At Howards our expert team is available to help you whenever you need it. With nearly 20 years’ experience our firm is the best choice for local advice on business, accounting, tax, and payroll issues. As a successful Stafford firm of accountants, we add value by sharing best practice and advice with those who need it.
Here are some of the most pressing questions that our team of nearly 50 consultants, directors, managers, seniors, semi-seniors and trainees have been presented. If you have a question that you feel others will benefit from knowing the answer, please contact us and we will take a look.
TAX & VAT
Q: Due to rising fuel costs, I’m considering increasing the allowance I pay to employees for business mileage from 45p to 60p a mile. Are there any tax consequences from this?
For any amounts paid over 45p a mile, or 25p a mile for any business mileage above 10,000 miles, the difference of 15p or 35p per mile should be added to any earnings. Then it should be declared through the payroll. Tax should be subject to the appropriate tax rate.
For National Insurance purposes, the rules are slightly different as the 10,000 miles threshold does not apply. Therefore, all payments in excess of the official rate of 45p will be subject to NIC Class 1 (15p for each mile).
Q: We are switching our small company car fleet to plug-in electric. What is the tax position if we install a charging point at our office?
For this kind of investment you could claim up to 100% tax relief on the cost of installation. Alternatively, you would qualify for the 130% super deduction, but the charging points must be new and unused.
If you’re charging a company vehicle that’s routinely used for business and private journeys, it’s vital to keep mileage records. You could opt to reclaim the full VAT amount relating to the electricity supply and then show a charge for private use in your VAT return. Alternatively, you could reclaim VAT on the business mileage only.
In general, cars available for private use will attract car benefit, however there is no taxable benefit in kind relating to the provision of electricity for company cars. Furthermore, if an employee requires an electric point at home to charge a company car, payment for this by the employer will not result in a taxable benefit. Any business mileage from home charges can be refunded at the Advisory Electric Rate of 5p per mile.
Q: Our VAT return covers March, April and May 2022. My business partner says we don't yet need to file this return digitally. How do we determine when it's mandatory to do so to comply with MTD for VAT rules?
If your business was not already required to operate Making Tax Digital (MTD) then you will need to comply with the MTD rules from your first VAT return period starting on or after 1 April 2022. Your first VAT return period starting on or after 1 April 2022 will be for the period June, July and August 2022. So, this will be the return you’re required to submit using MTD compatible software.
Q: I work part-time and earn £10,450 a year. What do the changes to the National Insurance threshold mean for me?
Basically, the Government is aligning the point at which employees start paying National Insurance contributions (NICs), known as the Primary Threshold, with the income tax personal allowance. It means workers can earn £12,570 a year without paying Class 1 NICs or the Health and Social Care Levy. So far this year you will have paid £19.00 in NICs. Therefore, you will save £5.88 per month or £53.00 during the rest of the year.
Whilst the amount you are receiving is not a great deal, it’s worth noting that once you earn more than £6,396 a year you will receive credits, which count towards the State Pension and Jobseekers’ Allowance, even though you’re no longer making NICs personally.
Q: Several of my employees work variable hours. Do I have to pay them holiday pay and, if so, how do I work it out?
Yes, you do! An employee’s entitlement to holiday pay commences from the day they start work. The statutory minimum holiday leave for a full year’s employment is 5.6 weeks. You can, of course, provide additional holiday entitlement through their contract of employment. It makes no difference if someone works a standard working week or variable hours. The leave entitlement is unaffected.
It’s easy to check the holiday entitlement of an employee who has worked for you for, say, less than a year. Use the ‘calculate holiday entitlement’ tool.
The calculation for holiday pay for employees who work variable hours is based on the number of weeks worked in the last two years. This is 104 weeks, on a rolling basis. It is known as the holiday pay reference period.
To arrive at the holiday pay reference period, determine whether the employee has worked some days every week in the past 52 weeks. Alternatively, they may have worked for more than 52 weeks, but not every week. Or they may have worked for less than 52 weeks over the full 104-week cycle.
Q: For our company cars what is the best method to use to avoid a car fuel benefit charge being due?
There are 2 methods to avoid the charge, both using the same principle of the company car driver keeping comprehensive business/private mileage records.
The major difference is as to how any business/private fuel used is provided in the first place. If the company provides all the fuel then the director/employee needs to repay the private miles undertaken at the advisory fuel rate. If the director/employee pays for all the fuel, then the employer will refund the business miles at the advisory rate.
As a fuel benefit charge becomes available even if 1 mile of private mileage is paid for by the company, (for example if a business journey was re-classified as ordinary commuting), we would always recommend the second option, as any payment refunded incorrectly would be treated as a taxable expense.
Q: I run a mini cab hire business and am due to renew my licence. I’m aware of changes to government licences, but unsure whether I need to carry out a tax check code. If so, how do I go about it?
Yes, you do need to carry out a tax check code and it’s your responsibility; your advisor or agent can’t do it for you. One check is valid for more than one licence application so long as the applications cover the same type of licence. Apply online through HMRC online services. Be aware that you’ll need to confirm certain details, including the original issue date of your licence, the length of your previous licence and how you pay tax on your income.
Q: I set up a Child Trust Fund account for my son some years ago but haven’t paid anything into it for a while and can’t find the paperwork. Is it too late to access the money?
The idea of the Child Trust Fund was to help parents teach their children about saving and build up a nest egg for when the youngster turned 18. The first CTFs matured in September 2020 and the last of these accounts will mature in 2029.
The CTF was superceded by the Junior ISA. However, you can still top up existing CTF accounts by up to £9,000 per year. Once your son is 18, he can either access the money or transfer it, in full or part, into an ISA (Individual Savings Account).
To find a forgotten Child Trust Fund go to https://www.access.service.gov.uk/login/signin/creds
on the GOV.UK website and fill in the HMRC form. If the account has matured, your provider will hold it in a ‘protected account’ until you get in touch.
Q: I want to help my son buy a house. Myself and another family member are considering pooling resources and loaning him some money, to add to his own savings, so that he can buy a property. I am a pensioner and the other party owns a small business. Where do we stand from a tax perspective if we each loan him £40,000 to £60,000? Will we be liable for any extra tax on such a loan?
There are two potential elements here. If both of you loan the money interest free from personal savings there are no tax consequences. If either party were to charge your son interest on the amount loaned, this might lead to a tax charge on the interest portion you receive.
If the payment from the small business owner came from the business itself, which was a limited company, rather than via a personal loan, once again it would depend whether interest is charged. If interest was not charged at the official rate (currently 2%), the amount loaned could be treated under loan benefit taxable benefits and your son could be subject to tax. There are further considerations if the son is an employee or family member of the director, so you need to seek professional advice.
Q: I have recently become a grandfather for the first time and want to make a cash gift to my new grandchild. What implications would any gift have on my inheritance tax (IHT) position?
For inheritance tax purposes a gift is treated as anything of value. Not only cash, but also jewellery, paintings, property, etc.
You can make a number of gifts without their value being considered part of your estate for IHT purposes.
• You can give your grandchild a gift of up to £250 per year
• You also have an allowance of £3,000 per year, which can be used as a gift to any person(s). This can be increased to £6,000 if you did not use the allowance the previous year. For example, if you have already given £1,000 to your brother, you can give £5,000 to your grandchild. Be aware, however, that in choosing this option you cannot also give the £250 to your grandchild.
• You can give a gift from your regular income. To ensure this is exempt from IHT, you must be able to maintain your standard of living.
• You can make payments to help with the grandchild’s living costs, for example nursery fees.
Any gifts over and above those listed here will be treated as part of your estate for inheritance tax purposes. If the gifts exceed £325,000 within 7 years of your death, the beneficiary will face IHT on the excess.
Inheritance tax is based on a sliding scale. It depends on how many years before your death gifts were made. The scale is:
Less than 3 years 40%
3 to 4 years 32%
4 to 5 years 24%
5 to 6 years 16%
6 to 7 years 8%
7 years and over – there is no inheritance tax to pay
Q: I’m self-employed and claimed both the 4th and 5th SEISS grants in 2021. Do I have to pay tax on the sums I received and how do I go about it?
Yes, grants paid to support self-employed people during the coronavirus pandemic are taxable. You will need to include details of the amounts received in your 2021-22 tax return. Record SEISS payments in the Self-Employment Income Support Scheme Grant box. If you received any other taxable Covid-19 payments include them in the Any Other Business Income box. There are notes on how to report a SEISS grant at: https://www.gov.uk/guidance/reporting-coronavirus-covid-19-grants-and-support-payments
Q: I had to work from home due to the coronavirus pandemic but have forgotten to claim my home working tax allowance. Am I too late?
No you are not too late. You can still make a claim for last year. Go to the Gov.UK website and sign into your government gateway account https://www.gov.uk/log-in-register-hmrc-online-services. Don’t worry if you haven’t got one. It’s easy to set up. You’ll just need your National Insurance number and a recent payslip/P60 or your passport for verification purposes. Once you have made the claim HMRC should refund the tax you are owed by cheque or by payment directly into your bank account.
Also, did you know you may be able to claim the home working tax allowance for this tax year? If you have had to work from home since 6 April 2021, even for one day, you can claim the allowance for this current tax year as well. If this is the case HMRC will adjust your tax code and you will receive the payment through your earnings.
RETIREMENT & PENSION
Q: It’s 8 years before I retire. I’m worried that I haven’t saved enough into my state pension. How do I find out and, if there is a shortfall, what can do about it?
Start by getting a forecast for your pension entitlement. Follow the link at https://www.gov.uk/check-state-pension or access information through your Government Gateway account. Alternatively, complete form BR19 or call the Future Pension Centre helpline on 0800 731 0175.
If you have insufficient qualifying years to receive the full state pension, additional voluntary contributions (AVCs) may be an option. Generally, AVCs are based on the previous six tax years although, depending on your age, sometimes you can make up for longer gaps in your National Insurance record. It doesn’t automatically follow that AVCs will increase your state pension however, so discuss this with the Future Pension Centre before making any payment.
Q: I have reached 60 and have just taken early retirement. How will this affect how much state pension I will receive?
It all depends on your National Insurance record. For you to receive a state pension you need to have qualifying contributions for at least 10 years up to a maximum of 35 years. These contributions can come from National Insurance paid or credited whilst you worked, credits if you were un-employed and signed on or if you were ill, a parent or a carer.
Q: I am thinking of popping a lump sum into my pension through my company before my financial year end. Will this affect my corporation tax?
Yes any payments into your pension will reduce your corporation tax liability, however, you can’t contribute more than £40,000 in one tax year.
CONSTRUCTION INDUSTRY SCHEME
Q:- One of my subcontractors has claimed the cost of materials on his invoice but has not provided a breakdown. Can I show these as a deduction?
Yes. However, there are certain steps you need to take before agreeing the amount of material costs you allow in the deduction. It is part of the contractor’s responsibilities to ensure that any material costs claimed do not include a ‘mark up’ or profit element. Therefore, if a subcontractor will not confirm the actual cost of the materials, you will need to estimate the costs claimed. The potential problem is that HM Revenue & Customs (HMRC) does not provide guidance on how to arrive at these estimates. However, as long as the estimated costs appear to be reasonable, HMRC will usually accept them. That said, please note that HMRC can challenge any material costs claimed and, ultimately, take the matter to a tax tribunal if disagreement continues. In such cases, we always recommend that you keep a record of how you calculated the estimated material costs provided, for example referencing supplier cost lists.
Q:- I HAVE A CONTRACT STARTING WHERE 2 OF MY SUBCONTRACTORS WILL HAVE TO STAY OVERNIGHT. WILL THE COST OF THIS ACCOMMODATION AND TRAVEL BE SUBJECT TO CIS DEDUCTIONS?
This will all depend on who pays the costs of any transport, accommodation and subsistence.
If you, as the contractor, provide expenses to subcontractors to cover any of the above, then you will be required to include the amounts paid to them as part of the overall gross payment to the subcontractor when calculating what should be deducted at the appropriate CIS tax rate.
If, however, you as the subcontractor either provide the accommodation or the means of transport (for example, the use of one of your vans), or you arrange the accommodation and pay for it direct yourself, then you will not need to include any of these costs or payments in the gross payment calculation for CIS purposes.
One further point, if you do look to pay this on behalf of subcontractors, or provide the transport or accommodation, then do ensure that the employment status of the subcontractors is still showing as self-employment.
Q:- I am currently a small building contractor, (with plans to expand), who currently operates under the Construction Industry Scheme. Will this affect me from 6 April 2021?
A: From the tax year 20/21, the delayed operation of the new IR35 legislation will come into force.
Firstly, IR35 supersedes, the operation of the CIS scheme if this is appropriate.
However, unless you meet 2 of the following 3 criteria (and you may do in the future with your expansion plans) your own responsibilities will not change.
- Your business has a turnover of not exceeding £10.2 million.
- You have a balance sheet total not more than £5.1 million.
- You have over 50 employees.
As you are currently likely to not meet any of the above criteria, then the decision if IR35 applies will remain with the engaged. Therefore for example if an electrician you engage trades through his own limited company then you will operate CIS as normal.
If a subcontractor or a professional service outside the scope of CIS (for example a quantity surveyor) does ask your IR35 status you should tell them that you are exempt under the small company rules. We would recommend you do this by email or in writing.
CAPITAL GAINS TAX
Q: I recently disposed of one of my rental properties and have made a capital gain. When do I need to pay the tax due?
From 27 October 2021 all Capital Gains Tax (GCT) on disposed properties and land will need to be declared to HM Revenue & Customs (HMRC) and the relevant tax paid within 60 days of the completion date. For all properties and land sales completed before that date, you have to report and pay the tax due within 30 days of the completion date.
Q: Can employees claim expenses for travelling to and from work if their temporary place of work changes?
If your temporary place of work alters and you feel your new place of work should still be considered as temporary and the 24 months rule kicks in again then you must take into account the additional time and travel costs. To be allowed, HM Revenue & Customs (HMRC) states that any changes should have a substantial effect on your journey to work. That said, HMRC does not define ‘substantial’. Therefore, you do need to consider what effect the additional time and expense has on your circumstances.
Q: WHERE SHOULD A POOL CAR BE KEPT OVERNIGHT?
Typically, a pool vehicle will be kept at or near to the company premises overnight and at weekends. If the car is available to and used by more than one employee for work on day-to-day business journeys, it will be accepted as a company car. The exception would be if the company premises happen to be a director’s or employee’s home. Then the car wouldn’t be treated as a pool car and you would need to demonstrate it was not available for private use.
However, there are occasions when a pool car can be kept overnight at a director’s or employee’s address. For example, if an employee has a long business journey the following day requiring an early start. Then, the employee can take the pool vehicle home the night before and start the business journey from home. Whilst this would normally be classified as ordinary commuting, in this case HM Revenue & Customs would class it as part of the business journey. Therefore, there would be no private element and no car benefit would apply.
You do have to be careful, though. If employees regularly take the car home (approaching 60% of the time), HMRC will argue that the journeys are no longer incidental and should be treated as private journeys.
Q: : I’m expecting my first baby and am confused about maternity pay. When will I get paid and how much?
You need to meet the criteria to receive statutory maternity pay, which lasts up to 39 weeks, although you will receive less if you return to work before then. You’re entitled to maternity pay from the day your maternity leave commences, although it may be paid beforehand if you’re sick in the 4 weeks prior to your due date.
The first 6 weeks of maternity pay is calculated at 90% of your average weekly pay before tax. For the following 33 weeks you will receive either £151.97 a week or 90% of your average weekly pay before tax (if this is less than the statutory amount). If there’s a rate increase, you’ll get the higher amount from the date the rise takes effect.
Average pay includes sick pay, holiday pay, back pay, bonuses, and statutory maternity pay from a previous pregnancy. For employees who have been furloughed, average weekly pay is based on your usual regular wage, rather than your furlough pay.
Q: I’ve had a baby and although I’ve told my employer when I’ll be going back to work, I’m thinking about extending my maternity leave. What do I need to consider?
You can extend your maternity period for a further three months, up to 12 months in total, but this will be unpaid. During this time, you will accrue holiday pay, which can be added to the end of the paid maternity period, with consent from your employer. Your employer is legally bound to pay this holiday pay and it does transfer forward over the holiday year end.
Ten KIT (Keep In Touch) days are allowed whilst you’re in receipt of statutory maternity pay and do not affect it. Agree KIT days beforehand with your employer.
Give your employer a minimum of 2 weeks’ notice if you change the date of your return to work, since maternity cover may be required for longer. Good written communication is important to clarify how long you will be away and your expected return.
MTD & VAT CHANGES
Q: I run a small VAT-registered business and my annual revenue is £69,000. Will the next round of Making Tax Digital (MTD) for VAT changes affect me?
Yes, they will. From April 2022 Making Tax Digital applies to all VAT-registered businesses. This is the case even if your turnover is below £85,000, the current threshold for VAT registration. You will need to sign up to operate MTD and keep digital records. It means using third-party software to submit your returns. The GOV.UK website has full details about the 2022 changes to Making Tax Digital for VAT.
Q: I have just started self-employment, when do I need to notify HM Revenue & Customs of this?
Currently you only need to notify HMRC you are self-employed if your earnings from self-employment exceed £1,000.00 in the tax year.
If you exceed this figure, then to avoid a potential penalty you will have to register your self-employment no later than 5 October after the commencement of your second year of trading.
For example if you started self-employment the 1 August 2020, you will have to 5 October 2021 to notify HMRC.
Q: As a result of the coronavirus pandemic I am re-evaluating how I run my business and have decided to work from home. If I was to have a garden room built in my garden to use for working from home, Could I charge the cost of the build to the business? i.e. pay for it on the business?
You can put the expenses through the company for a garden office. This means that the company would own the office, it would be classed as an asset of the company and not you personally. However, if you were ever to sell your house, you would have to give some money to the company to effectively purchase the garden office from the company.
Q: . I’m thinking of buying an electric bike to commute to the office. I would only use it for business purposes. Can I buy it through my business and would doing so affect my benefits? Would the bike be treated as a company asset?
This would not be part of a Cycle to Work scheme, as there is no rental agreement or purchase option. Therefore, there would be no benefit in kind to record, irrespective of the cost of the bike. You can include it as a business asset and claim capital allowances. You do not need to keep records of your journeys. The key point is that the company would own the bike, which would be on loan to you as a director. However, make sure that the electric bike is generally available to any employees.
NATIONAL MINIMUM WAGE
Q: We provide accommodation for our employee’s, can we deduct any of the accommodation costs from the employee’s salary?
For NMW purposes the value of the provision of accommodation, is £8.20 per day or £57.40 per week. This covers rent, laundry, utility bills and furniture.
If you do not charge the £8.20 per day, you can add this ‘amount’ to the earnings paid per hour and as long as the average wage plus the daily allowance provided over the relevant pay period exceeds or equals the NMW then there will be no problem.
There are 2 areas where problems can arise though.
1) If you deduct above the rate of £8.20 per day. You will need to pay the employee a higher rate than the official NMW to take into account any additional accommodation cost you charge.
2) If the employee is paid solely according to the number of hours they work, (known as time work), then for absences for example, sickness or holidays), special rules apply whether you continue to pay them the full pay for the pay period or if you reduce the pay.
More in how to calculate the National Minimum Wage rates during absences can be found at https://www.gov.uk/government/publications/calculating-the-minimum-wage/calculating-the-minimum-wage#sleep-in-shifts.
Q: Following a household declutter I am selling personnel items online and at car boot sales, will I have to inform HMRC of the income?
Generally for personnel items, there would be no tax to pay, however if you are lucky to sell a personal possession for over £6,000.00 (for example jewellery), you will have to check if you need to pay capital gains on the item sold. There are a number of exemptions from the £6,000.00 rule (as long as they have not been used for business, for example, your personal car or personal items which are classed as having a limited lifespan of under 50 years, for example clocks and watches.
As ‘trading income’ over £1,000.00 does need to be declared to HMRC and HMRC do receive information from online selling sites, we would recommend you keep a written record of your sales, (particularly if they exceed this amount), as HMRC may require you to prove that you were selling just personal goods and not trading as a business.
Q: I have a haulage business. Can you tell me the best way to refund my employees their subsistence payments tax-free whilst they are out driving on business? They only drive in the UK.
There are a number of ways and it depends on 2 main factors are the employees only undertaking jobs where they return at home each night or do, they spend nights away.
Taking the first option, there are 2 ways which their expenses can be refunded, the first is by keeping a record and refunded the cost on production of receipts of any meals/drinks they have purchased.
The 2nd which involves considerably less paperwork is using the HMRC benchmark rates this pays £5.00 for one meal (minimum journey time 5 hours), £10.00 for 2 meals (10 hours or more) and where the journey continues after 8.00 p.m. either an extra £10.00 can be paid (£20.00 total), or if the journey exceeds 15 hours a total of £25.00 can be paid. The only paperwork required for this is evidence of the times the journey(s) were undertaken.
If the business journey starts before 6.00 a.m. then £5.00 can be paid for breakfast.
In regards to overnight journeys, there is a third option and this is the approved overnight subsistence allowance. This used to be straightforward however the rules in regards to operating this have been tightened in recent years, resulting in an increased administrative burden for HGV employers.
For these journeys the employer can pay either £34.90 if the HGV doesn’t have a sleeper cab, or £26.20 when there is a sleeper cab used. The problems with this is that to use these rates you need to obtain an approval notice from HMRC (renewed every 5 years) and you need to have a system in place where you periodically check that employees are incurring expenses for meals/drinks and that the payment is a reasonable sum of the subsistence expenditure.
As an employee could receive £25.00 per day anyway for been away over 15 hours, with a lot less paperwork for both the employer and the employee we would recommend this is the best system to use.
In addition, an extra £5.00 per night tax free to cover any incidental overnight expenses without the need for any records identifying the expenses incurred.
You can of course pay a sum higher than the benchmark rates, however the additional sums paid would be subject to tax and national insurance through the employees’ payroll.
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NOW IT'S YOUR TURN
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