Posts Tagged ‘TAX’

Do you use your car for business purposes

Thursday, May 25th, 2017

Many employees use their own cars to undertake journeys for their employers. In most cases, employers will pay for this. Generally, they will pay a rate per mile.

HMRC consider this type of mileage payment as tax exempt as long as the rate per mile paid does not exceed a certain amount. Currently, the tax-free rates for cars are:

  • 45p per mile for the first 10,000 business miles in a tax year, and
  • 25p per mile for any additional miles in excess of 10,000.

The same rates per mile apply if you use your own van for business travel.

It is also possible to claim up to 24p per mile for the use of a motorbike and 20p per mile for the use of a bicycle. In both these cases there is no break point at 10,000 miles – you can claim these rates however many business miles you undertake.

Complications arise if you are paid more or less than these agreed rates per mile.

Are you paid more than the approved rates?

If you are paid more, any excess will be treated as a benefit and you will have to pay tax on the difference. Generally, this will be adjusted on the tax code that your employer uses to work out your weekly/monthly tax deduction from salary/wages.

Are you paid less than the approved rates?

If you are paid less than the approved rates per mile, you can claim the difference as a deduction from your taxable income. It’s called Mileage Allowance Relief (MAR).

Consider Jane, who undertook 2,000 business miles for her employer, but was only paid 35p per mile. She can claim 2,000 times 10p (45p – 35p) or £200 against her taxable income.

You will need to advise HMRC of any claim in order to get your tax reduced. If you pay no tax (if your income is below the current personal allowance – £11,000 for 2016-17) there is no tax to recover so a claim is inappropriate.

Your employer can also pay you up to 5p per mile if you carry a passenger as part of your business trip. Again, any payment in excess of this rate will be taxable, but payments of less than 5p per mile cannot be claimed as tax relief.

Changes to taxable benefits from April 2017

Tuesday, May 23rd, 2017

The good news, the way in which benefits in kind are taxed – company cars, mobile phones, etc. – is unchanged for the tax year just ended, to 5 April 2017. Consequently, you can expect your tax position regarding any benefits you enjoy to be unchanged for 2016-17; as long as the benefits themselves have not changed.

Unfortunately, from April 2017, the taxman is tightening his grip, and many tax-free benefits will be taxed as if they were part of your salary – this will increase the combined income tax and National Insurance charges in many cases.

A number of benefits are not affected, and will continue to be classified as tax exempt. They are:

  • Cars with emissions between 0 and 75g CO2 per kilometre.
  • Childcare vouchers.
  • Workplace nurseries.
  • Employer pension contributions and pensions advice.
  • Cycles and safety equipment under the cycle to work scheme.
  • Intangible benefits that are not taxed, such as additional annual leave or flexible working hours.
  • Counselling and other outplacement services on termination.
  • Retraining courses.

It is fine for employers to continue providing other benefits after 5 April 2017, but there will no longer be any tax or National Insurance benefit in doing so – in other words, the benefits will be treated as if they were part of salary.

As always, when these changes occur there are transitional arrangements, a delay in the date on which the full tax and National Insurance charges will apply from. Where an arrangement is already in place on 6 April 2017, existing legislation will continue until the sooner of:

  • When the arrangements are varied, renegotiated, revised or renewed (including auto-renewal), and
  • 6 April 2021 for cars, vans, fuel, accommodation or school fees, or
  • 6 April 2018 for any other benefit.

What is the current tax position when dividends are taken

Monday, May 15th, 2017

One of the most useful ways for owner directors of small companies to reduce their overall tax and NIC costs is to pay themselves a reduced salary – just enough to maintain their State benefits entitlements – and take any balance of remuneration in the form of tax efficient benefits and dividends.

Government has changed the rules regarding the sacrifice of salary in exchange for benefits, so this particular tax planning strategy has shorter legs, however, the advantages of dividends as a tax efficient remuneration strategy remains; albeit with reducing benefits in future tax years.

Why is this?

Dividends are not a cost. They don’t reduce the amount of profit assessable to corporation tax. Rather, dividends are a distribution of profits after corporation tax has been deducted. Presently, company reserves available for distribution in this way have already suffered a potential 19% corporation tax charge. Accordingly, only 81% remains. This can be retained to finance future investment, or accumulated as a rainy-day fund to see you through more difficult trading periods, or it is available to distribute to shareholders as dividends.

Consequently, the withdrawal of dividends creates no tax consequences for the company, but it can create income tax bills for shareholders.

For 2017-18, the following rules apply. Shareholders will pay:

  • No tax on the first £5,000 of dividends received from all sources.
  • 7.5% tax on any dividends that form part of their basic rate band.
  • 32.5% tax on any dividends that form part of their higher rate band, and
  • 38.1% tax on any dividends that form part of their additional rate band.

If the missing parts of the Finance Bill 2017 are reintroduced after the June election, the £5,000 tax-free allowance is being reduced to £2,000 from April 2018.

The arguments in favour of the low salary high dividend approach for owner directors of small companies is well known and in most cases, an appropriate, and acceptable, tax planning strategy. Unfortunately, every person’s tax affairs are unique, and whilst the generalisations made above hold good for most shareholder directors, what is less clear – and should not be generalised – is the best-fit strategy to suit your particular circumstances.

The tax regime for dividends looks to be hardening in future years, so if you haven’t discussed your options recently, a conversation is probably overdue; and of course, we can help.

Finance Bill reduced

Thursday, May 4th, 2017

In order to ensure that the Finance Bill 2017, introduced March 2017, is passed before the impending general election, huge chunks of the original, published bill have been removed. In the national press this has been referred to as a “wash-up”.

Significant legislation has been side-lined in the process. For example, the following charging provisions have been removed:

  1. Rules to introduce the further digitisation of tax payer records by requiring that certain sectors of the self-employed will need to upload quarterly data to HMRC from April 2018, all unincorporated businesses by April 2019. The so-called, Making Tax Digital processes.
  2. The reduction of the tax-free dividend allowance from £5,000 to £2,000 from April 2018.
  3. Many of the anti-avoidance, counter legislation changes.
  4. The reduction in the pensions money purchase allowance.

The national press is keen to speculate that some or all of these removed clauses will not be reintroduced after the election. Much will depend on who wins the election, but if Mrs May re-enters Downing Street, a second Finance Bill for 2017, to represent the missing clauses, seems likely.

Like so much in politics these days, we will have to wait until the ink has dried on the voting slips, and the count completed, before the re-introduced legislation or new tax changes are considered.

Business owners are to some extent in limbo as the Making Tax changes, although heavily promoted by HMRC, are now without charging provisions in the Taxes Acts. Many businesses, and their advisors, are presently trialling the electronic upload of data to HMRC, so it is difficult to see that this entire raft of legislation will be permanently withdrawn. We will have to wait and see.

Tax Diary May/June 2017

Tuesday, May 2nd, 2017

1 May 2017 – Due date for Corporation Tax due for the year ended 31 July 2016.

19 May 2017 – PAYE and NIC deductions due for month ended 5 May 2017. (If you pay your tax electronically the due date is 22 May 2017)

19 May 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2017.

19 May 2017 – CIS tax deducted for the month ended 5 May 2017 is payable by today.

31 May 2017 – Ensure all employees have been given their P60s for the 2016-17 tax year.

1 June 2017 – Due date for Corporation Tax due for the year ended 31 August 2016.

19 June 2017 – PAYE and NIC deductions due for month ended 5 June 2017. (If you pay your tax electronically the due date is 22 June 2017)

19 June 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2017.

19 June 2017 – CIS tax deducted for the month ended 5 June 2017 is payable by today.

Tax free capital gains

Wednesday, April 19th, 2017

Is there such a thing as a tax-free capital gain? In fact, there is… Every UK resident tax payer is allowed to make tax-free gains of up to £11,300 during the current tax year, 2017-18.

Additionally, you can sell personal possessions and make a gain of up to £6,000 without paying capital gains tax (CGT). This includes a sale of the following items:

  • jewellery
  • paintings
  • antiques
  • coins and stamps
  • sets of things, e.g. matching vases or chessmen

You’ll need to work out your gain to find out whether you need to pay tax.

Finally, you won’t need to pay CGT on disposals of:


  • Gifts to your husband, wife, civil partner or a charity
  • Your car, unless you have used it in your business
  • Anything with a limited lifespan, e.g. household furniture
  • Gains on the sale of ISAs or PEPs
  • Sale of UK government gilts and Premium Bonds
  • Betting, lottery and pools winnings

And your home can be sold free of any CGT consideration as long as you have not let part the property at any time during your ownership, or you have not elected for a second property to be considered your principal private residence for tax purposes during the same period.

Further considerations to bear in mind:

  • When you inherit an asset, Inheritance Tax is usually paid by the estate of the person who’s died. You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset.
  • You may have to pay Capital Gains Tax even if your asset is overseas. There are special rules if you’re a UK resident but not ‘domiciled’ and claim the ‘remittance basis’.
  • You have to pay tax on gains you make on residential property in the UK even if you’re non-resident for tax purposes. You don’t pay Capital Gains Tax on other UK assets, e.g. shares in UK companies, unless you return to the UK within 5 years of leaving.

Utilising tax losses

Tuesday, April 11th, 2017

We have listed below a few of the ways you can make best use of tax losses. Generally speaking, a tax loss arises when a claim for expenses and other allowances (for example capital allowances for equipment purchases) exceeds the income of the relevant trade.

Many losses arise as a direct result of a difficult period of trading. Accordingly, the loss has in most instances reduced your business working capital and in particular your cash flow.

If possible, it is a good idea to utilise these losses as quickly as possible so that any recovery of tax already paid, generally when trading was better, can be recovered to help re-establish cash flow. The remainder of this post sketches out the choices available.

Ongoing trade losses

These losses can be used in a number of ways:

  • You can set losses against income, or possibly against capital gains, of the same year or an earlier tax year.
  • You can set-off against profits of the same trade in future years.
  • You can set-off against income from a company to which you transferred your trade.

Not all losses may be claimed in all of these ways and sometimes the amount of loss you claim is restricted or limited.

Terminal losses

These arise when a trade finishes and makes a loss in the final period of trading. It is possible to make a claim for losses in the final 12 months of trading to be used in the tax year that you make the loss or the previous three tax years.

There are caps on the amount of loss you can utilise in any one tax year. And care should be taken when making claims to ensure that you do not lose entitlement to your personal tax allowance when making a claim.

If in doubt seek professional advice.

Dividend tax set-back

Thursday, April 6th, 2017

The final matter we want to showcase for this month is the proposed reduction in the dividend allowance from April 2018. At present, shareholders with dividend income below £5,000 will pay no Income Tax on their dividend income. From April 2018, Mr Hammond looks set to reduce this to £2,000.

The average dividend yield for FTSE 100 shares is anticipated to fall to 3%. Based on this rate of return, investors would need a portfolio amounting to some £167,000 to create an annual dividend income of £5,000. From April 2018, only £67,000 would create tax-free income if the allowance drops to £2,000.

Affected investors should therefore consider other tax advantages options, including ISAs. From April 2017 the ISA limit is creased to £20,000.

Shareholders of non-listed private companies will face a tax increase due to this change. The present advantage posed by the low salary high dividend approach to profit extraction will still apply, but the overall Income Tax due will increase from April 2018.

Combined with changes to the taxation of benefits in kind, shareholder directors of smaller companies would be advised to revisit tax planning options for 2018-19.

One week to go

Thursday, March 30th, 2017

Next week sees the end of the 2016-17 tax year. On the 6 April 2017, any action you take to minimise your tax liabilities for 2016-17 will be largely ineffective. So what, if anything, can you still action this week?

Capital gains tax (CGT)

The amount of tax free gains you can make during 2016-17 is £11,100. This exempt allowance is available to all UK resident tax payers, accordingly, married couples and civil partners both qualify.

If you have no gains chargeable to CGT thus far during 2016-17, there is still an opportunity to crystallise gains during this coming week, up to the annual exemption limit, and no tax will be payable. For example, if you have a shareholding that you have been considering for disposal, and you could sell a sufficient quantity of shares before 6 April 2017, the disposal would utilise your allowance without creating a tax liability.

The important matter to note is that this annual exemption is lost if you don’t use it; it cannot be carried forward and used in later years.

Inheritance tax (IHT)

There are a number of annual reliefs that you can use without creating a chargeable event for IHT purposes. For example, the exempted annual gifts you can make are:

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

Small gifts up to £250

You can give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.

Company car users

If your employer pays for your private fuel this will create a fairly significant income tax charge for 2016-17. You may save money if you calculate the cost of the fuel provided and reimburse your employer. For 2016-17, you need to do this before 6 April 2017. (For 2017-18, the rules are being relaxed slightly and you will have until 6 July 2018 to make an equivalent reimbursement for 2017-18).

To make the calculation you will need your private mileage for 2016-17 and multiply this by the advisory fuel rate for your vehicle. These range from 7p to 22p per mile. See the published list at

These are just a few of the actions you could take to minimise your tax payments during what’s left of 2016-17. If you are unsure what your options may be, please call, we would be delighted to help.

New childcare funding choices

Tuesday, March 28th, 2017

The government have launched a new website aimed at parents who may be able to claim for support with childcare costs.

The web address is

How Tax-Free Childcare works

Working parents will be able to apply, through the childcare service, to open an online childcare account. For every £8 that families or friends pay in, the Government will make a top-up payment of an additional £2, up to a maximum of £2,000 per child per year (or £4,000 for disabled children). This top up is added instantly and parents can then send electronic payments directly to their childcare providers.

All registered childcare providers – whether nannies, nurseries or after school clubs – can sign up online now to receive parents’ payments through Tax-Free Childcare. Once childcare providers have signed up they will appear on the Childcare Provider Checker. This allows parents to check whether childcare providers have already signed up for Tax-Free Childcare.

How 30 hours’ free childcare works

Eligible parents will be able to apply online through the childcare service. They will receive a code – this will allow parents to arrange their childcare place ahead of September 2017. Parents can take their code to their provider or council, along with their National Insurance Number and child’s date of birth. Their provider or council will check the code is authentic and allocate them a free childcare place.

Parents can quantify the amount that they may be able to claim using the childcare calculator at

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