Brexit Update for the Motor Sector

As Brexit talk deadlines extend, the position of the UK Motor sector remains a cause for concern. At OEM level the prospect of a 10% tariff on cars moving in and out of the UK from the EU now seems increasingly inevitable. As well as these Motor specific topics, we are talking to clients about the following Brexit related issues.

We know that manufacturers have differing approaches to the issue with Ford having taken the most radical step in the market with plans to make their dealers the ‘importer of record’. Ford are seeking to minimise the disruption and added bureaucracy this will entail, but there is an inevitable impact on cash flow. Dealers will no longer benefit from the cash flow advantage of reclaiming VAT from HMRC on stock purchases before paying that VAT to Ford. Other manufacturers will no doubt monitor the practical impact of this approach and we may see it spread more widely in the sector.

In the meantime, most dealers will continue to buy from UK distribution arms and will notice no change other than an inevitable upward pressure on price due to the impact of tariffs. This may create some market shifts as the tariff change will only affect imports of cars manufactured in the EU – the market price of those cars will therefore rise relative to cars imported from further afield. For example, cars imported from South Korea benefit from a zero tariff and this is expected to continue post-Brexit.

Some dealers buy stock directly from manufacturers or distributors in Europe and they will need to understand the impact of the UK’s exit from the EU Single Market and Customs Union on the cost and practicalities of importing prestige sports cars, mainly from Italy.

Dealers who export cars must anticipate the end of the New Means of Transport Scheme (NMT) which allows EU nationals to buy cars VAT-free in the UK where the vehicle is ultimately destined for an EU address. The Personal Export Scheme (PES) will replace it, but the conditions are tighter and dealers need to ensure they are familiar with them.

As well as these Motor specific topics, we are talking to clients about the following Brexit related issues.

Customs Warehousing

This will be really important in a No-Deal situation. Our info sheet is here and clients in a manufacturing setting will be particularly affected. We can provide detailed project based advice.

Commercial terms

All businesses with intra-EU trade will need to have revised paperwork to deal with the changes, we can advise on what they need. In particular businesses who have commercial terms to deliver to their customer will need to review their contracts to see what implications this has. We can also introduce Customs agents to undertake accurate declarations.

EU VAT registrations

A side effect of importing into the EU will be the requirement to be registered for VAT and potentially appoint a fiscal representative. Without it a business will not be able to claim back their import VAT or trade within the EU. We can handle all aspects of these obligations.

Get in contact to find out how we can help your dealership with its planning for Brexit.

Contact us

If you have any questions in regards to the above content, please contact Jonathan Main on 01772 821 021 orjonathan.main@mooreandsmalley.co.uk.

Going Electric – The Tax Benefits

As motorists, our growing demand for reduced costs and greater efficiency coupled with increased choice and performance, has resulted in a massive increase of plug in and hybrid car sales. There has been an increase in demand for ultra-low emission vehicles in the UK, with sales of electric and
hybrid cars increasing by 119% in the year to March 2020, BEVS (Pure Battery powered Electric Vehicles) however have seen an even greater rise at 204% year over year. With companies like Mercedes-Benz aiming to launch 20 new plug-in hybrid EQ Power models by the end of 2020 the market is sure to grow.

With this in mind, the government have stepped up their green initiatives, and changes to encourage the use of electric vehicles have been set out in legislation to provide a range of tax cuts which could benefit us all.

Benefits in Kind

The current system using the New European Driving Cycle (NEDC) has been replaced by the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) from 6 April 2020, where most appropriate percentages are reduced by 2 percentage points in 2020/2021 compared to the 2019/20 appropriate percentages for cars.

Related Company Car benefits

HMRC do not consider electricity to be a fuel for car fuel benefit purposes, therefore HMRC introduced a new rate from 1 September 2018 of £0.04p per mile for fully electric company cars. This is the tax-free element that can be paid by employers or claimed by employees when they use their own electric car for work purposes.

Other tax-free benefits of having an electric company car include:

  • These changes will impact Benefit in Kind (BIK) taxation going forward for the 2020/2021 tax year and switching to an electric car can bring significant tax benefits. From 6 April 2020, the BIK tax for EVs is reduced to 0% for cars registered after 6 April 2020 with a range of 130+ miles and emission of less than 50 grams per kilometre of CO2. Essentially a zero-emission
  • The cost of charging an electric vehicle at work vehicle made available to an employee will be completely tax free.
  • The cost of installing a vehicle charging point at the employee’s home The BIK will increase to 1% and 2% for years 2021/22 and 2022/23 respectively. Buyers should be aware that the EVs purchased on 5 April 2020 or before will still attract a 2% BIK even if the range is beyond 130 miles.
  • Employer pays for charge card of £100 per year to allow individuals unlimited access to local authority vehicle charging point.

Employer’s National Insurance

From 6 April 2020, as the benefit in kind charge on an electric vehicle will be 0%, the class 1A benefit in kind, which is the cost to the employer of providing benefits in kind to employees, will also be nil.

Capital Allowances

Most cars purchased by companies will be due tax relief on a writing down basis at either the main rate (18%) or the special rate (6%). However, for new and unused cars with CO2 emissions of 50 g/km or less, there is a special enhanced capital allowance of 100% available, second hand cars do not qualify for the first-year allowance. With a main rate writing down allowance, after 8 years the company will still only have relieved 80% of the cost of the vehicle, but with the enhanced capital allowance regime available to low emission cars, the full cost can be relieved in year one.

On the flip side, if the car is disposed of it may result in a high balancing charge due to the electric vehicle pool having a zero balance. It is therefore crucial you seek advice before a purchase or disposal of your electric vehicle.

Please note, that the special enhanced allowance is only available for expenditure on new and unused cars – expenditure on second hand cars does not qualify for the allowance, even if the emissions criteria are met.

VAT – The common misconceptions

There are some commonly held misconceptions about the VAT breaks for businesses buying electric and hybrid cars. There have been numerous cases of car dealers telling customers that businesses can recover the VAT on the purchase of an electric car.

HMRC have no special VAT breaks for electric cars and hybrids. The VAT can only be recovered by a VAT registered business on the purchase of the car if there is no private use at all, and that includes home-to-work journeys. So, you can only reclaim the VAT on the purchase of the car if it is for 100% business use only. If your business leases the car, then you can recover 50% of the VAT on the hire charges and all the VAT on any additional charges such as maintenance or roadside assistance.

The differences if you are self-employed

As with all things in the tax environment, when you are self employed the rules are slightly different.

The main difference is benefit in kind taxation does not exist for self-employed individuals, instead individuals can claim the costs of motoring as a tax-deductible expense. Be aware though, where a motor vehicle is used in the business and is also used privately, the costs incurred are restricted for private use. When looking at capital allowances, the rates do not change however the allowance you receive is again restricted for the private use element of the vehicle.

Using HMRC’s simplified expenses claim will mean less paperwork. Like traditional cars you can claim 45p per business mile for the first 10,000 miles per tax year. However using simplified expenses means that capital allowances and actual running costs cannot be claimed.

Should you have any queries concerning above, please contact a member of our specialist healthcare team on 01253 404404 or 0115 972 1050.

Have we turned a corner on using EV’s?

This year will see a significant increase in the amount of Electric Vehicles (EV’s) on the roads as main manufacturers have all released new dedicated EV models along with the release of the Tesla Model 3 late last year.

As many have stated, the vehicle and more specifically the battery technology is moving forward at a considerable pace, with new research released late last year showing the possibility of a 1,000,000 mile battery which uses significantly less Cobalt, and therefore will be much cheaper to produce. This all leads to the question, is the National Grid up to the task?

This year the energy white paper, the results of the National Grid Electricity System Operator (ESO) review is due to be published. The energy white paper has been coming for some time but has seen a number of delays, it was due in mid 2019 but there is still no signs yet.

The white paper should include details on how Boris’ new governments plans to achieve net zero emissions by 2050, including which technologies will receive support. The new government has been criticised by the energy industry for its vision to net zero so far, but this was a significant pledge in the conservative manifesto of the recent election, so progress should be made here.

Early this year, in conjunction with the Government review we can expect to see the results of Ofgem’s review of National Grid ESO. As such, Ofgem has said that it is going to accelerate its review into ESO’s structure and governance, looking at how it is “adapting to the complex and changing world it operates in”. For the moment it is just to watch this space.

Tax changes for EVs

The Government has changed its Benefit in Kind (BIK) rates going forward for 2020/2021 which will comes into effect on 6 April 2020, with the BIK tax for EVs is going to be reduced to 0%. Buyers need to be aware that the EVs purchased on 5 April 2020 or before will still attract a 2% BIK even if the range is beyond 130 miles, so it may be best to delay the purchase to receive the most tax efficient purchase.

The tax impact of greener motoring

As motorists, our growing demand for reduced costs and greater efficiency coupled with increased choice and performance, has resulted in a massive increase of plug in and hybrid car sales.

There has been a huge surge in demand for ultra-low emission vehicles in the UK, with sales of electric and hybrid cars increasing.  BEVS (Pure Battery powered Electric Vehicles) have risen by 158% in the year to July 2019 and by the end of the year at least 25 different electric cars will be on sale.  There have also been driverless car trials and it is thought that if driverless cars do become an everyday reality, benefits would include improved road safety, reduced congestion, less emissions, as well as saving motorists up to 6 working weeks a year in driving time.

Going electric – the tax breaks

The government does of course encourage the use of electric and hybrid cars through the use of tax breaks. Regrettably, the value of grants has declined and plug-in hybrids have not received any financial support since 2018.

One area where the government could make a significant contribution to more environmentally friendly cars is through VAT, particularly when the UK is able to set its own rates post-Brexit. Reducing the rate of VAT on ULEVs from 20% to 5% would help but in the real world it is highly unlikely that the Treasury will agree to such a reduction.  But what concessions are actually allowed and what are some of the common misconceptions?

Common misconceptions

There are some commonly held misconceptions about the VAT breaks for businesses buying electric and hybrid cars. There have been numerous cases of car dealers telling customers that businesses can recover the VAT on the purchase of an electric car.

The reality

The first point is that HMRC has no special VAT breaks for electric cars and hybrids. The VAT can only be recovered on the purchase of the car if there’s no private use at all, and that includes home-to-work journeys. So you can only reclaim the VAT on the purchase of the car if it’s for 100% business use only.  An example of this would be a taxi.  If your business leases the car, then you can recover 50% of the VAT on the hire charges and all the VAT on any additional charges such as maintenance or roadside assistance.

Scale charges

The main tax break is on the motoring scale charge. The rules are exactly the same for electric and hybrid cars as for those powered by fossil fuels, however the savings come from the fact that the scale charge is based on CO2 emissions and as electric cars produce no CO2 they don’t pay the scale charge, although the VAT you can reclaim on electricity used to charge the cars will be minimal. On the plus side hybrids will pay a scale charge, but because of the reduced CO2 emissions the charge will be lower than for conventional cars.

HMRC gives no special VAT breaks to electric or hybrid cars but due to their low emissions there are savings on the scale charge excise duty and other direct taxes.

The cleaner the car, the bigger the savings.

For more information on this subject please contact Jonathan Main

Our annual CSR results for 2019 are in!

We have had another fantastic year at MHA Moore & Smalley. After sending out the survey to over 4200 clients, we have received an overall satisfaction score of 96%, a 1% increase on last years, already great, result.

This score is based on clients’ answers in response to questions that rate us in terms of communication, technical ability, commitment to each individual business, and our CRM.

Thank you to everyone who got involved. Delivering outstanding client service is at the heart of everything we do. Therefore it is wonderful to know that we are delivering on our mission, vision and values, as we continue to improve and strive to be the best we can be.

Take a look at this year’s results below

Blackpool car repair firm opens new £3m premises

A family-run accident repair centre in Blackpool has set the wheels in motion to become Lancashire’s number one car repairer, following a £3m investment in their brand new bodyshop.

Fylde Coast Accident Repair Centre (ARC) has relocated to a new 18,000 square foot workshop on a site covering 2.3 acres at the Blackpool Airport Enterprise Zone, creating five new jobs to date.

With a turnover of £3.5m its workshop currently repairs over 2,400 vehicles per year, working alongside major insurance companies.

The firm was advised on its expansion by MHA Moore and Smalley. The team, led by David Bennett and Judith Dugdale, provided advice on fundraising and tax for the acquisition and development of the site.

Fylde Coast ARC is run by owners David and Linda Hyland, together with their son Dane. Between them they have over 35 years of experience, specialising in the repair of car and light commercial vehicles.

David, managing director, said: “I started the company in 1982 with just one apprentice and by building a loyal customer base, we’ve been growing the business ever since. Once we realised we had outgrown our old premises, we decided to take the brave decision to build a new state-of-the-art facility.

“Since opening our doors it’s really taken off. With an eye on the future, we have invested heavily in the latest vehicle technology including charging points for the new generation of electric vehicle repairs, as well as training on electric vehicles for our technicians. The feedback from our customers has been very encouraging.”

David added: “We’ve already secured a new contract with a major leading insurance company and we’re attracting skilled technicians who are keen to work in our brand new facility. Our ambition is to be one of the best accident repair firms in Lancashire.”

Judith Dugdale, corporate services director at MHA Moore and Smalley, added: “Fylde Coast ARC is a great example of a successful family-run business planning for the future. We’ve worked with David and Linda for over 15 years and it’s great to see their son Dane join the team.

“Building new premises is a big step but we provided expert advice to ensure they maximised tax savings available on the new-build, money they can reinvest in growing the business. I am delighted to assist them with the next stage of their business growth and continue their success story.”

Founded in 1982, Fylde Coast ARC employs 36 staff and is an approved repairer for Audi, Citroen, Hyundai, Mitsubishi, Peugeot, Seat, Skoda, Vauxhall and VW.

Ginni Cooper

Professional: Ginni completed her AAT and ACA training with MHA Moore and Smalley and is proud to have been part of the growth and development of the firm. Responsible for a varied portfolio of medium and large owner-managed businesses she provides accountancy, statutory audit and business support services. Ginni is ardent about client service and works to develop long standing relationships, whilst delivering on both compliance and advisory requirements. 

Ginni is head of the Manufacturing and Engineering team and has been involved in judging local business awards relevant to the sector over recent years

Personal: In her personal time Ginni can be found walking the dogs and enjoying various outdoor activities, she is an active gym member and also plays for the MHA Moore and Smalley netball team.

Cars: to lease or to purchase?

We often get asked by our clients for advice on the most tax efficient way to get a new car; lease or purchase? Unfortunately, the answer to this question isn’t straightforward but I have set out below the differentials which may help you to make a decision.

 

If you are a sole trader, partner or LLP member:

 

Car lease

 

If you lease a car for business purposes you’ll be able to reclaim 50% of the VAT you pay on the monthly rental charges on your VAT returns.

If the car you lease has CO2 emissions of 130g/km or less you can also claim the full net monthly lease cost plus 50% of the VAT as a deductible expense against your profits. i.e the cost of leasing the car will be charged as an expense in your profit and loss account.

If the CO2 emissions are in excess of 130g/km, 15% of the lease payments will be disallowed for tax purposes.

As well as this, you can also reclaim your other car expenses such as repairs, fuel etc. through the profit and loss account, however, any private element of the cost of running the car through the business should be adjusted through your personal tax return.

Watch out for the mileage if you complete a contract hire agreement, as there may be high charges for mileage in excess of the limit proposed by the agreement.

 

Car purchase

 

When you buy a car you can’t generally reclaim the VAT on purchase.

If you are looking at a new registration, then the value of the vehicle is depreciated the minute that you drive off the lot. You also have to tie up business capital in the asset value of the car. But you do actually own an asset rather than renting one.

If you buy the car on HP or take out a loan you can reclaim the business element of the interest charged against your profits. Only this cost would be charged as an expense in your profit and loss account.

As the car would be classed as a business asset, you can also claim capital allowances. If the car you buy has CO2 emissions of 130g/km or less you can claim 18% of the purchase price each year on a reducing basis, against your accounting profits. This isn’t shown in the accounts as this is a tax adjustment, but this will be shown on your personal tax return. Cars with CO2 emissions in excess of 130g/km will only attract an 8% deduction.

On sale of the car there would also be an adjustment to make. This would really depend on whether the car is sold for more/less than the tax written down value at that time but again the differential would be taxed/ deducted at the above rates (18% or 8%).

It is also worth bearing in mind that if you were to buy a car with CO2 emissions with 75g/km or less you can claim capital allowances of 100% against your accounting profits in the year of purchase.

As well as this, you can also reclaim your other car expenses such as repairs, fuel etc. through the profit and loss account, however, any private element of the cost of running the car through the business should be adjusted through your personal tax return.

 

If you are a director of a limited company or an employee of any entity type:

 

The above methodology still applies for business tax; however there are benefit in kind tax charges to consider. These are in place of the private use adjustments you would make on your personal tax returns if you are a sole trader, partner or LLP member.

A company car benefit is calculated by taking the initial list price of the car, reduced by any capital contribution made (maximum of £5,000) by the director/ employee and applying a chargeable percentage. Again, this percentage is determined by the car’s CO2 emissions and the higher the emissions, the higher the percentage.

National insurance is then charged to the company on the car benefit calculated (at 13.8%) and tax is charged to the director/ employee at his / her tax rate (20/40%).

If fuel is also paid for by the company on behalf of the director/ employee a further benefit is also chargeable.

 

Making a decision

 

Taking the above into consideration, the decision ultimately depends on the car you wish to drive.

The real difference between the two methods from a tax point of view is in the timing. Leasing gives you tax relief as you pay the rentals. Purchasing has slower tax relief in early years, only catching up when you sell.

 

If you would like further information on the above or would like to enquire about our assistance with car lease vs purchase calculations, please do not hesitate to contact us by calling 01772 821021.