New company car advisory fuel rates have been published which took effect from 1 March 2016. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 March 2016 are:

Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.Other points to be aware of about the advisory fuel rates:

• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC.

If you would like to discuss your car policy, please contact us.

On the 3^rd March, the Office of Tax Simplification (OTS) unveiled a package of recommendations aimed at making the tax system simpler and easier to use for small companies. The press release says:

“These incorporated micro-businesses, employing less than ten people, currently face the same tax system as large companies with hundreds of employees and turnovers of many millions. The OTS believes this is disproportionate and makes recommendations to start overhauling the system to make it work better for small businesses.

John Whiting, OTS Tax Director said:

We have identified a range of ways the tax system can be improved for small companies – ideas for simpler administration including making sure help is a click or call away. We also believe the OTS should be formally involved in HMRC’s important Making Tax Digital’s development to ensure simplification issues from the user’s perspective are considered at every stage.

We also think that there is promise in new ways of carrying on business and different ways of taxing a company. We need to do more work on these radical ideas and want to hear views on the outlines we have put forward in our report.”

The recommended administrative changes include:

• aligning filing and payment dates e.g. VAT and PAYE, and annual returns and corporation tax
• HM Revenue and Customs providing extra support at weekends and evenings when more small company owners deal with their tax affairs
• stopping companies providing the same information to various government departments who instead should share the information
• looking at the feasibility of having advance clearances for VAT

The report sets out three main areas for further work:

• testing whether taxing the profits from the smallest companies on the shareholders rather than the company (‘look-through’) could be simpler for some companies as well as addressing distortions in the system
• developing an outline for an new ‘sole enterprise protected asset’ (SEPA) vehicle which will give some limited liability protection without the need to formally incorporate
• simplifying the corporation tax computation, eliminating many sundry tax allowances and potentially calculating corporation tax on a cash basis for the smallest companies

The OTS envisages taking forward the first and second of these longer range ideas and calls on the government to initiate the third.

Fingers crossed that these “simplification” measures really do reduce the level of compliance that small companies face and, more importantly, that the measures are not used to create a new stealth tax…

Just in case you have not been acquainted with this new Institute, and the rather confusing acronym, we have reproduced below the Department of Innovation and Skills fact sheet that explains what it is about…

Institute for Apprenticeships: To deliver a genuinely world-class apprenticeship programme in the context of the apprenticeship levy, we will need a long-term governance arrangement which will support employers to uphold the high quality of apprenticeship standards and be able to respond to the changing needs of business. During the summer of 2015 we consulted with apprenticeship trailblazer employers and those working alongside them on the design of the future system.

The Chancellor announced the Governments’ intention to establish a new independent body – the Institute for Apprenticeships (IfA) – to support employer led reforms and regulate the quality of apprenticeships. This is in the context of the commitment to reach three million apprenticeship starts by 2020.

The measures will:

• Establish a statutory body the Institute for Apprenticeships (IfA).
• Give the IfA powers to undertake quality and approval functions in relation to apprenticeship standards and assessment plans.
• Give the IfA powers in relation to wider quality assurance functions, including making arrangements for assessing the quality of the end point assessment for each apprenticeship.
• Give the IfA responsibility to advise Government of funding allocations per each apprenticeship standard.
• Require the IfA to appoint a majority of employers to the Board, to ensure t hat it is an employer led body.
• Ensure that the SoS may make recommendations to the IfA which it must have regard to when exercising its functions.

Aims and Impact: The measures will:

• Ensure high quality standards and assessment plans, which will lead to high quality apprenticeships.
• Maintain positive employer engagement in the apprenticeship development process and give it greater credibility by moving these functions away from Government to those with the necessary skills and experience.
• Enable the IfA to carry out quality assurance functions to support standards and assessment plans. • Enable a stronger link between the development and content of standards and assessment plans and the allocation of funding.

So the next time you hear the expression IFA it may mean IfA. What this new Institute will mean for employers is far from clear. Will it just create a new raft of red tape? If yes, will this not discourage employers from taking on new apprentices? That after all, would seem to be the idea?

 1 March 2016 – Due date for Corporation Tax due for the year ended 31 May 2015.

 2 March 2016 – Self Assessment tax for 2014/15 paid after this date will incur a 5% surcharge.

 16 March 2016 – Budget Day…

 19 March 2016 – PAYE and NIC deductions due for month ended 5 March 2016. (If you pay your tax electronically the due date is 22 March 2016)

 19 March 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2016.

 19 March 2016 – CIS tax deducted for the month ended 5 March 2016 is payable by today.

 1 April 2016 – Due date for Corporation Tax due for the year ended 30 June 2015.

 19 April 2016 – PAYE and NIC deductions due for month ended 5 April 2016. (If you pay your tax electronically the due date is 22 April 2016)

 19 April 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2016.

 19 April 2016 – CIS tax deducted for the month ended 5 April 2016 is payable by today.

 In an unprecedented move, HMRC have issued a press release regarding the accusation that Google were offered a deal that short changed UK taxpayers. Here’s what they had to say regarding the “sweetheart deal” accusation and the settlement with Google:

‘Sweetheart deal’

HMRC does not do “sweetheart deals”.

The National Audit Office has full access to our papers and has in the past scrutinised the way that we resolve disputes in large and complex enquiries. In 2012, it appointed a retired High Court Judge to examine our largest settlements and concluded that HMRC had obtained good settlements for the country in all cases. The NAO also made recommendations, which we implemented. In large, complex cases, three HMRC Commissioners have to approve any proposal for resolving disputes, including one Commissioner from an area of the business which is not directly responsible for the enquiry and the Tax Assurance Commissioner, who oversees the process and publishes an annual report on his work.

This process is subject to routine scrutiny by the NAO.

The Google enquiry

On 22 January 2016, Google announced that it had reached agreement with HMRC to pay an additional amount of £130 million in Corporation Tax and interest, as a result of HMRC’s investigation which started in 2010. This sum is over and above the tax that they have paid for past years (or would pay for the current period were it not for HMRC’s enquiry). The current tax charge that Google took in its accounts increased significantly from 2012, when the company first disclosed that it was under enquiry and made a provision for additional tax.

Some commentators have applied Google’s group profit margin to its sales to UK customers and estimated that Google’s UK Corporation Tax is equivalent to an effective tax rate of around 3% on the group’s profit’s arising in the UK.

This calculation does not reflect how tax law works.

In accordance with our published guidelines on resolving disputes, HMRC has taxed all of Google’s profits chargeable to tax in the UK for the period in question, at the full statutory rate of tax.

There has been media speculation about what other European tax authorities are doing regarding Google. We can’t comment on enquiries carried out in other countries, or on media speculation about them. So far, there has been no public confirmation that other countries have concluded enquiries with Google, either by agreement or by litigation. HMRC is satisfied that our enquiry has secured all the tax that is due in the UK.”

Since the tax on private fuel provided with company cars is so high, many employers now have an arrangement whereby they no longer pay for private fuel. In this case, the employee must reimburse the employer for private fuel included in petrol bills paid by the employer. Otherwise, the employee may face a tax charge.

Consider the following example:

If your private mileage for April 2016 is 560 miles, and you drive a 1900cc diesel engine car, the rate per mile to cover fuel charges, as quoted in the latest rates published by HMRC, is 11p per mile. Accordingly, you should repay £61.60 to your employer. In order to exempt yourself from the car fuel benefit charge you must be able to demonstrate that the refund was actually made in the relevant tax year, in this example 2016-17.

 Based on the above example, if the vehicle’s list price when new was £25,000, and the car benefit charge rate was 26% (based on a 130g/km CO2 rating) the benefit in kind charge for the year would be £6,500. With no repayment of private fuel, there would also be a £5,772 car fuel charge. Both these amounts would be added to your taxable income for the year. If you were a higher rate tax payer the car fuel charge would cost you £2,308.80 a year in additional tax (£5,772 x 40%). This amounts to £192.40 per month.

 If your actual private mileage proved, on average, to be 560 miles a month, you would therefore save £130.80 per month (£192.40 – £61.60).

 It is worth crunching the numbers. Obviously, the lower your private mileage, the more likely a repayment system will save you money. 

Prior to 6 April 2016, self employed traders could make overall tax and NIC savings by incorporating their business if their annual income from self-employment exceeded approximately £10,000. The saving generally arose by taking a low salary and the balance as dividends thus avoiding NIC charges.

Unfortunately, changes to the tax system from 6 April 2016 may mean that this strategy is no longer beneficial (or less beneficial) in certain circumstances. The relevant changes are to the taxation of dividends.

The starting point, where it continues to be beneficial to incorporate is largely unchanged in 2016-17 although the amount of cash saved thereafter will be less than in 2015-16 and previous years.

An unintended result of the tax changes in 2016-17 is that it is still beneficial to incorporate and adopt the low salary high dividends strategy, until profits generated exceed £143,000, at which point you will pay more tax by incorporating your business. This is due to the higher rates of dividend tax that are applied to dividends received in excess of £5,000 a year.

Does this mean that previously incorporated businesses should consider returning to a self-employed structure if their business earnings exceed this £143,000 break point?

The answer may indeed be yes, but each person’s circumstances need to be considered in some detail and professional advice should be taken before getting into disincorporation mode.

There is no doubt that the Treasury are intent on reducing the tax and NIC advantages of businesses incorporating and taking the low salary high dividend option. As the goal posts have moved, a new look at your business structure may be appropriate.

Since the recent announcement of various changes to the taxation of unincorporated property businesses, there has been renewed interest in incorporation: would it be possible to shelter property income and capital gains inside the lower Corporation Tax regime?

 Unfortunately, this apparent quick-fix for property business owners is fraught with dangers for the unwary. For example:

• Stamp Duty Land Tax (SDLT): a transfer of an investment property by an individual to a limited company is normally a chargeable transfer for SDLT purposes if the previous owner and the company are considered to be connected for tax purposes. SDLT would be payable based on the market value of the properties transferred. In certain circumstances, the transfer of property from a partnership to a limited company can be made free of SDLT considerations.
• Capital Gains Tax (CGT): since the Ramsay case, HMRC now accept that property investment can be considered a business, as long as the involvement of the owners represents more than just a “modest” quantity of activity. If, therefore, an existing unincorporated property business meets this more than modest criteria, the potential CGT liability when property is transferred into a limited company can be rolled over into the base cost of the shares issued on transfer. If not, landlords may face a significant CGT bill when they transfer property to a company.

There is also the end game to consider, what will happen when landlords want to retire and sell off their properties. If they have incorporated successfully, the cash that remains after property disposals and Corporation Tax has been paid, will presumably be required by the shareholders. If they subsequently withdraw this cash pool from the company, they will incur additional Income Tax, if not CGT charges. Taken together, these Corporation Tax and extraction tax costs could possibly exceed the tax costs of a similar, but unincorporated, property business.

The message is clear, tread carefully. Each unincorporated property business should consider the short and long term tax costs of incorporation before proceeding. Landlords should take professional advice before acting…