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

HMRC update on digital links

HMRC had announced that businesses with complex or legacy IT systems can apply for additional time beyond the current one year soft landing period to put the required digital links in place, subject to meeting certain qualifying criteria.

For VAT periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) a business’ systems must use digital links for any transfer or exchange of data between software.

Businesses with complex or legacy IT systems may require a longer period to put digital links in place across their functional compatible software. These businesses can apply for additional time to put the required digital links in place (subject to qualifying criteria).

If you acquire another business it may take additional time to digitally link different software applications or packages to meet MTD legal obligations. HMRC will consider specific direction applications outside of the soft landing period(s) where more time is needed to comply with digital link requirements following the purchase of another business.

The cost alone is not sufficient reason to issue a specific direction. Business are expected to make every effort to comply with the digital links requirements by the end of the soft landing period.

For more information about this subject please contact Victoria Dadswell

Six good reasons to file your tax return early this year

Aside from avoiding the panic and stress of trying to find all your tax return information to send to your accountant just before the 31 January deadline there are several other good reasons to get your accounts organised earlier in the year.

1. Get a repayment sooner

If you have overpaid tax during the year you will be entitled to a refund from HMRC. If you know you have overpaid, it is advisable to complete your tax return as soon as possible, so that you can claim this refund. Refunds can be held on HMRC’s account as a credit but the interest received is minimal and it is likely that you will receive a better interest rate with your own bank.

2. Give yourself longer to plan your payments

Providing your accountant with your tax documents as soon as possible after the tax year end (5 April), allows them to calculate your tax liability and advise you of any tax payable in January. Balancing payments are due by 31 January following the end of the tax year, therefore the sooner your liability is calculated, the longer you have to save or plan for these payments. Those who leave their tax returns until January have little time to find the funds for their tax bills. Furthermore, late payments mean that penalties and interest payments may become due.

3. Working Tax Credits

For those who are in receipt of tax credit payments, claims need to be renewed annually by 31 July. Part of this process involves informing the Tax Credit office of your income for the previous tax year. By providing your tax return information early, your tax return can be completed in good time to show your income for the previous tax year, which will avoid the need to submit temporary estimates and the possibility of being over or underpaid.

4. Payments on account – reduce the chance of over or under payments

For those who are due to make payments on account towards the following tax year, by completing and submitting your tax return to HMRC before 31 July, your tax adviser will able to assess whether these payments still need to be made. If your income for the year is lower than expected, you may be able to make a claim to reduce these payments on account. This could avoid the potential overpayment of tax, as well as a waiting period for HMRC to issue this amount as a repayment to you.

5. Tax planning opportunities

An early calculation of your tax position gives you longer to take advantage of tax planning opportunities for the following year such as

  • Making gift aid or pension contributions to ensure you receive your full personal allowance
  • Changing ownership of shares or partnership profits
  • Transferring assets to a lower earning spouse
6. Tax code

If you get your information in early, it can also have an effect on the way the tax is collected. You can choose to pay your self-assessment bill through your PAYE tax code as long you meet certain criteria set by HMRC.  To take advantage the following must apply:

  • You owe less than £3,000 on your tax bill
  • You already pay tax through PAYE, for example you’re an employee or you get a company pension
  • You submitted your paper tax return by 31 October or your online tax return online by 30 December
Use a digital system to get organised

Do you struggle to keep a note of your self-employment and rental income and expenses each year for your tax return? QuickBooks is an accounting software which connects to your bank and allows you to enter your income and expenses as they are received or incurred. This keeps you organised throughout the year so you do not have the stress of collating the information in January.  Your accountant can have access to the information online too which speeds up the sharing of information.

Regardless of your choice in software the main thing is to keep records in an organised manner to ensure all allowable expenses are claimed. Remember for every £1 of expenses you can potentially save £0.29 or £0.42 depending on what rate of income tax and National Insurance you pay. 

Make a new ‘financial’ year resolution

In conclusion, the earlier your accountant receives your tax information the earlier you can have an up to date position regarding your tax affairs. It will give you time to plan, reduce or increase your savings for your tax liability and avoid the stress of a frantic search for information in January.

If you would like any more information on this subject please contact Lisa Pennington or call 01253 404404

Company Owned Electric Vehicles

The media has recently been awash with climate change activists, such as Greta Thunberg and the extinction rebellion group, trying to get the message across to the general public that the planet possibly only has a short time for substantial changes to be made to our everyday lives before there is irreversible climate change.  As part of the governments green initiatives, changes to encourage the use of electric vehicles have been set out in the draft legislation to provide a range of tax cuts that we will discuss in this blog.

Company Car Taxation

The draft finance bill 2020 sets out the changes to the way in which CO2 emissions will be based on for all new cars from April 2020.  The current system using the New European Driving Cycle (NEDC) will be replaced by the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), where most appropriate percentages are reduced by 2 percentage points in 2020/2021 compared to the current appropriate percentages for cars.

The NDEC procedure will still apply for all cars registered on or after 1 October 1999 but before 6 April 2020.

Due to the 2-percentage points reduction, zero emission vehicles will see their appropriate percentage reduced from 2% to 0% for 2020/2021, then increasing by 1% in each of the following 2 years.

Therefore, from 6 April 2020 for 1 year, a zero-emission vehicle made available to an employee will be completely tax free.  At the time of writing this was in the draft finance bill 2020 legislation and had not passed into law.

Related Company Car benefits

HMRC do not consider electricity to be a fuel, therefore the petrol/diesel advisory fuel rates cannot be used to reimburse employees for business journeys, however HMRC introduced a new rate from 1 September 2018 of £0.04p per mile for fully electric company cars.

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

  • The cost of charging an electric vehicle at work
  • The cost of installing a vehicle charging point at the employee’s home
  • 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 (8%).  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.  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.

For more information on this subject please contact Alex Gardner or a member of our tax team on 01772 821021

Permanent Establishment

Trading internationally can be a new and exciting venture for a company but embarking on overseas trading needs to be considered carefully to ensure the business does not fall foul of local company and tax requirements.

One area that creates the most issues is identifying whether a permanent establishment exists in the overseas country and what this means for a company’s compliance obligations.

If a permanent establishment exists in an overseas country, then the UK company becomes subject to local taxes and compliance requirements under that country’s legislation. Determining whether a permanent establishment does exist can be tricky.

Simply having customers overseas does not in itself create a permanent establishment, however, how these customers were acquired and how they are serviced may well do. In general, it is quite simple to recognise that a permanent establishment exists, specifically if a company operates from an office or has a warehouse in another country. However even if there is no tangible presence overseas a company may, inadvertently, create a permanent establishment by engaging an agent to negotiate contracts for a company or sending an employee to that country to act as a salesperson. Things become further complicated when a company trades in the virtual marketplace.

It would be easy to assume that a permanent establishment didn’t exist in relation to the provision of virtual services because the UK company has no actual physical presence overseas. This is not the case however, whether a virtual permanent establishment exists is largely dependent on the length of time a service is provided to a client in an overseas country.

So, once it has been concluded that an overseas permanent establishment does exist a company then needs to consider the following:

  1. The compliance regulations in the overseas country, this includes financial reporting as well as taxes.
  2. The need for foreign advisors to be engaged to ensure that the company is compliant. Clearly this creates an additional cost which will need to be factored into the company’s accounts.
  3. How the profits derived from overseas activities are going to accounted for and whether any UK costs are attributed to these profits. This creates the need to consider transfer pricing regulations which can add further compliance burdens.

A business should not shy away from trading internationally but should make sure the potential implications are given full consideration to ensure the transaction is a success.

If you require more information on this subject, speak to one of our tax team or call 01772 821021

BREXIT – Changes for UK employers sending workers to the EU, the EEA or Switzerland

Currently, if you send your employees to work in the EEA, your employee might be able to carry on paying national insurance in the UK for up to 2 years.  This will protect the employee’s UK national insurance record, which affects rights to benefits and the state pension.  This will also provide proof for the authorities in the country where the work is performed that social security contributions are not required.  To do this, you or your employee will usually be required to apply for a Portable Document A1.

In the event the UK leaves the EU without an agreement, there may be changes for UK employers who have people working in the EU, the EEA or Switzerland.

The EU Social Security Coordination Regulations ensure employers and their workers only need to pay social security contributions (such as National Insurance contributions in the UK) in one country at a time. However, if we leave without an agreement, the coordination between the UK and the EU will end.

This will mean that your employees working in the EU, the EEA or Switzerland may need to make social security contributions in both the UK and the country in which they are working at the same time.

Businesses will need to do the following to prepare:
  • If your employee is currently working in the EU, the EEA or Switzerland and has a UK-issued A1/E101 form, they will continue to pay UK National Insurance contributions for the duration of the time shown on the form.
  • However, if the end date on the form goes beyond Brexit day, you will need to contact the relevant EU / EEA or Swiss authority to confirm whether or not your employee needs to start paying social security contributions in that country from that date. The European Commission’s website will help you find the relevant country’s authority.
  • If your employee is a UK or Irish national working in Ireland, their position will not change after Brexit, they are covered under the international agreement signed by the UK and Ireland in February 2019. You, as their employer, won’t need to take any action.
  • A replacement for the A1/E101 form will be issued for new applications after Brexit. This ensures your employee continues to make UK National Insurance contributions to maintain their social security record. You can still use the same form on GOV.UK to make an application after the UK has left the EU.

The UK Government has announced it is working to protect UK nationals by seeking reciprocal arrangements with the EU or Member States to maintain existing social security coordination for a transitional period until 31 December 2020. Individuals in scope of these arrangements will only pay social security contributions in one country at a time.

If you would like to discuss the blog in more detail please contact David Bennett or Alex Gardner or call 01772 821021.

VAT Domestic Reverse Charge – 12 month deferral

HMRC has delayed implementing the domestic reverse charge for construction services for a further 12 months. The changes to legislation were designed to combat fraud within the construction sector and were intended to become live from 1 October 2019.

After taking representations from industry bodies, HMRC have given construction businesses more time, amid concerns that many are still not aware of the proposed rule changes and the potential clash with Brexit related issues to contend with over the upcoming months.

In conversations with our clients since the announcement on Friday 6th September 2019  it is clear that the deferral is welcome. However, as this is only a delay, we urge businesses to understand the cash flow implications of this rule change, together with considering how they may need to adapt accounting systems and communicate with relevant stakeholders in good time before 1 October 2020.

If you have any queries regarding this matter then please get in touch with Joe Sullivan

Proposed changes to the payable R&D SME tax credit

A company which claims R&D relief as a SME can surrender its R&D losses in exchange for an R&D tax credit, at 14.5% of the surrendered loss.  This can be a real advantage to start-ups and innovative small businesses as the credit can be a real boost to their cash flow position.

In the November 2018 budget, the government announced the introduction of a new anti-abuse cap to the SME payable tax credit scheme.  From 1 April 2020 the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NIC liability for that year. 

This cap has been designed, in HMRC’s words, ‘to deter abuse from fraudulent companies and those where the UK activities amount to little more than claiming the payable tax credit’; however there is concern that this cap could have a negative effect on genuine companies undertaking Research and Development.   In particular it will affect companies who for genuine reasons use subcontractors and externally provided workers (e.g. agency staff) to assist them with their R&D projects.

Following this announcement, a consultation document was issued in March 2019 inviting comments on how the proposed cap will be applied, to minimise any impact on genuine businesses, before it is legislated in the next Finance Bill.  This consultation closed at the end of May and we are awaiting HMRC’s publication of the outcomes of the public feedback to see how they expect the cap to work in practice.

If you have are concerns that your R&D claim could be affected by the proposed cap, please contact Jenny Trunks

Disposals of UK land – changes to the capital gains tax compliance regime for non-UK resident individuals

What’s new from 6 April 2019

The non-residents capital gains tax (NRCGT) rules have been extended to include non-residential property. The rules now apply to direct and indirect disposals of interests in all UK land (i.e. both residential and commercial).

A direct disposal is a disposal of land, whereas an indirect disposal is a disposal of shares in a company (whether the company is UK resident or not) and at least 75% of the value of the shares is derived from UK land. This briefing note covers the rules surrounding direct disposals for individuals and further advice should be sought for disposals by non-UK resident companies.

Background

The NRCGT rules were introduced on 6 April 2015 and apply to disposals of residential properties from this date. Only the gain arising after 5 April 2015 is chargeable and there are different ways of calculating the gain depending upon the individual’s circumstances.

The new rules now extend NRCGT to cover gains on commercial property, but only to the extent that the asset has increased in value since 5 April 2019.

Compliance

All persons making a NRCGT disposal have 30 days following the conveyance of the property (not the date of exchange) to submit an on line NRCGT Return to HMRC. A return must be filed even if there is no tax payable or the property is sold at a loss.

Late filing and payment penalties may be charged if the 30 day deadline is missed.

The Return must include a calculation of the chargeable gain or allowable loss and the tax due must be paid within 30 days of conveyance (i.e. the same deadline as the filing of the Return).

The rate of tax depends on whether the property is residential or non-residential and the level of the individual’s other income for the year.

The compliance regime has also been revised from 6 April 2019 to require all non-residents to make a payment on account of the CGT due on the disposal, irrespective of whether or not the individual is within the Self-Assessment regime. 

Potential problem areas

Due to the short filing and payment deadline not all of the relevant information may be known within that timeframe. It may be necessary to include reasonable estimates in the computations and then amend the Return when the actual details are available. In addition, it may not be possible to correctly calculate the amount of tax payable because the rate of CGT depends on an individual’s UK taxable income for the whole tax year and this may not be known at the time of submitting the return.

How we can help

We would be happy to calculate the capital gains tax position on the sale of the UK property and advise upon which method of calculation is most beneficial for your client. We can also file the NRCGT Return with HMRC.

Should you wish to discuss this in further detail please contact a member of our Professional Practice Team on 01772 821021.

Cars that avoid the 4% Diesel Surcharge Tax

In a world of new acronyms and ever shifting government re-categorisation of CO2 and NOx bands, there has never been a more important time to make sure the model, and more importantly specification of the company car gives the optimal tax outcome.

In 2018/19 the government increased the diesel surcharge, branded ‘Diesel Tax’ as a move to tackle air pollution, which is now set to rise to 4%. This is also in conjunction with the Worldwide Harmonised Light Vehicle Test (WLTP). The WLTP is based on real-driving data, designed to better match on-road performance. This also introduced the on the road Real Driving Emissions (RDE) test, to provide much more ‘real-world’ figures compared to the normal lab tests and to push for stricter Nitrogen Oxide (NOx) emission targets, which has meant the CO2 emissions of new vehicles have risen for the second year in a row.

The 4% diesel surcharge applies to all models that don’t meet something called Real Driving Emissions 2 (RDE2). Starting from January 2020 all vehicles will have to beat the RDE stage 1 (RDE1) NOx target, with the stricter stage 2 (RDE2) target due in January 2021. This will require all manufacturers to retest their model ranges, potentially leading to further impacts .The RDE1 is for the new Euro 6 diesel engines, known as 6.2 and have a NOx limit of 168mg/km, with the RED2 engines, known as 6.3 a NOx figure of 120mg/km or less.

There have been a large number of vehicles from prestige marques now boasting RDE2 compliant engines already, but buying a vehicle on a 3 year lease would mean it would be caught by the law in 2021, so be careful on any imminent diesel purchases, as an RDE2 compliant vehicle now will save the surcharge in the future.

If you would like to discuss this blog in more detail please email Paul Locker or call us on 01772 821 021.