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When is a van a car?

Written by admin on . Posted in Company Car Tax, Employment Law, Law, Tax. No Comments on When is a van a car?

The tax treatment of cars and vans is quite different, with van classification far more beneficial from both an employer and employee perspective. However, the distinction is not always clear-cut, especially where vans have been modified to turn them into multi-purpose vehicles.

In what is now being referred to as the “Coca Cola van case”, the Court of Appeal has ruled that three modified crew-cab vehicles provided by Coca-Cola to its employees, who used them privately, are cars rather than vans, despite the vehicles having the outward appearance of a van.

Modification

The three vans in question were panel vans modified with a second row of seats behind the driver, turning them into crew cabs. With two of the vehicles, the additional seats could only be removed with tools. For the other vehicle, the seats were removed during working hours.

Primarily suited

For benefit purposes, classification as a van depends on a vehicle being primarily suited to the carrying of goods.

The Court of Appeal’s view was that the modifications had transformed the three vans into multi-purpose vehicles, equally suitable for carrying either goods or passengers. Not being primarily suited to the carrying of goods, the vehicles therefore did not qualify as vans.

What a vehicle looks like on the inside overrides its outward appearance.

The decision could also see crew cabs reclassified for capital allowance purposes (so no annual investment allowance), but still considered vans for VAT purposes provided they can carry a payload of one tonne or more.

Implications

Employers should be aware of the tax implications of providing similar modified crew cab vehicles where private use is permitted.

The decision will mean a higher benefit charge for employees, and additional class 1A NICs for employers. The change should be applied from 2020/21 onwards, and also potentially backdated to 2018/19 (when the case was heard at the Upper Tribunal).

HMRC guidance on the difference between cars and vans for car benefit purposes can be found here .

Photo by Paul Hanaoka on Unsplash

 

HMRC targets employers over CJRS claims

Written by admin on . Posted in COVID-19, Employment Law, Law, Tax. No Comments on HMRC targets employers over CJRS claims

With reports of two-thirds of furloughed employees continuing to work during the Covid-19 lockdown, despite the initial prohibition of work as an explicit condition of furlough, it is no surprise that HMRC has already written to 3,000 employers it believes may need to repay some or all of the grant they have received under the Coronavirus Job Retention Scheme (CJRS).

Until 30 June, it was a condition of the scheme that furloughed employees cease all work in relation to their employment. Flexible furlough was brought in from 1 July, so HMRC are likely to only pursue the most blatant cases of employees continuing to work, such as where an employer instructed them to do so.

Incorrect claims

HMRC will also be concerned where an employer has:

  • Claimed more grant than they are entitled to, for example, where a claim is based on inflated wage figures.
  • Claimed the grant despite not meeting the conditions such as including ineligible employees.
  • Not passed the grant on as wages to the furloughed employees.

HMRC’s target is those who have deliberately defrauded the system. However, even if they believe no mistake has been made in their claims, any employer contacted by HMRC should respond to the enquiry.

Amnesty

An employer can repay any overpaid amount of CJRS grant without incurring a penalty provided HMRC is notified within 90 days of the later of:

  • 20th October 2020;
  • the date the grant was received, or
  • the date when circumstances changed so the employer is no longer entitled to keep the grant.

Failure to meet the deadlines could result in a minimum penalty of 30% of the grant improperly claimed, with a potential maximum penalty of 100%.

The overpaid amount may be recovered by HMRC making an assessment. Otherwise, the employer will be subject to a tax charge payable on the usual tax due dates for an individual or a company.

Latest HMRC guidance on eligibility for the furlough scheme can be found here.

Photo by Markus Winkler on Unsplash

Who pays capital gains tax?

Written by admin on . Posted in Capital Gains Tax. No Comments on Who pays capital gains tax?

HMRC has published some interesting research into capital gains tax (CGT).

Here are three CGT questions for you to ponder:

  1. How many individuals made enough capital gains in 2018/19 to face a CGT bill?

The answer is just 256,000, according to the latest provisional figures from HMRC – 9,000 fewer than in the previous tax year. Viewed another way, that is less than 1% of all income taxpayers. However, over the 10 years since 2008/09 the number of CGT payers has nearly doubled.

Now you know that individual CGT payers numbered only about a quarter of a million, try the next question…

  1. How much tax did they have to pay in total?

The answer is £8,805m, which is over £3,400m more than was collected in inheritance tax (IHT) in 2018/19. IHT and CGT are both capital taxes, often levied on the same asset, albeit usually at different times. Yet CGT attracts much less criticism than IHT, which has been rated as the UK’s most-hated tax.

With the information on how many taxpayers and how much tax was collected, the third question might look easy…

  1. What proportion of that £8,805m was paid by the top 5,000 CGT payers?

The top 5,000 – about 2% of all CGT payers – contributed 54.4% (£4,789m) of all CGT paid. They all had gains of at least £2,000,000. Expand the band a little and 18,000 individuals, with gains of at least £500,000, accounted for just under three quarters of the CGT paid.

The answers to these three questions highlight two points which give pause for thought, one to the Chancellor and the other for investors:

  • As with some other personal taxes, the amount raised from a small number of the wealthiest individuals is a significant proportion of the total. This means that the results of increasing the tax rate(s) will heavily depend upon how those individuals react. If some of them decide not to realise their gains, the overall tax take could fall rather than rise.
  • The annual CGT exemption is £12,300 in 2020/21. Investment returns that are received as capital gains are usually taxed more lightly than those received as income. The relatively small number of taxpayers is a reminder of the current generosity of the exemption.

There. Bet that made you think?

Photo by Kelly Sikkema on Unsplash

 

A new season, a new Budget

Written by admin on . Posted in Budget. No Comments on A new season, a new Budget

As autumn arrives, attention is turning to possible measures in the next Budget.

Yet another extraordinary turn for 2020, normally seen only in an election year, will be upon us soon: the second Budget of the calendar year. The last Budget, on 11 March, now belongs to a different (pre-pandemic) era. Back then the Chancellor announced £12bn of “temporary, timely and targeted measures to provide security and stability for people and businesses” in response to Covid-19.

To put it mildly, matters have moved on since then. The latest estimate from the Office for Budget Responsibility (OBR) is that the direct effect of government decisions, in terms of increased spending and tax reductions, will amount to £192.3bn in 2020/21. That is not the end of the story because the other side of the government balance sheet has been hit by lower tax receipts due to the recession.

So far, the Chancellor, Rishi Sunak, has won plaudits for his do-whatever-it-takes approach to support the economy, but the next Budget could be less well received as he begins to address the financial consequences of his actions. The current state of the UK economy, which shrunk by 20.4% in the second quarter of the year, makes it highly unlikely that Mr Sunak will reveal any significant direct tax increases in his Autumn Budget. However, he may well start the long process of book-balancing by reducing some tax reliefs and exemptions. As Parliament resumed in September, the Chancellor was already trying to quell backbench unease while simultaneously talking about “short term challenges” and a plan “to correct our public finances”.

There are several obvious revenue-raising candidates where the government is already in the midst of consultation: inheritance tax (IHT), tax relief on pension contributions, capital gains tax (CGT) and yet another review of business rates. Lurking in the background is the possibility of some form of wealth tax, although this might just be cover for the alternative of raising more revenue from IHT and CGT.

The date for the Budget had not been announced at the time of writing, although the present expectation is that it will be in November. Ahead of the Chancellor returning to the despatch box, you should review whether any plans you have – such as realising capital gains – need to be brought forward.

Photo by Autumn Mott Rodeheaver on Unsplash

 

Defining ‘adversely affected’ for the self-employed

Written by admin on . Posted in COVID-19, Law, Self-Employed, Tax. No Comments on Defining ‘adversely affected’ for the self-employed

Many self-employed workers will have already claimed their second, and final, Self-Employment Income Support Scheme grant, but otherwise have until 19 October to do so. A key condition is that the business must have been ‘adversely affected’ by Covid-19 on or after 14 July 2020, and HMRC has provided guidance as to what this means.

Timing

Since applications will close on 19 October, the adverse effect must occur before then. However, if a business subsequently recovers, eligibility will not be affected.

Amount

There is no minimum threshold over which income or costs need to have changed, so just a small drop in income or an increase in costs will meet the ‘adversely affected’ requirement. Of course, the change must be Covid-19 related.

There are several ways in which Covid-19 could impact on income and costs. For example:

  • Not being able to work due to shielding, self-isolation, sickness or having caring responsibilities;
  • Having to scale down or stop trading due to supply chain interruptions, fewer customers or clients, staff being unable to work or having contracts cancelled; and
  • Additional costs incurred to buy protective equipment to meet social distancing rules.

A business is still classed as ‘adversely effected’ should contracts lost prior to 19 October be subsequently revived.

Records

You need to have records of how and when the business has been adversely affected. This should be fairly straightforward and will often just be a case of noting relevant dates when you were unable to work or trade or saving invoices for additional costs.

As regards income, retain any correspondence for cancelled work. A comparison to the same period for previous years may be needed if a business is open but has fewer customers.

The ‘adversely effected’ requirement will not be met if income has risen compared to last year, even if income would have been even higher if not for the Covid-19 pandemic.

Full details of HMRC guidance can be found here,

Photo by Andre Benz on Unsplash

Coping With Brown Envelope Syndrome

Written by admin on . Posted in COVID-19, Law, Tax, Uncategorized. No Comments on Coping With Brown Envelope Syndrome

It’s estimated roughly 100,000 people a year enter one form of formal personal insolvency or another and Covid-19 is likely to significantly increase this figure. This article is written in the hope that it may provide comfort to some and encourage others to avoid the potholes the content deals with.

Every so often a new client is referred to me for assistance with a challenge in dealing with debt owed to HMRC, and typically, I get the introduction when HMRC’s Debt Management team has stepped in to either collect the unpaid taxes or refer the matter for enforcement action which mostly means the matter has escalated to the point of threats of a statutory demand, bankruptcy proceedings or winding up petition.

There are usually, two main reasons why escalation kicks in: either HMRC is playing hard-ball and not giving the client time to settle the liability or more often than not; the client has suffered from what I like to call “Brown Envelop Syndrome” or BES for short. Not a new term, I’m sure. A quick search of googles reveals tons of articles on this subject; I’m probably not discussing anything new here, but I’ll continue anyway as this is a live and topical issue for many.

Some of you out there may no sympathy for BES sufferers whatsoever, after all, they earned (or in the case of PAYE and VAT, collected) the money and should (when due) pay what is owed. I don’t disagree with you on this but, having dealt with scores of ‘sufferers’, I can assure you this is a real (if not medically diagnosed) ailment – suffered by hundreds of thousands of individuals across the UK. And, like COVID-19, it has no respect for gender, race, religion, politics, football club or anything else we human beings use to differentiate ourselves from others.

The ailment starts with the receipt of, and you will not be surprised to hear this: the arrival of a brown envelope.

Approaching the floor mat with trepidation, then separating out the brown envelope(s): the former opened almost immediately, the latter either opened at a future date or in some instances, not at all. The problem with BES is that despite ignoring the content of the envelope, and wishing the problem will go away, the fact of the matter is credit card bills, HMRC demands, utility bills etc don’t go away because we ignore them. They only attract further demand, the accrual of interest, the arrival of debt collectors, or threats of county court judgements.

Back to my clients – sometimes an individual, often a company. Having finally opened the envelopes and read through the various correspondence from the creditor, I break the bad news to the client on the quantum of the debt owed, and this is then followed a conversation on how best to resolve the matter is had, after which I am engaged to correspond with the creditor to put in place a repayment arrangement, stop any enforcement action and provide my client with the peace of mind in knowing that the tax liability is not going to lead to a county court judgement, an adverse credit rating or insolvency (personal or commercial).

So, if you are a BES sufferer and have a pile of brown envelopes stashed away somewhere. Do not panic, and most importantly: do not ignore them. Set aside your dread and trepidation and go retrieve them, then give me a call on 01925 937 499, or email me at femi@lofusstowe.com or, if you’re really feeling brave; book an initial consultation with me at: https://calendly.com/femiogunshakin

 

Femi joins Tax Advisers Network

Written by admin on . Posted in Tax. No Comments on Femi joins Tax Advisers Network

I am proud to announce that I have been accepted as a member of this prestigious and long-standing network of independent tax advisers.

The website www.FindATaxAdviser.online is highly ranked and used by thousands of visitors each month to source specialist tax advisers across a wide range of tax issues and topics.

Members like me provide tax support to accountants, business people and anyone else needing independent advice, guidance and expertise.

The 3 most popular areas on which I am asked to advise are: tax disputes/investigations, tax consultancy and time-to-pay arrangements

You can find me on the website here

 

Taxation of electric vehicles (from 6 April 2021)

Written by admin on . Posted in Company Car Tax, Tax. No Comments on Taxation of electric vehicles (from 6 April 2021)

With the government announcing there will be no van benefit charge for fully electric company vans from 6 April 2021, you might be forgiven for thinking that having a company electric vehicle avoids any tax cost. However, this is not quite always the case.

You can currently be subject to a van benefit charge if you have the use of a company van which is also used privately. Unlike company cars, the definition of ‘private use’ for a company van does not include your normal commute to work.

Over recent tax years, the fully electric van benefit charge has been set at an increasing percentage of the full charge, and for 2020/21 it is 80% (£2,808) of the full amount. The exemption to be introduced from 6 April 2021 will apply in all circumstances.

Company cars

Although fully electric company cars escape any car benefit charge for the current tax year, the percentage charge will be set at 1% next year, increasing to 2% for 2022/23. This will still make fully electric company cars very tax effective.

For a higher rate taxpayer, the monthly tax cost of a Tesla Model S, for example, with a list price of £96,000 will be just £32 in 2021/22 and £64 a year later.

Fuel benefit

For benefit purposes, electricity is not treated as a fuel. This means there can be no fuel benefit for a fully electric vehicle, even if the employer installs a vehicle charging point at the employee’s home or provides a charge card to allow access to commercial or local authority charging points.

However, a benefit will arise if the employee charges their company car at home and is then reimbursed in excess of the 4p per mile advisory electricity rate for business travel. However, this advisory rate cannot be used for company vans.

Check here to see if tax is payable on the cost of charging an employee’s electric car.

Photo by Michael Marais on Unsplash

Expanding digital tax strategy

Written by admin on . Posted in Law, Tax. No Comments on Expanding digital tax strategy

Details of an ambitious ten-year strategy to create a tax system fit for the 21st century have been released alongside Finance Bill legislation. With the rapid growth of information and communications technologies, the aim is to have a fully integrated digital tax system able to support taxpayers across the whole range of their needs.

There are three elements to the government’s strategy, outlined in the July report.

Making tax digital

At present, making tax digital (MTD) applies to businesses with a turnover above the VAT threshold of £85,000. These businesses are required to keep digital records and to file VAT returns using online software.

Recently announced plans will see MTD extended:

  • From April 2022, the VAT filing requirements will apply regardless of turnover.
  • From April 2023, MTD will apply to all taxpayers filing self-assessment tax returns where their annual business or property income exceeds £10,000.

Once self-assessment taxpayers are included within MTD, HMRC will have access to up-to-date, real time business information which is no more than four months old.

HMRC intends to expand its MTD pilot service from April 2021 to allow businesses and landlords to test the service well in advance of the requirement to join. A consultation later this year will look at how MTD is to be extended to limited companies.

Payment of tax

Although the report makes it clear the extension of MTD to self-assessment taxpayers will not initially see any change to when tax is paid, it then considers what might happen in the longer term. Tax payments could be brought into line with the increasingly real-time nature of tax reporting, with the change making it easier for many taxpayers and businesses to manage their cash flow.

Tax administration

Various suggestions are made under this heading. One very useful proposal is for the government to go ahead with a simplified registration process, so that a business need only register once with HMRC for all taxes.

With HMRC having had to quickly develop additional online systems and help for taxpayers during the Covid-19 pandemic, moving towards a more integrated, real time approach should make such interventions easier to manage in future. Help and support for MTD can be found on the .GOV site.

Photo by Scott Graham on Unsplash

Capital gains tax review new on the agenda

Written by admin on . Posted in Capital Gains Tax, Tax. No Comments on Capital gains tax review new on the agenda

The Chancellor has asked the Office of Tax Simplification to review capital gains tax (CGT).

Within a week of giving his Summer Statement, the Chancellor wrote to the Office of Tax Simplification (OTS) asking it to “undertake a review of CGT and aspects of the taxation of chargeable gains in relation to individuals and smaller businesses”.  The request was unexpected and prompted some press speculation that Rishi Sunak was beginning his hunt for extra tax revenue after the unprecedented spending on Covid-19.

CGT is certainly an interesting place to start:

  • The latest data from HMRC show that there were fewer than 300,000 CGT payers in 2017/18.
  • Nearly two thirds of the tax raised in that year came from 3% of CGT payers who made gains of £1 million or more.
  • Over half of the CGT payers either paid no income tax, or paid it only at the basic rate, as the graph below shows.

The main reason why CGT payers are such a rare breed is the annual exemption. For 2020/21 this allows up to £12,300 of net gains to be realised before any tax becomes payable. Even then, the maximum tax rate is 20% (28% for residential property).

At the last election, both the Labour Party and the Liberal Democrats called for gains to be taxed at full income tax rates and for the exemption to be cut to just £1,000 or abolished. The Conservative manifesto made no comment – CGT was not one of the taxes for which a rate freeze was promised.

Neither Mr Sunak nor the OTS has put any date on when the review might be published. However, the OTS has asked for all comments to be in by 12 October, so government proposals might emerge in the Autumn Budget, particularly if that Budget appears later in the year. There is a precedent for changing CGT rates part way through a tax year – as then Chancellor George Osborne did in 2010. With this in mind, a wise precaution could be to review your portfolio and consider whether you wish to realise any gains in the next few months, while the current generous CGT regime is in place.

Photo by Markus Spiske on Unsplash