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Welcome…
To November’s Tax Tips & MYOB News.
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Government will remove Income Tax on Hybrids from April 2020
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There are five taxes involved with the running of a company car that are affected by the change to hybrid/electric vehicles:
Your personal income tax – Benefit in Kind (BiK)
For 2019-20, the appropriate percentage for cars (whether fully electric or not) is 16% for those emitting 50g/km CO2 or below, and 19% for those emitting CO2 of between 51 and 75g/km. This means that the taxable benefit arising on a zero emissions car costing, say £30,000 is £4,800, with tax payable of £960 for a basic rate taxpayer or £1920 for higher rate.
There was already expected to be a much lower 2% BiK rate for hybrid cars for three years from 20-21. However now the government plans a zero percentage rate for newer hybrids and pure electric vehicles. See Article.
The 0% rate is intended to promote hybrid or electric company cars registered from April 6, 2020, with emissions from 1-50g/km and a pure electric mile range of 130 miles or more. Both will then increase to 1% in 2021/22 and 2% in 2022/23. This concession is extended to company car drivers of pure electric vehicles registered prior to April 6, 2020 for 2020/21, increasing to 1% in 21/22 and 2% in 22/23.
The tax rules for calculating the taxable benefit arising on a car are not changing. So a newly registered hybrid/zero emissions car costing, £30,000 again, is nil in 20/21, £300 in 21/22 and £600 in 22/23. The employee pays income tax on the final figure at his appropriate tax rate (ie. 20% for basic rate taxpayers; 40% for higher rate taxpayers). This comes to nil in 20/21, £60 or £120 in 21/22 and £120 or £240 in 22/23.
This is a significant saving. I have just completed a P11d for a director with a luxury Jag, with a list price of £47k, as his company car. He has to pay 20% on a £14500 cash equivalent. £3k of tax. The equivalent for a 50gm/km hybrid – nil first year. £100 second. £200 in the third.
Note that the BiK will be higher if the hybrid electric-only range is less than 130 miles.
Class 1A National Insurance
The Company has to pay a 13.8% tax on the benefit-in-kind (BIK). Like BIK tax, employers’ Class 1A National Insurance contributions, are linked to a car’s CO2 emissions and P11D (purchase cost) value. Thus for a hybrid or pure electric the Class 1A is nil in 20/21, £41 or £82 in 21/22 and £82 or £164 in 22/23.
Company (Corporation) tax relief
This is the capital allowance relief on the company for the purchase of the car. This allowance is given in several stages depending on the thresholds for the car. The thresholds are, predictably, different from the criteria used to determine BiK. The most generous enhanced capital allowances of 100% First year allowances (FYA) is limited to New and unused, CO2 emissions are 50g/km or less (or car is electric), registered after 5th April 2018, with no range threshold. The cost of the £30,000 car will therefore attract £5100 off your company’s tax bill (being £30,000 times 17%).
The full rates table is below.
New and unused, CO2 emissions are 50g/km or less (or car is electric) 100% FYA
New and unused, CO2 emissions are between 50g/km and 110g/km 18% Writing Down Values (WDV) Main rate allowances
Second hand, CO2 emissions are 110g/km or less (or car is electric) 18% WDV Main rate allowances
New or second hand, CO2 emissions are above 110g/km 8% WDV Special rate allowances
For new cars brought between April 2015 and April 2018 you can deduct the full FYA value of the car if CO2 emissions are 75g/km or less.
Excise
The Vehicle Excise Duty is the licence on the company for running a car, be it electric or conventional. After the first tax payment the company will have to pay vehicle excise duty annually.
Vehicles with a list price of less than £40,000
Fuel type
Petrol or diesel £145
Electric £0
Hybrid and Alternative £135
Vehicles with a list price of more than £40,000
Fuel type
Petrol or diesel £465
Electric £320
Hybrid and Alternative £455
VAT
There is usually not VAT recoverable on the capital cost of a company car. It can be fully recovered from a commercial vehicle or van. On current rules there is 50% VAT relief if a company car is rented on an operating lease rather than bought outright. Imagine our £30k example hybrid or electrical vehicle could be rented for the same cost. We might be able to secure a £2500 VAT recovery. The company will also get 17% on the net cost of the rental payments – £4250. The total is £6750. This route gets some VAT and so it marginally better than compared to the £5100 recovered through the 100% capital allowance.
The VAT is recoverable on maintenance and other running costs. It does not matter whether the car is zero emissions or not.
Petrol
Petrol is normally subject to separate Benefit in Kind rules which are usually quite harsh on light users. However the BiK rate is so low that the raw cost of the petrol may be reasonable to charge to the company without refund. But VAT fuel is subject to fuel scalar charge which typically adds over £200 extra VAT to your business VAT returns each year. This could be worthwhile only if you are spending over £1200 pa on fuel. The administration is complex so we usually do not advise the reclaim of petrol against the VAT return. Electricity is not regarded as a fuel.
Conclusion
All these changes mean that a hybrid 50g CO2/km with 130miles range company car is good option for those who have modest use and can live with the electric range limitation. BiK and Class 1a will typically be £100 – 200 pa. The nil / low BiK means that it is much more economic to buy such a car through your company, rather than take the funds out, pay tax on them and then buy the car yourself from what is left. The maintenance, Excise licence, insurance etc can also be buried into the company without further tax cost to you. Fuel (but not the VAT on the fuel) might also be claimed subject to the low BiK. Your company will also get 17% tax relief on all these costs and a further 17% on the gross cost of the car itself. More might be recovered if you wished to lease the vehicle and reclaim some of the VAT.
Of course your company has to have the funds or the credit to be able to take advantage of the tax breaks.
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| Losses in the first years of trade |
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| Recognising genuine HMRC contact |
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If a new business makes losses in its first few years of trading, there may be scope to carry back those losses and set them off against other income received in the years prior to commencement of the trade. This is commonly referred to as ‘early trade losses relief’ and it applies to losses sustained in the tax year in which a trade is first carried on, or in any of the next three years.
The provisions may be particularly useful to new businesses as they may be used to generate a cash boost in the form of a tax repayment. The general rule is that a business loss incurred in any of the first four tax years of a new business may be carried back against total income of the three previous tax years, starting with the earliest year. Read More |
Broadly, phishing is the fraudulent attempt to obtain sensitive information such as usernames, passwords and credit card details by disguising oneself as a trustworthy source in an electronic communication. This is generally carried out by email spoofing or instant messaging, and it often directs users to enter personal information at a fake website which matches the look and feel of the legitimate site.
Most people are aware of the increase in volume and sophistication of phishing campaigns in recent years, but worryingly, there has also been a notable rise in reported incidents of phone calls and/or electronic communications from people claiming to be HMRC. Read More
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HMRC Annual Report 2018/19
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The National Audit Office has published a report on HMRC’s 2018-19 accounts. The report shows that HMRC raised £627.98bn of tax revenues during 2018-19, an increase of £22.1bn (3.6%) on 2017-18. Of this total, around £250bn was paid in PAYE and National Insurance.
Currently, around 5.7m small businesses represent more than 95% of businesses in the UK. These businesses paid £115bn in corporation tax, VAT and other taxes during 2018-19. Small businesses are defined as having a turnover below £10m and fewer than 20 employees. At the other end of the scale, large businesses, of which there are around 2,000 (broadly defined as having a turnover exceeding £200m or £2bn in assets), were responsible for paying taxes of £135bn.
HMRC’s operating costs for the year were £4bn, which represents around half a penny for every £1 of tax revenue raised. The UK’s tax gap the difference between tax that should be paid and what is actually paid was 5.6% in 2017-18 an increase of 0.1% from 2016-17. The report shows that £40.1bn of revenue collected was paid out in benefits and credits.
According to the report, 19 million people have signed up to Personal Tax Accounts (PTAs) and 93.5% of self-assessment returns were completed online. With regards to Making Tax Digital for Business, HMRC have launched mandatory digital filing VAT returns online – sign ups reached 1.1m by the start of Oct 2019. We have seen some reports of businesses that have complained to the HMRC about incorrect filings and wrong VAT Direct Debits. This has been exacerbated by long delays on the phone system. There is talk about simplifying VAT – by which the HMRC means remove the concessions like Flat Rate Scheme (which they have already butchered with the ‘Limited Cost trader’ change two years ago). The HMRC are still talking about making Self assessment tax subject to digital filing in 2022.
HMRC are currently facing the huge, complex task of preparing for the UK leaving the EU. The Department currently has around 5,400 full-time equivalent employees working on Brexit preparations, building the customs, VAT and excise systems the UK will need and preparing taxpayers for leaving the EU, with or without a deal.
The full report can be found here.
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| November questions and answers |
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| November key tax dates |
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 Q. I have recently started running my own business providing training services. HMRC have advised me that VAT is not charged on the type of services I am providing. Does this mean that my services are zero-rated for VAT or actually exempt? Do I need to register for VAT? Answer
Q. I am a company owner and employer. One of my key employees has recently become ill and requires medical treatment. If the company pays for the treatment directly on her behalf, will the employee have to pay tax on it? Answer
Q. I have recently purchased three properties which I intend to rent out. I envisage that I will need to spend a considerable amount of time each year undertaking various necessary repairs. Can I pay myself say, an hourly rate, for the time I spend on the properties and claim a corresponding deduction against my rental income? Answer |
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/11/2019 |
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