Tax Free Incentive for Filing Payroll online
Q: I remember last year employers were offered a £250 tax free payment to file their end of year PAYE returns online. Is this still available for the 2005/06 tax year, and how do I register?
A: Yes, the Inland Revenue require small firms, by this it means firms with less than 50 employees, to start using online filing for their end of year forms P35 by the 2009-10 tax year. (returns due by 19 May 2010). However, to encourage employers to familiarise themselves with the process they introduced tax free filing incentives commencing in the 2004/05 tax year.
Even if you haven’t submitted online before, you can still take advantage of these payments, and if you file your PAYE end of year form P35 for the 2005/06 tax year, which is due by 19 May 2006 you will receive £250 tax free. Again, if you file online consecutively for the next three tax years will receive a further £150, £100 and £75.
To qualify for the payments the form must meet the Inland Revenue standards and you must therefore use an approved piece of software to file the forms electronically. For details of how to file online you should call us today on 0800 0523555.
Increased capital allowances on cars
Q: I am currently looking to purchase a new vehicle for my sole trader business. I have heard that there is an increased rate of Capital Allowances available if I bought a certain type of vehicle. Is this true?
A: Yes, there is an increased rate of 100% First Year Allowances available on electric cars or cars with C02 emissions of not more than 120g/km. The other conditions to qualify for this increased rate are that the car is "unused and not second hand" and is first registered on or after 17 April 2002 and the expenditure is incurred between 17 April 2002 and 31 March 2008.
New cars are "unused and not second hand." A car is unused and not second hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser or used as a demonstration car.
If you provide this vehicle to an employee to use privately they will receive a benefit in kind based on the list price when new of the vehicle, multiplied by 15% under current rates. However, in the recent budget, the chancellor announced that with effect from 6 April 2008, the employee will receive a reduced benefit in kind, as a new 10% appropriate percentage rate for company cars with CO2 emissions of 120g/km or below.
Your accountant will be able to provide you with further information on the make and model of vehicles that qualify for this allowance.
Correcting VAT errors
Q: I have noticed that there are a number of errors on the 4 Vat returns I completed for my Limited Companies previous VAT period. Due to these errors, I will have additional VAT to pay. How do I rectify the situation and will there be any penalties or interest to pay on this?
A: If the net errors total less than £2,000 you have the choice of using two methods to disclose the errors without being charged interest or penalties. You can voluntarily disclose these errors either by contact your local VAT Business Advice Centre in writing or by adjusting your VAT account and including the value of that adjustment in the next VAT return for the current period.
If the net errors total more than £2,000, you must inform your local VAT Business Advice Centre in writing of the errors. If you use this method, you must not make adjustment for the same errors on a later VAT return. Customs may also charge interest on any under declarations you disclose in this way.
Renting your home whilst working abroad
Q: I am going to work abroad for two years and rather than sell my house I am going to rent it out. I have not engaged an agent to act for me as I know the tenant, and they will be paying the rent directly to me whilst I am abroad. Are there tax implications I should be aware of on this rental income?
A: If a tenant pays rent of more than £100 a week (£5,200 per annum) to a non-resident landlord they must deduct basic rate tax from the landlord’s UK rental income and pay the tax to the Inland Revenue’s Accounts Office, Cumbernauld. Tenants who pay rent of £100 a week or less do not have to operate the scheme unless they are told to do so by the Inland Revenue. When working out the amount to tax, the tenant can take off tax deductible expenses that are incurred for the purposes of letting the property.
However, you can apply as the landlord on form NRL1 to the Centre for Non Residents for approval to receive your rental income gross. This is usually given if your tax affairs are up to date or you do not expect to be liable to UK income tax for the tax year. You will still however need to include this information on a UK self assessment tax return if you are sent one. For further information on the landlords and tenants responsibility see the information on www.hmrc.gov.uk/cnr website or contact your TaxAssist Accountant.
Benefit in Kind charge on Company Vans
Q: I work for a small delivery business and a take a van home after work. I don’t use the vehicle privately but just use it to get to the depot in the morning and back home at night. Will I have to pay any tax because of this?
A: The government changed the benefit in kind rules for company vans on 6 April 2005. From this date, employees will only pay tax on a company van made available to them for private use only if they actually use it for private journeys other than commuting. Previously, employees still had a benefit in kind charge applicable if they received any form of private use of the company van, including home to work travel.
The amount chargeable from 6 April 2005 is £500 if the van is under 4 years, and £350 if the van is over 3 years old. For an employee who pays tax at basic rate, this means they will pay additional tax of £110/£77 per year.
However, with effect from 6 April 2007 the amount for unrestricted private use will increase to £3,000, with an additional fuel scale charge of £500 if the employer pays for private fuel. This could mean that from the 2007/08 tax year, a basic rate taxpayer who has private use of a van with company fuel will pay tax of £770. Private use is classified as using the van to do the supermarket shopping or using the van for social activities outside of work.
Initially this will reduce tax for employees who have to take the company van home, but are allowed no further private use, or have insignificant private use. Examples of insignificant use include an employee who stops at a newsagent on the way to work or calls at the dentist on the way home.
Obviously from the 5 April 2007 the tax charge for private use of a van is much increased for employees who, unlike you, use the vehicle for more than just commuting.
So that you are not charged a benefit in kind you should keep mileage records relating to your van, have use of the van put into a contract of employment, and ensure you sign an agreement about the van use only being allowed for home to work travel.
New Pension Rules from April 2006
Q: I’m self-employed and never know the amount of my income until after the end of the tax year. Can I still carry back any pension contributions under the new rules? If not why not?
A: I’m afraid under the new pension rules that were introduced in the 2006 Budget, and commencing on 6 th April 2006, you will now not have the ability to carry-back contributions paid after the end of the tax year. This used to be a useful planning option for people in your situation who are unaware of their tax liability until after the tax year. Also, the basis year rules that allowed a contribution to be based upon the best earnings in the preceding five years has been removed.
An advantage of the new rules is the complicated structure of basing the allowable contribution on a percentage of earnings that vary with age has been removed, and replaced with new rules that allow you to contribute what you want, when you want subject to certain contribution limits.
You can contribute to a registered pension scheme and get tax relief on the lower of 100% of net relevant earnings or the annual allowance (2006/07 £215,000 rising to £255,000 in 2010/11). If you have no earnings in a year, or earnings are less than £3,600, you will be able to pay contributions with relief up to that amount. You should speak to your accountant to discuss your options and how the new rules will affect you.
PAYE Settlement Agreements
Q: I want to reward my employees for their hard work over the past year. I know if I pay them an end of year bonus I will need to account for income tax and national insurance through the PAYE scheme but I actually want to purchase my staff presents rather than cash. Do I still need to account for tax and national insurance on this, and is there a possibility that I could settle the liability on their behalf?
A: Unfortunately, if you purchase gifts for your employees each will receive a P11d benefit in kind based on the value of the assets or goods that you have gifted. The employees will be charged to tax but not national insurance, on the value of the gifts. The company will have to pay a class 1A National insurance at 12.8% on the market value of the gifts made.
As only the tax liability is payable by the employee, you can actually make a voluntary agreement with the Inspector of Taxes to meet the tax payable on the benefits in kind that you give to your employees. This is known as a PAYE Settlement Agreement (PSA). Once you have a signed agreement for a tax year, you do not have to enter the items covered on form P9D or P11D, operate PAYE on them, or assess NIC liability for included items which are liable for Class 1 or Class1A NIC.
You will actually pay Class 1B NIC on the items included in any PSAs, and meet the tax liability on the total amount of the gifts to your employees. This will result in your employees paying no tax on the gifts they have received.
VAT implications of Selling in Europe
Q: We are thinking of setting up a business which will involve selling our products in Europe. The best way to do this is to attend various trade fairs, especially in the European Union. Will we be able to claim back the equivalent VAT in the various state of the EU on our VAT return?
A: Only VAT charged by UK companies can be claimed on your UK VAT return. In order to claim the VAT paid in various member states, you will have to submit a claim form in the country that you incurred the expense. A special form must be completed in that country’s language and must be submitted with the original invoices. There is a useful H.M Customs & Excuse booklet, VAT Notice 723 that covers the procedures.
If you are dealing with a number of EU countries, you may find it advantageous to register in one of them and thus, subject to certain conditions, claim back the VAT for all the countries. You need to be aware that the countries involved do have differing rules on what VAT can be claimed on, again leaflet 723 will give you further guidance.
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By TaxAssist Direct Ltd. Both answers and advice are offered strictly on the basis that no legal liability is created thereby. Personal circumstances may vary and TaxAssist Direct Ltd advises that individuals seek personal professional advice in all situations.
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