Financial Monitor (November 2009)

Further VAT Changes

Our October edition of Financial Monitor covered a number of VAT changes but several more have since been announced.

Business Journeys in Company Cars

Where an employer provides a company car but the employee pays for the fuel, the employer can pay a mileage allowance for business journeys. HMRC have revised their 'tax free' rates with effect from 1 December 2009. The previous rates are in brackets:

Engine size

Rate per mile

 

Petrol

Diesel

Up to 1400 cc 

11p (10p)

11p (10p)

1401 to 2000 cc          

14p (12p)

11p (10p)

Over 2000 cc

20p (18p)

14p (13p)

The rates for LPG are unchanged at 7p, 8p and 12p for the above engine sizes.

Those employers who use the above rates to ensure that private fuel costs are reimbursed where the employer pays for all fuel must ensure that the new rate is applied from 1 December 2009 to avoid a private fuel scale charge benefit in kind being applied to the employee.

Double-cab Pickups - Tax Effective Vehicles

There are several variants of Double-cab 4x4 vehicles which can be classed as a van for all tax purposes. Those companies with these vehicles then benefit from being able to claim all the VAT on purchase (nil for cars), up to 100% capital allowances (10% PA for equivalent cars) and the employee benefit in kind for private use is limited to £3,000 pa compared with up to 35% pa of the cost of a car.

Typically, such vehicles seat up to five people and have an open load area behind. Sometimes the load area will be covered by a detachable cover either at the level of the sides or even above the height of the rest of the vehicle. These covers will need to be taken into account when determining the payload capacity – the maximum weight specification for a vehicle’s cargo – but provided the vehicle retains a capacity of one tonne, it will still qualify as a van for all tax purposes.

Cars for Family Members

Many directors or other senior employees may be reluctant to pay tax on the benefit in kind for a car provided to their child or spouse. This could, however be efficient tax planning. Typically, you may have been considering a less expensive car with a low CO2 rating. It could also be the case that the person for whom the car is intended would have a high insurance premium. So, for example, with a car costing £8,000 the total annual running cost, including insurance of £1,300 and maintenance of £250, equals £1,550, not to mention depreciation of, say, £1,000. In contrast the benefit in kind would only be £800 for a car with a CO2 rating of less than 120gkm.

Recruitment – Jobcentre Plus

Those who are considering recruitment should visit the Jobcentre Plus website at www.jobcentreplus.gov.uk and view the employers section which enables you to advertise vacancies online and claim incentives of £1,000 for new recruits or training grants of up to £1,500.

The 50% Tax Rate

The 50% tax rate for earners over £150,000 and the restriction of personal allowances for earners over £100,000 will take effect from April 2010, and from April 2011 National Insurance rates will increase by 0.5% across the board. The marginal tax rate for employment and self-employment earnings between £100,000 and around £113,000 will then be an eye-watering 61.5%.

Also from April 2011, pension relief will be restricted for earners of £150,000, with relief limited to just 20% for earners over £180,000. However, ‘anti-forestalling’ rules are in effect now to prevent you making the most of the full tax relief while it lasts. These impose a 20% tax charge on pension payments that are in excess of your previous ‘regular’ payments, where your total pension payments in the year exceed £30,000.

Some straightforward planning ideas that should be considered are:

Bring forward the payment of dividends, bonuses, the exercise of share options etc. so they are taxed before April 2010.

Self-employed or partnerships: change your accounting date to 31 March 2010, or incorporate to take advantage of the lower corporation tax rates.

Invest for capital gains (taxed at 18%) rather than income and be aware that gains on life insurance bonds and certain offshore funds are taxed as income.

Trustees: make distributions before April 2010; close investments before April 2010 to accelerate income; create revocable interests where the beneficiary can’t reclaim the 50% tax credit.

Make the maximum £20,000 pension contribution this year and next to take advantage of the full tax relief available now.

Pre Budget Report

The Chancellor will present his pre-Budget Report to Parliament on Wednesday 9 December. Our December edition of Financial Monitor will focus on the proposed changes included in that report.

 

Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.

UHY Wingfield Slater
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Tel: 0114 275 1544 Facsimile: 0114 275 1366 Email: info@uhy-wingfieldslater.com Web Site: www.uhy-wingfieldslater.com
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