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Making Tax Digital – First phase introduced in April 2019.

Making Tax Digital for Norfolk

HMRC has announced its plans to “Make Tax Digital”, and the first phase of the process will be introduced in April 2019

What does ‘Making Tax Digital’ mean?

Tax returns, including VAT returns are currently completed and filed online, and this project is hailed as the next step to make UK individual and business tax even more digital, and automated. HMRC will require businesses to use functional compatible software, such as cloud accounting software like Xero, Sage and QuickBooks to report income and expenses in as near real-time, as possible.

As at May 2018 HMRC confirms that small businesses can use spreadsheets to record tax information, but you will need bridging software to upload it and be linked digitally to HMRC.

VAT filing from April 2019

The first tax to be using the MTD process will be VAT, with companies, sole traders, partnerships etc. that meet the VAT threshold of £85,000 being required to submit their VAT returns digitally from April 2019. There will be a “soft landing” period of 12 months where no financial penalties will be issued as we all get used to complying with the changes.

Only accounting and bookkeeping software that is HMRC approved and on their list should be used and all the big names are expected to modify their software to comply with HMRC IT requirements.

Under the new digital tax regime businesses will be required to keep a digital record of all their sales broken down by the VAT liability they attract (zero-rated, standard-rated etc.). They will also have to break down the purchases they make by VAT and retain information about the adjustments made for reverse charges on imported services, car leasing and business entertainment.

There is currently no mandatory requirement to use bookkeeping scanning software but this may change in future. Most good cloud accounting systems have this functionality and when it comes to VAT returns having a scan of invoices to hand is a positive for business efficiency.

MTD for Business

Potential Impact of MTD for Business

  • Software – If you don’t use functional compatible software you may choose to change from spreadsheets Xero, Sage Cloud or QBO and pay the monthly subscription for these.
  • More efficient businesses – It is expected that productivity will improve as all kinds of business owners make the move to online, digital accounting software with live bank feeds.

Are you ready for Making Tax Digital?

At Shaper Accountants we are helping businesses get ready for the new tax reporting requirements so if you have questions or need help please get in touch.

You can find out more information here.

 

 

 

Company Cars

Despite year-on-year tax rises, company cars remain a popular benefit.  By choosing carefully it’s possible to enjoy the convenience that comes with a company car for a relatively low tax cost.

So, what’s changed for 2018/19 tax year for Company Cars?

Company Car choices

 

What’s the tax charge for a company car?

Company cars are taxed as a percentage of the list price, which is essentially the manufacturer’s valuation of the car when new.  It doesn’t matter how much was actually paid for the car, or whether it was bought second-hand.

It’s the list price that is used by HMRC  to work out the taxable amount and, where optional accessories are added, the list price is adjusted to reflect these.

 

The Tax Calculation details

The percentage charged to tax (the appropriate percentage) depends on the level of the car’s carbon dioxide (CO₂) emissions. This increases each year, and 2018/19 is no exception.

For 2018/19, the appropriate percentage for a car with CO₂ emissions of 50g/km or less is 13% (up from 9% for 2017/18), whereas for cars with CO₂ emissions in the range of 51 to 75g/km it is 16% – up from 13% – for 2018/19.

For cars with CO₂ emissions of more than 76g/km, the charge for 2018/19 is two percentage points higher than in 2017/18 at 19% for cars in the 76 to 94g/km band.

This increases thereafter by 1% for each 5g/km rise in CO₂ emission, although there is a maximum charge of 37% which applies to cars with CO₂ emissions of more than 180g/km in 2018/19.  The increase in the appropriate percentage means a company car driver will pay more tax on the same company car in 2018/19.

When calculating the charge, the list price is reduced for any capital contributions made by the employee (capped at £5,000), while the benefit is reduced to reflect any payments for the private use of the car. If the car is unavailable for part of the tax year, the benefit is proportionately reduced.

For Example

If you have a company car worth £30,000 with CO₂ emissions of 150g/km, which was available throughout 2017/18, and you are not due to change your car until July 2019 – and you are a 40% tax payer.

For 2017/18, the appropriate percentage is 29% and the cash equivalent value of the car, on which you are taxed, is £8,700. As a higher rate taxpayer, the associated tax bill is £3,480 (£8,700 @ 40%).

For 2018/19, the appropriate percentage has increased to 31%. The taxable amount rises to £9,300 (31% of £30,000) and the associated tax to £3,720 (40% of £9,300).

Although you have the same car, even if it is a year older, you pay £240 more in tax as a result of the increase in the appropriate percentage.

What about Diesel cars?

Diesel cars attract a supplement but the nature of that supplement has changed for 2018/19 and beyond.

For 2017/18 and earlier tax years, the supplement was 3%. This increased the appropriate percentage by 3%, compared to that for a petrol car with the same emissions level.

The diesel supplement cannot take the charge above the maximum of 37%.

For 2018/19, the diesel supplement increased from 3% to 4% for all cars that aren’t certified to the Real Driving Emissions 2 (RDE2) standard.

The supplement applies to cars registered on or after 1 January 1998, which don’t have a registered nitrogen oxide (NOx) emissions value, and also to cars registered on or after that date which have a registered NOx emissions value that exceeds the RDE2 standard.  While the appropriate percentage is set by reference to CO₂ emissions, the new-look diesel supplement is dependent on NOx emissions level.  Under the new rules, diesel cars certified to the RDE2 standard are not subject to the diesel supplement.

In practice, it is unlikely cars on the market before 6 April 2018 will meet the RDE2 standard, with the effect that most diesel cars will be subject to the higher supplement.

Taking into account the increases in appropriate percentages as well, diesel car drivers will suffer a higher tax hike in 2018/19.

Example

Maria has a diesel-fuelled company car with a list price of £30,000 and CO₂ emissions of 150g/km.

Her car doesn’t meet the RDE2 standard but it’s available throughout 2017/18 and 2018/19, and like Tony, Maria is a higher rate taxpayer.

In 2017/18, the appropriate percentage is 32% (normal 29% plus diesel supplement of 3%). This makes the taxable value £9,600 (32% of £30,000) and the tax owed is £3,840 (40% of £9,600).

In 2018/19, the appropriate percentage has increased to 31% and the diesel supplement to 4% – a total of 35%. As a result, the taxable value is £10,500 (35% of £30,000) and the tax bill is £4,200.

The combined effect of the rise in the appropriate percentage and the increase in the diesel supplement means Maria’s taxed £360 more in 2018/19 than in 2017/18.

should I get a company car?

Going green

The good news is that drivers choosing lower-emission cars are rewarded with lower tax bills.

In the earlier example, you paid tax of £3,720 on the company car based on a CO₂ emission of 150g/km.

If you had chosen a car of the same value but with CO₂ emissions of 40g/km, you would’ve paid tax of £1,560 in 2018/19 (40% (£30,000 @ 13%)) – saving £2,160 a year and £180 a month. Worth thinking about…

Going electric

Electric cars with zero emissions are charged at the same percentage as cars with CO₂ emissions of 50g/km and below – 13% for 2018/19.

However, from 2020/21 new emission bands will apply to cars with CO₂ emissions of 50g/km or less based on the electric range of the car.  This is the maximum distance the car can travel without recharging the battery or using the combustion engine of the plug-in vehicle.

Under the new bands, the cars with the greatest range have the lowest appropriate percentage.

The rates for the new bands, which will apply for 2020/21, are shown in the table below. The appropriate percentage is set at 2% for zero-emission cars.

CO₂ emissions (g/km) Electric range (miles) 2020/21
1 – 50 More than 130 2%
1 – 50 70 to 129 5%
1 – 50 40 to 69 8%
1 – 50 30 to 39 12%
1 – 50 Less than 30 14%

 

It will pay to go electric, and the opportunity to benefit from a lower tax bill for an electric car should be taken into account when choosing a new company car.

What about Fuel for my Company Car?

A separate fuel scale charge applies where fuel is provided for private mileage in a company car.  This is found by applying the appropriate percentage (as used in working out the taxable benefit of the car) to a set amount. For 2018/19, this is £23,400 – up from £22,600 in 2017/18.

This means that for a car with CO₂ emissions of 150g/km, the fuel charge is £7,006 for 2018/19, costing a higher rate taxpayer £2,802.40 in tax – or £233 a month.

Unless private mileage is very high, private fuel is rarely a tax-efficient benefit and where the cost of the car is below the appropriate amount (£23,400 for 2018/19), more tax will be payable on the fuel than on the car.

By contrast, no fuel charge arises if the employer provides electricity for an electric car.

Choosing a Company Car, wisely

The company car tax rules reward those who choose greener cars.  The tax charge on a cheaper, low-emission car is considerably less than an expensive car with high CO₂ emissions.

Looking ahead, choosing an electric car will lower the bills still further with a taxable amount as low as 2% of the list price.

Want to know more? Talk to us about company cars.

Tax and Employee Benefits

Many employers choose to reward staff with some kind of benefit and it’s one of the first things small businesses think about when they are in a stronger financial position.   Whether that’s in the form of a staff Christmas party, a bonus or flexible working, it all helps to ensure employees feel valued and motivated.

While its good to look after your staff, you also need to consider the tax implications of offering attractive employee benefits.Staff benefits and tax

Taxable benefits

Employees and directors can receive benefits in kind as part of their employment, but these are not included in their salary.  You may need to report any expenses or benefits you provide to employees, while tax and national insurance contributions (NICs) may need to be paid to HMRC. Here are some common benefits in kind to think about.

Private health insurance

Providing private medical and dental insurance, regardless of whether the policy covers just the employee or members of the employee’s family as well, was the most popular taxable benefit in tax year 2014/15.

As an employer, you will cover the cost of providing the private health insurance to your workforce and you must pay class 1A (employer-only) NICs at 13.8% on the taxable value.

If you are providing a group policy, as is commonplace, the costs should be split between the number of employees, who will have no NICs to pay.

Cars

Company cars are taxed according to their list price, with the amount of tax you have to pay depending on the emission levels of the car. So, the higher the emissions, the higher the tax you’ll have to pay.

The charge is capped at 37% of the list price and, as an employer, you also pay class 1A NICs on the amount charged to tax.

To enjoy a low-cost company car, the trick is to choose a cheaper, lower emission model and there are various incentives for picking an environmentally friendly option.

Childcare

As an employer that may provide childcare vouchers, it’s important to know the difference between the existing voucher scheme and the government’s new tax-free childcare scheme.

Childcare vouchers are provided by employers and offer annual savings of up to £933 per parent for those who joined the scheme after 6 April 2011.

Additional taxpayers who joined prior to this date have been able to save up to £1,370 a year.

The new tax-free childcare scheme offers parents the chance to claim annual savings per child.  The vouchers are worth up to £243 a month, regardless of how many children your employee may have, and are provided through salary sacrifice.

Even though the voucher scheme will be closed to new applicants from April 2018, you will still have ongoing tax, NICs and reporting obligations.   HMRC launched its tax-free childcare scheme in April 2017, offering eligible parents the chance to open an online account where for every £8 deposited, the government will add another £2.

For maximum donations of £8,000, the government top-up will be £2,000 for children under 12 or £4,000 for disabled children under 17.  The tax-free scheme, which was fully rolled out in February 2018, is open to parents who earn more than £120 a week.  However, you won’t be eligible if either you or your partner has a taxable income of more than £100,000.

Unlike childcare vouchers, which are only open to employers that offer the scheme, the tax-free scheme is open to all qualifying parents – including the self-employed.

Tax-free childcare will eventually replace the voucher scheme but until then, employees can continue to benefit from the exemption as long as you continue to offer the scheme.  The tax-free amount depends on when the employee joined the scheme and the employee’s marginal rate of tax.

For staff who joined your childcare scheme before 6 April 2011, the tax-free amount is £55 per week.

For workers joining on or after that date, it is:

  • £55 a week for basic-rate taxpayers
  • £28 per week for higher-rate taxpayers
  • £25 per week for additional-rate taxpayers.

You can continue to offer childcare vouchers through salary sacrifice without being caught by the new valuation rules.

Reporting Benefits In Kind

At the end of the tax year, you may need to inform HMRC of any taxable benefits handed out to staff over the previous 12 months.

Each taxable employee benefit will be calculated differently, depending on what type of expense or benefit you’ve provided.  Most taxable employee benefits will be deducted through payroll, as long as you’ve registered with HMRC before the start of the tax year.

Otherwise, you may need to submit the P11D and P11D(b) forms to HMRC for any member of staff who received taxable expenses or benefits.  This helps the Revenue calculate how much you need to pay in class 1A NICs, as well as how much PAYE is due from the employee on the benefit.  This is then normally collected from the employee by adjusting their tax code.

Non-taxable benefits?

are any benefits non-taxable?

Did you know there are 39 non-taxable benefits you can provide to your employees in any given financial year?  Each benefit has certain conditions you need to meet to qualify for the exemption from paying any tax or class 1A NICs.

Trivial benefits

A trivial benefit exemption was introduced by HMRC in April 2016, meaning the employee benefit will be tax-free as long as it:

  • costs less than £50
  • is not cash or a voucher that can be exchanged for cash
  • is not a reward for services or in any way contractual.

Usually there are no limits as to how many trivial benefits you can provide to employees, although for directors or family members who are members of staff a £300 annual limit applies.

Socials and parties

Summer or Christmas parties which are open to all employees and cost less than £150 per head are treated as tax-free by HMRC.

The same tax-free threshold of £150 per head applies if you provide multiple parties or social functions for your workers.

For example, if you hold a summer barbeque that costs £50 per employee and a Christmas party costing £60 per employee (£110 in total) both events will be free from tax.  But if the summer barbecue costs £50 per worker and the Christmas party costs £120 per worker (£170 in total), the relief will only apply to one of the events while the other will be liable for tax.

Others

In addition to trivial benefits and work-related social gatherings, your employees may value several other popular non-taxable benefits. These include:

Benefit  Conditions (per employee)
Mobile phone One phone; employer has an ownership

contract with telecoms provider

Bicycle and safety gear Employer must retain ownership

 

Parking  

At or near workplace

 

Meals and refreshments  

Made available to all employees in

staff canteen

Eye test; glasses or lenses  

Required for working with computer screens

Medical treatment Up to £500 per tax year as part of a return to work plan
Health screening  

One per tax year

 

Pension contributions  

Within annual allowance limits

 

Relocation expenses Up to £8,000 per move, if connected to change of job
Work bus Used only/mainly to transport employees

 

Contact us about providing benefits-in-kind.