
First Test: You will be considered as non-resident if you spent fewer than 16 days in the UK during the tax year and were resident in the UK for one or more of the 3 tax years before the current tax year.
Second test: If you were not resident in the UK in any of the three prior tax years and spend less than 46 days in the UK in the tax year of interest, you will be considered as non-resident.
Third test: If you worked overseas full-time over the tax year concerned and:
- spent less than 91 days in the UK in that tax year.
- spent less than 31 days where you worked for more than 3 hours a day in the UK.
- there was no significant break in your overseas work.
A significant break is considered where at least 31 days go by where you’ve worked for more than 3 hours overseas, or would have worked for more than three hours but didn’t because of annual leave, sick leave or parenting leave.
Part 3: The Automatic UK Test
There are three parts to this test.
First automatic UK test: If you’ve spent 183 days or more in the UK, you are a tax resident.
Second automatic UK test: If, for the tax year, you’ve had a home in the UK for all or part of that year and if all the following apply, you’ll be a tax resident:
- one period of 91 consecutive days where you had a home in the UK.
- at least 30 of these 91 days fall in the tax year when you have a home in the UK and you’ve been present in that home for at least 30 days at any time during the year.
- at that time you had no overseas home, or if you had an overseas home, you were present in it for fewer than 30 days in the tax year.
- if you have more than one home, each home should be considered separately for the test and meet the test for one of them.
Third automatic test: You’ll be a tax resident if all the following apply:
- you work full-time in the UK for any period of 365 days, which falls in the tax year.
- more than 75% of the total number of days in the 365 day period when you do more than 3 hours work are days when you do more than 3 hours work in the UK.
- at least one day which has to be both in the 365 day period and the tax year is a day on which you do more than 3 hours work in the UK.
Sufficiency ties test
If you are still in doubt and do not appear to meet the automatic overseas test or the automatic Uk test, then you’ll have to look at your ties to the UK. This will help determine if your time in the UK along with the ties you have here, will make you a tax resident or not. The ties to consider are:
- a family tie.
- an accommodation tie.
- a work tie.
- a 90 day tie.
Also, if in the prior three years you were a UK resident, you’ll need to consider if you have a country tie too. Essentially, the more ties you have to the UK, the less time you can spend here without becoming a tax resident.You can find out more about this here.
Are you considered domiciled in the UK or non-domiciled?
Domicile is another question that often crops up. This typically applies to foreign nationals living and working in the UK. The answer can have a significant impact on your tax liabilities in the UK.
The exact nature of your domicile can change, but ordinarily it is the country of birth for your farther or mother. While you may be considered a UK resident for tax purposes, your domicile status can impact tax on overseas income and inheritance. The exact impact on your tax affairs needs to be very carefully considered and planned out with a qualified tax advisor. If you have questions concerning tax and your domicile status, talk to our tax advisors.
In conclusion
Tax residency status has a habit of being misunderstood simply because of the belief in the 183 day rule. For sure, if you’ve been in the UK for longer than 183 days then unless you’re looking to qualify under non-domiciliary conditions, you’re almost certainly a tax resident. However, for most people concerned about their tax residency status, it’s more likely they are counting days under 183 and fall foul of the other conditions that HMRC will test your status against. These could potentially limit your time to 16 days in some cases, particularly if you’re based overseas and coming to the UK fairly often or still have many ties to the UK.
Our advice is, don’t assume. Talk to a qualified tax advisor before you travel and discuss your plans for the tax year.
Good news for those with self-assessment tax bills
HMRC has extended the ‘season to be jolly’, well, just a little. Announced today that it has extended the filling period, usually January 31st, and when late payment penalties will become due. Good news, but there's still a catch - interest will still be charged.
HMRC will not charge late ‘filing’ penalties if filings are made by February 28th 2022. The penalty is 5% and is charged on any unpaid tax due. Similarly, it won’t apply late ‘payment' penalties, provided payment for tax due is made by April 1st 2022, or a payment plan has been set up by that date.
This is consistent with the same waivers HMRC made last year and provides customers and tax representatives with some much needed breathing space, given the difficulties of the past year.
Payment plans are still available
Payment plans, known as ‘Time to pay’ options, are still available and allow self assessment bills up to £30,000 to be spread over 12 months.
However, it should be noted and this is the catch: The actual filing and payment deadlines have not changed. Even though you can choose to file and pay later, interest will still be applied based on the existing deadlines. This means that late payment ‘interest’ still applies during this period, i.e. from Jan 31st onwards. The current late payment interest rate is 2.75%.
HMRC have said:
- A return received online in February will be treated as a return received late where there is a valid reasonable excuse for the lateness. This means that:
- There will be an extended enquiry window
- For returns filed after 28 February the other late filing penalties (daily penalties from 3 months, 6 and 12 month penalties) will operate as usual
- A 5% late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, by midnight on 1 April 2022. Further late payment penalties will be charged at the usual 6 and 12 month points (August 2022 and February 2023 respectively) on tax outstanding where a payment plan has not been set up.
- We will not charge late filing penalties for SA700s and SA970s received in February – these returns can only be filed on paper
- For SA800s and SA900s we will not charge a late filing penalty if customers file online by the end of February – the deadline for filing SA800s and SA900s on paper was 31 October. Customers who file late on paper will be charged a late filing penalty in the normal way, they can appeal against this penalty if they have a reasonable excuse for filing their paper return late
- Self-employed customers who need to claim certain contributory benefits soon after 31 January 2022, need to ensure their annual Class 2 National Insurance contributions (NICs) are paid on time – this is to make sure their claims are unaffected. Class 2 NICs are included in the 2020 to 2021 balancing payment that is due to be paid by 31 January 2022. Benefit entitlements may be affected if they:
- Couldn’t pay their balancing payment by 31 January 2022, and:
- Have entered into a Time to Pay arrangement to pay off the balancing payment and other self assessment tax liabilities through instalments.
Still have questions?
We understand that HMRC statements and guidelines are not the easiest things to interpret, so if you still have questions and want us to assist you with your SA100 Tax return, call us today on 020 8108 0090 and talk with one of our specialists in either our London Richmond-Upon-Thames office or our London Putney Office.
Thinking about exiting your business? Here’s what you need to know?
There comes a time with many businesses, especially those that are owner / managed, where the owner thinks about exiting. In this article we will explore some of the ways this can be achieved.
Some family businesses may be in the fortunate position to be able to pass down the business ownership / management to a younger family member. This way the business continues and there’s a chance that other family members can benefit, while still offering the possibility of providing a lucrative income for the current family member owner - likely a parent, for their retirement. For others though, that luxury may not exist and the business owner, deciding that the time is right to step back, is forced to look at the options they have to exit the business.
You’ll note that we didn’t say close the business down. While that is a last resort many may follow, other options exist, and these may be more beneficial if they are possible to achieve. The key issue here is to be planning early enough and not deciding one day to get out and then seek quick alternatives to closing the business.
When planning a business exit, what do you want to achieve?
While this may sound like a silly question, it’s important to get your expectations right. Ultimately, what do you want from this business exit? The four most common reasons are to:
- Pass on the business to somebody you trust, like a family member.
- Sell the business for a decent return.
- Merge the business with another firm and eventually walk away.
- Shut the business down and bank any profits that may still exist in the business.
Let’s look at the practical aspects of each of these in turn.
Passing on your business to a family member.
This may appear the most sensible option for many family run businesses, and indeed for many it is. However, this isn’t a step that happens over night. It needs to be planned thoroughly. For one thing, the family member you’re considering for the succession naturally needs to be fully bought in to this plan, else it will come to nothing quickly. It’s normal for company succession to be planed and prepared for some years before the event. This way, the person in question can be fully up to speed in the role, but perhaps more importantly, will have had time to develop the required relationships within the firm, its clients and any supply chain.
If there are multiple ‘suitors’ involved, things can get quite tricky, as each person and their role needs to be defined precisely. If they are not to be involved in the day-to-day operations of the business, but you still want them to benefit from the business, then the type of shares they have will likely differ from those involved in actually day-to-day operations. For instance: shares may be voting or non-voting shares, but the non-voting shares may still have preferential rights to dividends. You will also likely decide on share ownership percentages based on how much a child contributes to the operations of the company (or has done to date) and the seniority of their role. Be prepared though, as these discussions can get quite tricky as emotions and egos get involved, depending on how ‘functional’ your family is. In the short term, if you are concerned, you could always opt to retain a majority of the voting rights. Additionally, you could arrange to be retained as a ‘consultant’ to the business, as this would also enable you to continue to benefit directly through income and boost any earning you may receive through dividends as a smaller shareholder.
Whatever you decide to do though, needs to be recorded and set out either in a shareholders agreement or in revised articles of association.
Selling your business for a profit
If you are the sole owner of a business and don’t have family members to pass the business on to, or simply don’t want to continue the business, selling it maybe the best option for you.
If you have partners in the business, then naturally, this offers a similar opportunity to passing it on to a family member, only here, they would be presented with an opportunity to buy you out or find somebody else to buy you out and take over your role.
Selling your business requires significant preparation, often a year or two in advance. This allows sufficient time to gather the information needed, ensure you have a good set of metrics upon which to base a valuation and also to improve the business’s performance in its last years of ownership by yourself.
So what are the steps you need to take to sell your business?
- Start by getting a professional valuation.
This isn’t something you can really do yourself as personal attachment tends to lead to unrealistic valuations, especially where market dynamics and current business realities are concerned. There are ‘rules-of-thumb’ to help you obtain a view to help set your expectations. For instance, small businesses are often worth between two and five times their annual cashflow, although there are many caveats to this, including its ‘actual’ financial health. However, it’s not just cashflow that will decide whether a business is worth it’s valuation or not. For one thing, new investors / owners, will want to consider how the business will survive if you are no longer driving it, especially if the business is ‘account’ based and those relationships relied upon your presence. - Improve your bottom line.
A business that makes a lot of sales but yields little return is unlikely to be of interest to prospective purchasers. If you are planning an exit by selling your business, you would be best served by focusing the year or two prior to sale on cleaning up your business, reducing unnecessary costs, streamlining processes and systems, and increasing your sales. Essentially, spend what time you have by working to increase your net profit margin. - Provide a solid business view.
As an owner, you’ll no doubt be looking at the business’s past performance. Having a well documented set of accounts dating back 3 to 5 years is essential to providing provenance for the business. However, new owners will be looking at future potential, so one also needs to present a balanced view of how the business could perform, the market forces in play and the expectations you may have. Also, providing information on your clients, within the bounds of confidentiality, will help the prospective purchasers assess value and risk. The interested parties will of course conduct their own due diligence, but it helps to present your own as confidence will receive a considerable boost if both party’s views essentially come to the same conclusions after the due diligence is done. This will significantly help your negotiating position too. - Due diligence on your part.
Many business sales fall through, as many as half of these because of complication that arise through due diligence. It’s therefore to be realistic and it’s important that when you prepare for exit that you spend some time putting yourself in the shoes of a prospective buyer, not just you as the seller. A little on-line research will give you a very good idea as to the process a potential buyer will go through and the questions they will want answering along with the supporting data they will need. - Buyer qualification.
It’s very easy to get excited when somebody becomes interested in buying your company and starts asking questions. However, the phrase ‘seller beware’ is important to consider. Selling a company is a detailed and often frustrating process given the number of ‘hoops’ you will likely be asked to jump through to prove the value and overall potential of the company. It’s important then, to ensure the people asking the questions are:- Genuine and realistically placed to buy and are not simply on an information gathering exercise.
- A good match for your business and have the experience necessary.
- Have the funds available to close the sale and not have to go and seek funding that could ultimately fall through and waste everyone’s time.
- Not fraudsters or con-artists, either trying to trick you out of fees, deposits or vital information.
- Working within a reasonable timeframe, one you can work to without compromising your own due diligence and exit planning. If you are being hurried in to decisions, consider the previous point about fraudsters or time wasters.
- Tax planning.
Without proper guidance and advice, you could wind up loosing a significant portion of the proceeds of a business sale, as it is considered as a capital gain. How much you pay depends on your particular circumstances and inheritance planning. Other considerations an accounting firm like Tax Agility can assist with include whether you qualify for schemes like ‘entrepreneur’s relief’ - now called ‘business assets disposal relief’. - Use a third party business broker.
Unless you have already got potential suitors lined up, this is probably the best way forward. For one thing, you’re likely to get a much more balanced view of the sale potential. A broker can assist with many aspects of the sale, some will handle all of it for you. Of particular importance are aspects such as:- Valuation.
- Due diligence on your part and due diligence throughout the sale process.
- Identifying potential buyers.
- Buyer qualification.
- Negotiation assistance.
Spending the time to prepare your business for sale, is a very sensible step to take. You want your business records, P&L, cashflow and debt position to be as up to date and as clear as possible. Checkout our latest article on how Tax Agility can help you prepare your business for sale and what prospective purchasers will be looking for.
Thinking about selling your business? Here’s how we can help
Merging your business before personally exiting
Another particularly attractive way to exit your business, is to merge your firm with another. This is very popular within the professional services industry. Law firms and accounting practices often experience mergers where a senior partner in a firm merges the firm with another practice. That partner can benefit from the years of developing the business, take equity that’s owed to them and walk away. In reality many scenarios see the partner retained for a period of time to assist with the hand-over and to ease confidence with existing and key staff members (and clients) that the acquiring firm would wish to retain.
Many mergers happen between firms that are known to each other or through brokers that know the parties. Quite often the merger may be the brain child of the partners in two firms that have known each other your years and bring in an experienced broker to help the process along professionally. That said, third party brokers are equally capable of arrange suitable mergers as well as complete acquisitions.
Shutting down the business and banking profits
The last option we will consider here is where an owner of a business just wants to call it quits and get out - where the person doesn’t want the hassle of a merger or acquisition and has no interest on passing on the business. Basically, they just want to sell off any assets they have and bank any cash in the business.
The main issue here is on how the owner can get their hands on the cash in a tax efficient manner. Any cash in the business, often retained earnings or cash gained from the sale of assets, would be taxable if taken directly by the owner.
If the owner simply closed the business and took the cash, that would result in a significant taxable event. Without good tax planning you could lose a significant portion of the proceeds. Closing your business is unlike selling your business, as you are likely the sole owner and simply want to take the cash out of the business.
Your options are somewhat limited but do include the following opportunities:
- Take dividends up to your basic rate tax limit and if you really need the cash, pay a higher rate of tax on the rest as earnings.
- Make a pension contribution. Your company can make a contribution to your personal pension up to £40,000 per year. This is an allowable business expense and so helps reduce your company’s overall tax burden. So, if you are considering an exit of this nature, forward planning can really help, as you could max out on dividends and pension contributions. The main disadvantage of this is that any pension payments made will become inaccessible until the pension is payable and then only in amounts payable through the annuity you purchase (or 25% cash tax free).
For most owners, option 2 with a combination of pension and dividends likely is the most obvious option.
One could also consider not closing the company, minimising all overheads, and have it pay dividends each year. The main draw back with this is that the cash will likely lose value through inflation, as it will remain uninvested and likely to attract poor interest payments. It depends to a high degree on what monetary amounts are involved. You could also consider investing the company’s money, to help increase its longer term value.
Business closing costs
Shutting down a company is not free. You will need to pay an accounting firm (or in some circumstances, an insolvency practitioner) to assist in closing your business properly.
The simplest method, for a solvent company, especially one with a single share holder, is through ‘Company Dissolution’. The company must follow strict guidelines though, including: ensuring all creditors are paid in full, telling HMRC, closing the bank accounts, and having your accountant prepare final accounts. The company must also cease trading three months prior to closure.
There are other closure options depending on the ownership share structure or the company and whether it is solvent or not. These include:
- Member’s voluntary liquidation (MVL) - typically for more complicated share structures where multiple owners / partners are involved. It’s more expensive as you need to involve a licensed insolvency practitioner (IP).
- Creditors’ Voluntary Liquidation (CVL) - used where the companies creditors / shareholders take control of the closure process and force the company’s directors to liquidate the company so they may recover some of their investment.
- Compulsory liquidation - where creditors take legal action to wind up a company.
Are you considering exiting from your business? If so, talk to Tax Agility first.
The team at tax Agility have knowledge and experience that can guide you through the options and help you come to the right decision that matches your personal circumstances and needs. In addition, our experts can help you with all the tax planning considerations and wealth management issues that may arise from a sale or closure of your business.
Call us today on 020 8108 0090 and tax through your business exit plans with one of our specialists in either our London Richmond-Upon-Thames office or our London Putney Office.
UK tax on Irish rental income
An Irish citizen working in London is asked by HMRC to declare her rental income from Ireland
The Republic of Ireland is a short hop away from London and has a long-standing Common Travel Area (CTA) arrangement with the UK. Under the CTA, Irish citizens can live and work in the UK without a visa, residence permit or employment permit. This ease of movement may explain why many Irish citizens are working in London and contributing to the UK’s economy.
While some Irish citizens may end up putting their roots down in the UK, others still prefer to retire in the Emerald Isle someday in the future. And considering the property market in Ireland is booming, it is not uncommon to see savvy investors getting a buy-to-let in Ireland now with the aim that they may move into the property later.
Mary, our client, was doing just that. She purchased a lovely family home in a tree-lined residential street in Dublin a few years ago and now rents it out while she works in London. In the UK, she is on PAYE and in Ireland, she files the relevant Irish tax return each year. To Mary, her financial affairs are rather straight forward and there is no need to do additional reporting. Unfortunately, HMRC sees it very differently.
Declaring a rental in Ireland to HMRC
It is important to point out that every case is different and that you should always seek professional advice from a personal tax accountant first. In the case of Mary, the rental profits that she gets from renting out her Dublin property is subject to the Irish tax. However, Mary is also a tax resident in the UK and therefore, HMRC believes she should have declared her rental income from Ireland.
Declaring your overseas income may not result in you paying tax twice, but not declaring it may see you fined and penalised. Whether or not one has to pay tax twice on the same income source depends on the existence of a double-taxation agreement between the country of your foreign income and the country where you are a tax resident. In this case, Ireland has a double-taxation agreement with the UK and one should not be paying tax twice on the same income source.
Worldwide Disclosure Facility (WDF)
HMRC launched the Worldwide Disclosure Facility on 5 September 2016. The idea behind this is to encourage UK tax residents who have foreign sources of income to disclose them voluntarily. Considering that over 100 countries now share and exchange information under the Organisation for Economic Co-operation and Development’s Common Reporting Standard (CRS), the WDF should help to increase international tax transparency.
If you have foreign interests, chances are you need to make a disclosure through the WDF, and preferably you do it before HMRC sends you a letter. Not declaring may put you in an unfavourable position, as HMRC may think that you’re negligent or worse, you choose to conceal your foreign income deliberately.
If you aren’t sure if a disclosure is required, talk to our qualified personal tax accountants. You can choose to work with us and we can review your specific circumstance and make the best recommendations.
Examples of tax liabilities that you need to declare
- Income from letting residential property or land
- Capital Gains from assets that increased in value between the time you bought them and the time you sold or transferred them
- Income from running a business
- Income from freelance or commission-based work
- Income from accepting credit card or debit card payments
- Investment income
- Any other income that you should have paid tax on
Call Tax Agility on 020 8108 0090 about disclosing your foreign income on the Worldwide Disclosure Facility today.
Becoming your tax agent for Worldwide Disclosure
When Mary came to see our personal tax accountant, she was at a loss and naturally worried that she might be penalised financially. We worked with her to understand her circumstance and became her tax agent, representing her and helping her complete forms and calculate tax credits – in this particular case, since Mary has paid tax in Ireland, she was entitled to a credit which reduced her UK tax liabilities.
Upon seeing our work, Mary subsequently engaged us to handle her Self Assessment whereby we advised her how much tax to pay and when, if a tax credit is applicable, and prepare and submit her SA100 personal tax return to HMRC.
Personal tax accountants at Tax Agility
Tax issues can quickly become more complicated when you start to report foreign income to HMRC. Concerns such as one's domicile, the difference in tax year, or if double-taxation is applicable are valid and should be addressed professionally.
Thankfully, our personal tax experts are here to assist. Our top advice is don’t wait for HMRC to send you a letter. Instead, be proactive and let us understand if your tax affairs need to be disclosed through the Worldwide Disclosure Facility (or not).
Should a disclosure be needed, we can help to register you, prepare and submit your disclosure, work out how much tax, interest and penalties you may need to pay, and negotiate a payment arrangement if it is required. Working with you every step of the way, we can help ensure that you aren’t paying more than you should, and the disclosure matter will be completed quickly, efficiently and professionally.
Call us today on 020 8108 0090 and speak to a knowledgeable tax specialist in either our London Richmond-Upon-Thames office or our London Putney Office.
VAT on shipping in the UK and overseas
VAT has always been one of the more complicated taxes. It’s applicable to most products but not all and the rate of tax varies. The arrival of Brexit and the UK’s withdrawal from the European Union have done little to improve the reputation of VAT and make the situation seem clearer. There is still confusion around how VAT works when doing business with Europe.
An area that causes misunderstanding is how VAT relates to shipping. Shopping online has seen a significant increase as a result of the pandemic and consumers are often surprised by the shipping costs, and VAT charges, applied even when buying from inside the UK.
While VAT might seem a tricky grey area that really isn’t the case when it comes to shipping costs. Whether you’re buying online or sending products for your business the basic principles of VAT are more straightforward than you might think.
What is VAT?
Value Added Tax (VAT) is a consumption tax. It’s applied to the majority of goods and services at a rate of 20%, 5% or zero per cent. Do note at this point that it relates to products consumed in the UK as well as services.
A small number of items are exempt from VAT and these include things like postage stamps and insurance.
Businesses with a turnover of VAT rated goods above £85,000 are required to register for VAT. It is possible to register prior to that voluntarily which means you must charge VAT but can also claim it back.
Don’t forget VAT is a tax. Don’t think of it as income for the company making the charge. Instead, remind yourself that it is being collected by them and passed on to the government.
VAT on shipping in the UK
It can be a bit of a surprise to realise that VAT is charged on shipping in the UK. When we buy something in a shop on the High Street we don’t really think about VAT because it is included in the price. When you order something online if the company is VAT registered then VAT is added to the delivery cost. This is because it is a tax applied on services as well as goods. Arranging postage and delivery of an order is considered to be a service. You may have spotted above that postage stamps are exempt from VAT and that wasn’t a typo. Postage stamps themselves are VAT free but when you post an item to a customer you are providing a service and that’s where VAT comes in.
Additionally, not charging VAT on shipping would create an opportunity for tax evasion that HMRC would be keen to avoid. If delivery was VAT free then the cost of goods could be reduced and shipping costs pushed up as a way to avoid paying tax.
How much VAT is charged on delivery is based on the VAT rate of goods. So it’s easy if everything you sell has the same rate. However, an online shop that sold goods with a mix of rates would need to take this into account when adding VAT to their shipping rate. The tax needs to be applied proportionally by looking at the percentage of the total goods at each rate makeup.
To calculate this look at the cost of the goods before applying the shipping charge and see what percentage of the total is made up of goods at each rate. Then apply that breakdown to the shipping total. For example, if a £10 purchase is made up of a £7.50 item rated at 20% and a £2.50 item rated at 5% then 25% of the shipping cost will have 5% VAT and the remaining 75% will need the 20% rate applying.
If you’re not certain of the VAT rate for an item check the list on the HMRC website or talk to our VAT specialist at Tax agility.
The VAT should always be added to the total of the invoice and it’s this that can be off-putting for consumers online when they realise how much their shipping will cost. Of course, customers will only be playing a single shipping charge and some may use this as a reason to buy more and justify the cost. Others may abandon their baskets particularly if they are buying lower-cost products.
There’s no clear way to stop VAT on shipping from impacting your sales. However, there are a few approaches retailers can explore. Encouraging making more than one purchase may work as it will give a lower ratio of postage to item. Alternatively, increasing prices slightly and introducing free delivery for sales above a certain amount may make the difference. Free shipping is also VAT free but means the company will have to bear the cost of it and potentially make it up in the price of goods.
How does Brexit impact VAT on shipping?
With Brexit blamed for introducing extra complications and paperwork, it’s not unreasonable to assume that it must have an impact on VAT, and probably a negative one.
After all, in 2014, the introduction of VAT charges for digital products in the EU caused consternation amongst small businesses as it required the vendor to pay VAT on products in the country the purchaser lived in. Given the UK’s high minimum threshold for VAT, many small businesses were not registered and the potential costs associated with the change would have likely put them out of business.
But when it comes to the question of whether UK companies need to charge VAT on shipping post Brexit, the answer is clear.
VAT is charged in the country where the goods are used or the services are carried out. So for EU customers VAT applied is the location they reside in.
This means that VAT does not need to be charged in the UK on goods sent overseas or on international shipping. A rate of zero can be applied which extends to the shipping. Companies will need to ensure that they have paperwork in place to show that the items went outside the UK. Keeping the paperwork for 6 years is a requirement.
It is worth noting though that while there is no VAT on shipping, there is a good chance that the country you are shipping to will require import VAT to be paid. This is charged by the country that you are shipping to and as a result, will vary. To find out if this is the case, the process and whether it can be charged at the point of sale, you’ll need to check with their equivalent of the HMRC.
https://www.sage.com/en-gb/blog/customs-and-vat-after-brexit/#vat-anchor-link
An exception to the above is Northern Ireland where the rate charged will depend on whether goods are going to the EU or the rest of the World.
VAT and Shipping
Applying the basic principles of VAT makes understanding how it relates to charges on carriage quite straightforward. It doesn’t need to be confusing when it comes to shipping internationally or in the UK.
Just remember:
- VAT registered companies in the UK have to charge VAT on shipping costs because it is a service.
- The VAT charged on shipping is proportional to the VAT rates applied to the goods. The government refers to this as, “follows the liability of the goods”.
- Goods shipped overseas are not subject to VAT in the UK and there is no VAT on their shipping.
- Individual countries, including the UK, usually charge import VAT in the final place of consumption.
- Businesses need to keep their VAT paperwork.
VAT is a broad area of taxation and to ensure that your business complies it’s always best to consult VAT experts like Tax Agility who know the ins and outs of the legislation.
Accounts Assistant
Accounts Assistant Job Description
We’re not the average accountant – we merge traditional accounting with innovative thinking to add value to our clients’ businesses. This philosophy sets us apart; you’ll see it echoed in the people we employ and the products and services we offer.
We focus strongly on accounting for small to medium businesses in Putney, Fulham, Wimbledon, Chelsea, Richmond (and surrounding areas) and Central London. We provide a wide range of both financial and business support services, as well as individual advice for directors and high net worth individuals.
We are looking for an excellent candidate with good all-round experience or having studied subjects in accounts and finance. Working in a small team, you will be reporting into a qualified Accountant, assisting them on projects and day to day jobs.
Required skills:
- Strong Excel skills;
- Experience with any accounting software (Sage, Xero, QuickBooks and FreeAgent) is preferred
- Ability to work autonomously or as part of a team;
- Good written and oral communication skills in English;
- Good attention to detail, accuracy, problem-solving skills; and
- Ability to build internal and external relationships.
Finally, the candidate should have ambitions to complete the ATT, CTA or ACCA qualifications.
The spectrum of work includes:
- Preparation of Financial Accounts and Corporate Tax Returns
- VAT Returns
- Management Accounts
- Bookkeeping
- Payroll
- Self Assessment Tax Returns
- In conjunction with principal/senior colleague:
- Taxation consultancy;
- Financial valuations and consultancy to include advising on management & sale of businesses
Case Study: When HMRC asks about your foreign income
The UK has Automatic Exchange of Information agreements with over 100 countries, so HMRC knows if you have declared your foreign income or not.
According to the UK Parliament, there were 6.2 million people (9% of the total population) living in the UK who had another nationality. Within our Central London, Putney and Richmond offices, we also have foreign-born colleagues who had previously worked in another country. With international migration now a common trend, it is not uncommon to see some people struggling with foreign tax issues, particularly when they thought they had reported in another country but received a letter from HMRC pertaining to the overseas income.
One of our clients, Victor from Richmond-Upon-Thames, had previously lived and worked in Singapore for a decade, during which time he acquired some shares and a few assets. When Victor came to work in London, he didn’t pay much attention to his tax affairs as he is on PAYE. It also didn’t cross his mind that he had to report the small (and irregular) income he still receives and remains in his bank account there.
But one day Victor received a letter from HMRC about his foreign earnings which he had not reported in the UK. Panicked, Victor came to our Richmond-Upon-Thames office and asked for our help. Our personal tax accountants analysed Victor’s position and advised on the correct remedy to rectify his tax filing requirements. Seeing how swiftly we acted and provided him with a satisfactory result, Victor has now engaged us to report his future foreign income through Self Assessment tax return service.
Worldwide Disclosure Facility (WDF)
If you have foreign interests, chances are you need to make a disclosure through the WDF, and preferably you do it before HMRC sends you a letter. If you aren’t sure if a disclosure is required, talk to our qualified personal tax accountants. We can review your specific circumstance and make the best recommendations.
The WDF users
HMRC wants anyone needing to disclose a UK tax liability that relates wholly or partly to an offshore issue to use the WDF. An offshore issue includes unpaid or omitted tax relating to:
- Income arising from a source in a territory outside the UK
- Assets situated or held in a territory outside the UK
- Activities carried on wholly or mainly in a territory outside the UK
- Anything having effect as if it were income, assets or activities of a kind described above
The WDF should also be used when you have funds connected to unpaid or omitted UK tax that you have transferred to a territory outside the UK or are owned in a territory outside the UK.
Examples of tax liabilities that you need to declare
- Income from letting residential property or land
- Capital Gains from assets that increased in value between the time you bought them and the time you sold or transferred them
- Income from running a business
- Income from freelance or commission-based work
- Income from accepting credit card or debit card payments
- Investment income
- Any other incomes that you should have paid tax on
Call Tax Agility on 020 8108 0090 about disclosing your foreign income on the Worldwide Disclosure Facility today.
The WDF process
To use the WDF process, you must first register and HMRC will issue you a unique disclosure reference number.
After the registration process, you have 90 days to:
- Gather the information you need to fill in your disclosure
- Calculate the final liabilities including tax, duty, interest and penalties
- Compete the online form
As the WDF process may not be straightforward, we do encourage those who have foreign assets to come to us for professional advice first or allow us to file on behalf of you.
Don’t underestimate the implications
HMRC wants to send a strong deterrent message to those who don’t disclose their foreign assets. Accordingly, if you fail to make an accurate disclosure or refuse to provide supporting documents allowing HMRC to check the accuracy, you may receive a higher penalty and have your details published on the gov.uk website. Also, HMRC may choose to launch a civil or criminal investigation against you. To save yourself from the headache and unwanted attention, it is best to speak to our qualified personal tax accounts first.
Personal tax accountants at Tax Agility
Tax issues are never straightforward and things can get complicated quickly if you have foreign assets which you may not know that you need to declare and pay tax on.
Fortunately, our personal tax accountants are here to assist. We will first seek to understand your tax affairs and identify what needs to be disclosed through the Worldwide Disclosure Facility (or not).
Should a disclosure is needed, we can help to register you, prepare and submit your disclosure, work out how much tax, interest and penalties you may need to pay, and negotiate a payment arrangement if it is needed. Working with you every step of the way, we can help to make sure that you aren’t paying more than you should, and the disclosure matter will be completed quickly, efficiently and professionally.
Call us today on 020 8108 0090 and speak to a knowledgeable tax specialist in either our London Richmond-Upon-Thames office or our London Putney Office.
Small business planning considerations for 2022
As the summer draws to a close, that is of course if you noticed summer or not, we enter a time of year where thoughts turn to next year’s business prospects. As an accounting firm, we’re mindful that businesses need to be looking hard at their bottom line and how they can operate as efficiently as possible.
Each year, we work with local businesses in the Richmond and Putney area, helping them plan for the following year, ensuring maximum tax efficiency and operational efficiency. Here are a few of our thoughts on what challenges business owners need to be looking at in 2022.
Covid business protection measures come to an end
There is a perfect storm of events nearing as September 30th approaches and earlier next year. On this date most of the governments business protection schemes come to an end.
Job retention scheme ends.
Known to most as the ‘furlough’ scheme, this ends after September. This means that business owners will once again bear the full brunt of employment costs. Think of this as a stress test for businesses that made heavy use of the scheme, as they will now need the cash flow to support employment costs.
Many businesses in the hospitality, health and leisure industries have relied heavily on the furlough scheme to survive. Although experiencing some return to normality since restrictions eased, business for many has not yet returned to pre-covid levels.
Ensuring outstanding receivables from customers are collected is going to be a significant factor underlying a businesses short-term viability. Also a challenge, will be working around potential new customer requirements and necessary adjustments to business models and practices brought about by the pandemic.
In a recent study by Santander, many small business owners surveyed said they did not believe they would see a return to any form of normality until mid-2022. That’s a long time to manage already damaged cash flow prospects. It’s perhaps not surprising that debt collection agencies and insolvency practitioners are readying for an increase in activity later this year and early next year.
Debt collection and insolvency
Business owners looking to recover debt owed to them during Covid, have been frustrated several times through government extensions to the Corporate Insolvency and Governance Act. However, these are now due to end on September 30th 2021. Debt owed before March 2020, when restrictions were implemented, can still be pursued though.
Figures from the Insolvency Service, suggest that unpaid business debt will reach £8.6b in 2021. In 2019 more than 17,000 companies shuttered their doors, with much debt written off and companies facing even more write-offs later this year. With the impact of business restrictions in 2020, some suggestions by financial analysts are that debt could reach £24b. But these figures do not factor in the impact of the lifting of financial support and debt recovery restrictions at the end of September. It’s likely that many businesses will simply not have the strength to continue, having been artificially supported by government schemes.
With a clear focus on improving cash flow, companies will want to chase down as much business debt as possible. A dilemma exists though. Chasing down client debts is a double edge sword. If you’re lucky, important clients will want to clear debts if they can and establish normal relations again, even if this is through a payment plan. Other’s though, may not be in a position to do so, or may simply be holding out, hoping your business will write it off. This will force businesses to look closely at the real value of their client base and force them to choose, as pushing hard will likely end a business relationship.
Commercial eviction ban ends
Many badly affected businesses that have been unable to pay rent since March 2020, face the prospect of eviction proceedings from April 2022 onwards, as the current ban on evictions was extended to March 25th 2022. Unless they can start paying off the rental debt or come to arrangements with their landlords, many will face insolvency proceedings.
Covid Loan repayments
In July, the government reported that it had made £80b in loans to businesses, including both Business Bounce Back Loans and Coronavirus Business Interruption Loans. This equated to around 1.6m business borrowing money through the banks. As mentioned earlier, we already know that insolvency practitioners are readying for an extent raft of new insolvencies, but the Banks too are believed to have invested heavily in strengthening their debt recovery teams, as it seems they are expecting a raft of defaults on these loans.
The main concern here is the potential for a cascade effect with some businesses, as one business relies on another. Very quickly, an insolvency in one firm could have a dramatic effect on several others.
Covid continues
Even though government assistance is drawing to a close, Covid is not done yet. While the severity of cases is lessened by the vaccination program, cases of Covid will still impact businesses and their staff throughout 2022.
Just as the virus evolve and introduces new complications, so too must businesses evolve. As we look forward to 2022 in our planning, we must make allowances for further interruptions. This may equate to keeping much more cash on hand or ensuring business models adjust and adapt to accommodate changes in the work force.
As Plato said: "Necessity is the mother of invention". New technologies that have been adopted to lessen the impact of Covid on business, such as the growth or home working technologies, have changed the way businesses work. This impacts other businesses too. One example is shared office space, networking hubs, and business office landlords in general. These are all highly sensitive to the circumstances we have experienced. As such businesses will need to adapt, else they may die.
Furthermore, we have already seen several large brands adopt different attitudes to staff working practices. Some declaring that nobody need be in the office for the foreseeable future, to others looking for a return to something close to pre-covid office attendance. This is sure to create a negative dynamic in many companies, especially where business owners need to foster close interworking that may have been a kingpin in supporting its brand persona or teams, placing even more pressure on perhaps a fragile business.
Job vacancies
With a record one million job vacancies reported in September, one might think this was a sign of business growth. However, there are also around one million people on furlough, many are young people too. However, it is highly unlikely that the two will just balance out or indeed if employees will still have jobs to go back to after the furlough ends.
Many industries have found that they now have a skills shortage, a lot to do with Brexit, but also as businesses shift their business models to adapt to new realities, people also need to adapt. For some, this may be problematic.
The reality is then, that businesses will likely struggle for some time due to staff shortages, just as the transportation sector is suffering currently.
Higher taxation
Business support for the past 18 months ultimately needs to be paid for. The chancellor unveiled plans to increase taxes on dividends and National Insurance by 1.25%. It may not seem a lot, but for businesses already squeezed by cash flow problems and directors who have probably not been paying themselves too well over the past year, this represents a further hit on cash flow and a reduction in income.
Planning for 2022
It’s clear that business owners, large or small, have much to consider and plan for in 2022. There are many unknowns, which of course makes planning very difficult. Ensuring your business is making best use of the financial resources available, tax efficient and is in good shape to take on the challenges of 2022 is where Tax Agility can help.
The team at Tax Agility in Richmond and Putney has many years of experience working with companies to help them structure and streamline their business to adapt to changes and to be resilient in coping with future challenges too. Our business consultancy service could be just what you need to close out the year and cement your plans for 2022, so contact us and discuss how we can help.
Employee benefits in kind, the P11D and what employers must report.
Attracting and retaining valued employees is not at all easy these days. One way employers like to try and ‘sweeten’ their employment packages is through benefits such as, private healthcare schemes, company vehicles to the humble mobile phone, but these have tax consequences too.
Why have benefits-in-kind (BIK) become such an issue?
You might wonder why in a time where employees find it increasing difficult to retain valued staff, why the Government is slowly making it unattractive to provide these benefits? The simple reason is that some companies have chosen to use this route to reduce their own tax bills by offering more benefits while providing lower salaries. Lower salaries mean less National Insurance and Pension costs. For instance on an employee earning £30K per year, the company pays 13.8% or in this case around £2,800 and then another £716 in pension payments per year. With a lot of employees, this soon mounts up.
It works the other way too. In years past, an employee may have been able to opt for benefits ion return for a reduced salary - called "optional remuneration arrangements”. By doing this, the employee would pay less tax and national insurance.
Company cars have received harsh treatment in recent years, with the tax rate currently at 37%. The only exception, one that is becoming increasingly interesting for employees, is having a fully electric vehicle. Current tax legislation applies a zero tax rate to this type of vehicle.
So, to make benefits-in-kind a less attractive way to reduce a company’s tax burden, the government has continued to tax them.
What employers need to know about benefits-in kind and the P11D.
As an employer you’ll need to understand what constitutes a benefit-in-kind, what to report, how to report it and what the deadlines for reporting are. So here’s a recap.
What is a benefit-in-kind (BiK)?
In short, a benefit-in-kind is any benefit (perk) that an employee or director receives which is not included in their salary or wages. If you’re not sure, talk to us.
What are considered benefits?
The list of actual ‘perks’ HMRC considers as benefits is quite extensive, covering around 60 categories. You can see the full benefits list here.
For most people it comprises typical things such as private medical insurance, a company car, child care, expense allowances, clothing, mobile phones, home use, fuel for personal cars, etc.
Mistakes are often made and employers / employees which can land them in trouble, such as when a director has overdrawn the director’s loan account by over £10,000. As this is deemed a loan, interest is due. Also, it’s very easy to forget about work related calls made from personal devices, such as a home phone or mobile and where this has been claimed back by the employee.
If you are not sure about any potential benefit you are giving or receiving, check with a knowledgable accountant like Tax Agility first.
How to Report Employee Expenses and Benefits
Employee expenses and benefits need to be submitted at the end of each tax year using form P9D or P11D, depending on the expense or benefit in question. The Government has provided a detailed list of common expenses and benefits online, clicking through to each of which will tell you which form you need, and how you should calculate what you owe.
You’ll need to submit a separate form for each employee; so if, for example, two full-time employees are provided with a mobile phone each for work, you’ll need to complete a separate P11D for each employee. If you submit a P11D you’ll also be required to submit a P11D(b), reporting what Class 1A National Insurance is due on your expenses and benefits payments. You can complete an online declaration if you didn’t submit a P11D, to ensure HMRC won’t contact you about it.
All forms should be filed through either HMRC’s PAYE Online service, your own payroll software, or by downloading the form online and posting it to the address you send your paper tax return to.
If you under-report on your employee expenses and benefits and, therefore, pay less tax than is required of you, you’ll likely be charged a penalty by HMRC if they believe your under-reporting to have been deliberate or due to carelessness. You may be asked to show evidence of how you accounted for each expense or benefit; records must be kept for three years.
PAYE Settlement Agreements
What are PAYE Settlement Agreements? It’s common for some employees to have to claim for small and infrequent expenses or benefits - perhaps a bond or reward for service or performance in a year, or a business trip claimed by the employee. These can be a pain to have to report separately. So, if you only pay small, irregular, and impracticable expenses or benefits to your employees you can simplify your tax and National Insurance Contributions by applying to receive a PSA so you only have to make one annual payment to cover all and any payments owed. Checkout our other article on PAYE Settlement Agreements (PAYE Settlement Agreement)
Are there any exemptions to benefits-in-kind?
The recent pandemic may have people asking this question, especially if they are using company cars. If your vehicle was not used for 30 days or more, you may be able to apply for an exemption. However, as with many things related to HMRC, you may need to be prepared to prove this.
As an employer, you generally don’t have to report typical expenses such as the following, provided that you are either paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or paying back the employee’s actual costs.
- business travel
- phone bills
- business entertainment expenses
- uniform and tools for work
Calculating Employee Earnings
Each employee expense or benefit will need to be calculated at a rate. The Government recommends you do this by adding the value of all expenses and benefits an employee has received over a given tax year to that of their annual salary (if they haven’t worked a full year with you, calculate the full-year equivalent of their salary and all expenses and benefits received).
When to report to HMRC using your P11D?
The deadline for submitting your P11D and P11D(b) is the 6th July after the end of the tax year. For the 2020/2021 tax year, for instance, the deadline is 6th July 2021. You must ensure that copies of the individual P11d forms are given to each of your employees by this deadline.
Class 1A National Insurance payments must be submitted by is July 19th or the July22nd if you are paying online.
Experienced P11D Tax Accountants
To speak with a professional to discuss whether you need to start paying tax on your employee’s expenses and benefits, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation consultation.