Commuting to work

Posted on 7th April 2022 by Solutions Accountancy

As a general rule, there is no tax relief for ordinary commuting. The term 'ordinary commuting' is defined to mean travel between a permanent workplace and home, or any other place that is not a workplace. Case law has also confirmed that travel between home and a permanent workplace is ordinary commuting even where home is also a workplace.

In practical terms this means that there is no deduction for the cost of travel between an employee's permanent workplace and:

  • an employee's home (with limited exceptions), or
  • any other place the employee visits for reasons that are not related to the employment, or
  • any place at which the employee performs the duties of another employment.

Any journey between an employee's permanent workplace and home or any other place at which the employee's attendance is not necessary for the duties of that employment, is ordinary commuting for which no deduction is due.

The rules are different for temporary workplaces where the expense is allowable. A workplace is defined as a temporary workplace if an employee goes there to perform a task of limited duration or for a temporary purpose.

There are specific exemptions from tax for works bus services and subsidies paid to public bus services as well as for the provision by an employer of bicycles and cycling equipment in order to encourage environmentally friendly transport between home and work.

Scammers target Self-Assessment taxpayers

Posted on 31st March 2022 by Solutions Accountancy

Fraudsters are continuing to target taxpayers with scam emails, texts and calls following the deadline for submission of Self-Assessment returns for 2020-21.  In fact, over the last year, HMRC received more than 570,000 reports about suspicious HMRC contacts. 

A number of these scams purport to tell taxpayers they are due a fake tax rebate or tax refund from HMRC and ask for bank or credit card details in order to send the fake tax refund. The fraudsters use various means to try and scam people including making contact by phone calls, texts or emails. In fact, fraudsters have been known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

HMRC’s has a dedicated Customer Protection team to identify and close down scams. The team seeks to identify suspect emails before they reach the taxpayer. Since 2017, these technical controls have prevented 500 million emails from reaching taxpayers, but the problems continue as the fraudsters adapt and try new methods to evade capture.

Taxpayers should also try and recognise the signs of fraud to avoid becoming victims themselves. For example, genuine organisations like HMRC and banks will never contact customers asking for their PIN, password or bank details.

If you think you have received a suspicious email claiming to be from HMRC you are asked to forward the details to phishing@hmrc.gov.uk. Suspect texts should be sent to 60599 and there is a form on GOV.UK that can be used to report suspicious phone calls. If you have suffered financial loss, you should contact Action Fraud on 0300 123 2040 or use their online fraud reporting tool.

On your bike – cycle to work exemption

Posted on 31st March 2022 by Solutions Accountancy

The Cycle to Work scheme was introduced over 20 years ago to help promote the use of healthy ways to commute to work using an environmentally friendly mode of transport.

The scheme allows employers to provide bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme must be offered to all employees and the bike must be used mainly for qualifying journeys i.e., between home and work. However, pleasure use of the bike is also allowed. Where the scheme conditions are satisfied employees can benefit from a significant tax and National Insurance Contributions (NICs) reduction. In addition, there is no employer liability to NICs.

The cycle to work benefits only relate to the loan period, however, it is commonplace for an employer or a third-party bicycle provider to offer the employee the bicycle / equipment they have been using for sale after the loan period has ended. The bike may be offered to the employee for sale at a fair market value, but this must be done as a separate agreement.

Employers of all sizes including those in the public, private and voluntary sectors are eligible to take part in the scheme to provide (technically loan) bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme can also be used for electronic bikes known as e-bikes.

Resolving commercial rent debts

Posted on 31st March 2022 by Solutions Accountancy

A new law that seeks to resolve certain remaining commercial rent debts accrued during the pandemic received Royal Assent on 24 March 2022. The new law introduces a legally binding arbitration process to resolve certain outstanding commercial rent debts related to the pandemic. It is hoped that this new law will help resolve disputes about certain pandemic-related rent debt and help the market return to normal as quickly as possible.

The law applies to commercial rent debts of businesses in England and Wales including pubs, gyms and restaurants which were mandated to close, in full or in part, from March 2020 until the date restrictions ended for their sector. Debts accrued at other times will not be in scope.

Before using the arbitration process, commercial landlords and tenants are strongly encouraged to negotiate agreements using the Commercial rents Code of Practice that was published in November 2021. The Code of Practice applies across the UK.

The general moratorium on commercial evictions and restrictions on Commercial Rent Arrears Recovery (CRAR) in England and Wales also ended on 24 March 2022, but eligible firms remain protected for the next 6 months during which arbitration can be applied for or until the conclusion of an arbitration.

The moratorium provided firms with breathing space to negotiate how to address the cost of commercial rent debts caused by the pandemic before the new law came into place.

Self-employed NIC changes

Posted on 31st March 2022 by Solutions Accountancy

In the recent Spring Statement, a significant increase in the National Insurance Threshold from £9,880 to £12,570 was announced. This increase will see the alignment of the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570. This change is effective from 6 July 2022.

The changes will come into effect from 6 July to allow payroll software developers and employers to update their software.

The self-employed pay NICs on an annual basis and at the end of the tax year means that the NIC threshold for Class 4 NICs will rise to £11,908 in 2022-23 before being fully in sync with the personal allowance of £12,570 2023-24. The £11,908 figure is calculated using 13 weeks of the NIC threshold allowance at £9,880 and 39 weeks of the threshold at £12,570. It has also been confirmed that the NIC and Income Tax thresholds will remain aligned going forward.

Further, for 2022-23, the point at which the self-employed start paying Class 2 NICs will increase to £11,908. This means that those with profits between the Small Profits Threshold (£6,725) and the LPL (£11,908) will not need to pay Class 2 NICs from April 2022 but will still be able to access entitlement to contributory benefits.

What is a wasting asset?

Posted on 31st March 2022 by Solutions Accountancy

A wasting asset is an asset which has a predictable life of 50 years or less. HMRC’s guidance is clear that when you dispose of an asset, you are required to estimate its predictable life based on the nature of the asset and your intended use of the asset when you originally acquired it.

Certain chattels are always treated as wasting assets, for example, plant or machinery. Such items will always be wasting assets. This rule applies no matter what the actual life of the item of plant or machinery proves to be.

The residual or scrap value of a wasting asset is the amount it will be worth at the end of its predictable life. Again, this has to be estimated by reference to the position as it was when the asset was acquired by the person making the disposal.

The owner of a wasting asset may incur additional expenditure which enhances the value of the asset. This will not affect the predictable life of the asset but may alter its scrap or residual value.

When does a partnership exist?

Posted on 31st March 2022 by Solutions Accountancy

A partnership is a relatively simple way for two or more persons to set up and run a business together with a view to making a profit. Partnerships can take many forms. Legal persons other than individuals can also be partners in a partnership.

There are two main types of partnership, a conventional one with two or more partners in the business. There is also a limited liability partnership or LLP, this more complex structure provides partners with the protection of limited liability, just as with a company.

HMRC’s manuals are clear that a partnership may exist without a written agreement or on the basis that a later written agreement gives formal expression to an existing oral agreement. The date of the formation of the partnership remains the date on which the terms of the oral agreement were implemented.

Where, however, a written agreement creates a partnership where none exists already, it is effective only from the date of execution and implementation of the written agreement. It has no retrospective effect.

Inheritance Tax-free gifts reminder

Posted on 24th March 2022 by Solutions Accountancy

We wanted to remind our readers of the Inheritance Tax (IHT) implications of making cash gifts during the current 2021-22 tax year that will end on 5 April 2022.

You can give away up to £3,000 worth of gifts each tax year. This is known as your annual exemption. Any unused part of the annual exemption can be carried forward, but only for one year. So, if you didn’t make any cash gifts in 2020-21, you could gift up to £6,000 before the end of this tax year.

There are also generous exemptions for normal gifts made out of your income, but you must be able to maintain your standard of living after making the gift. There are also reliefs available for wedding or civil ceremony gifts. You can gift up to £1,000 per person with higher limits of £2,500 for a grandchild or great-grandchild, £5,000 for a child.

You can also give as many small gifts of up to £250 per person as you want during the tax year but only if you haven’t used another exemption on the same person. There is no IHT to pay on lifetime gifts between you and your spouse or civil partner as long as you both live permanently in the UK.

Other gifts, outside these limits, count towards the value of your estate and should be carefully considered.

Employer company car considerations

Posted on 24th March 2022 by Solutions Accountancy

If you are thinking about purchasing a company car through a limited company, there are many issues that need to be considered. In this short article we will point out some of the main issues to be aware of, but it is important to properly research this area and weigh up all the available options.

The tax treatment of the purchase will depend on how the purchase of the company car is financed.

The purchase of a company car will be classed as a fixed asset and tax relief will be obtained by way of capital allowances. The amount of capital allowances that can be claimed will fall within one of the following 3 categories:

  • 100% First Year Allowance. New and unused electric or zero emission cars emission cars benefit from 100% capital allowances. This means that 100% of the cost of the car can be deducted in the first year.
  • 18% of the car’s value (main rate allowances). This effectively means that 18% of the purchase price can be deducted from your profits each year before you pay tax.
  • 6% of the car’s value (special rate allowances). This effectively means that 6% of the purchase price can be deducted from your profits each year before you pay tax.

It is clearly demonstrated from the percentages above that the government is encouraging employers to choose more fuel-efficient vehicles by offering a tax incentive.

The company will also be liable to pay Class 1A NICs in respect of the provision of a company car based on the car benefit charges. Employers currently pay Class 1A NICs at the rate of 13.8%. This is increasing to 15.05% from 2022-23. There will be additional Class 1A NICs due where the company pays for private use of fuel. 

The employee benefitting from the use of a company car will also face additional tax costs from the use of their company car. This depends on the rate of tax they pay, the value of the car and its C02 emissions. 
 

Extended loss relief carry-back

Posted on 24th March 2022 by Solutions Accountancy

A reminder that the temporary extension to the eligible carry back period for trading losses applies for company accounting periods ending between 1 April 2020 and 31 March 2022 and for tax years 2020-21 and 2021-22 for unincorporated businesses. This extended loss relief allows trading losses to be carried back for three years (rather than one).

The extended relief was introduced to help businesses who suffered increased losses as a result of the coronavirus pandemic. Carrying back a trading loss may allow businesses to generate tax repayments from an earlier profit-making period. 

The extension to the relief applies to both incorporated and unincorporated businesses and is subject to a £2,000,000 cap. The £2,000,000 maximum applies separately to unused trading losses made by incorporated companies, after carry-back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021 and a separate maximum of £2,000,000 for periods ending between 1 April 2021 and 31 March 2022.

The £2,000,000 for companies is subject to a group cap for each relevant period. Extended loss carry-back claims must usually be made as part of a company tax return. However, smaller claims below a de minimis limit of £200,000 may be made without having to wait to submit a company tax return.