I have been looking at the Tax Relief impact on Pension Investments
Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)
|40% Tax Rate
||20% Tax Rate
Even when you consider:
- Your money is locked up till you are 55
- You pay tax when you take money out of the pension
- You can get 25% out of the pension tax free
The difference in growth is massive
If you do salary sacrifice you can increase the tax effect by saving national insurance too.
So why aren’t more people investing in pensions?
If you have a company car the chances are Benefit in Kind tax will be a concern for you, HMRC have a calculator to work this out
But both you and your company could be better off with a Low Emmission or Electric Car.
If you buy a new car for your business that has CO2 emissions of 110 grams or less per kilometre (g/km) driven, or is electric, you can qualify for a 100 per cent first-year capital allowance. This allows you to offset the whole cost of the investment against taxable profits in the year you make the purchase until 31 March 2013.
New cars have fuel economy labels which show how fuel efficient they are. The label shows how much CO2 the car emits and also how much vehicle tax you will have to pay each year. Lower CO2 emissions mean lower vehicle tax and lower running costs.
Benefit in Kind
Currently zero emmission electric cars have zero benefit in kind but this is set to change in 2015 when the rate will be 13%.
A 5% Benefit in Kind band is now in place for cars that emit below 75g/km CO2, but this will also change in 2015.
Back in December I did a Blog about how to make your claim https://stevejbicknell.com/2011/12/20/how-to-claim-tax-relief-for-employment-expenses/
But many employees don’t seem to realise that they could be entitled to Flat Rate Expenses
If you have to spend money on tools or specialist clothing for your job you may be entitled to either:
- tax relief for the actual amounts you spend
- a flat rate deduction
Flat rate deductions are amounts that HM Revenue & Customs agreed nationally – or sometimes locally if conditions are very different – with trade unions or other bodies.
The deductions cover what’s typically spent each year by employees in different trades. For example, someone working in the clothing industry can get a deduction of £60 each year. A cabinet maker can get a deduction for £140 while the deduction for a stone mason is £120.
You don’t have to be a member of a trade union to get the deduction. You’ll also benefit from less paperwork – you won’t have to keep a record of all the individual amounts you spend.
There is a full list of the Flat Rates at
For example, I am the FD of SCA Group, we employ Scaffolders and the rate for Scaffolders is £140 per year, at 20% tax that means £28 as a tax refund.
Mileage for the current tax year can be reclaimed at a maximum of 45p per mile for the first 10000 miles then 25p after that
Most people are already using these rates, but a large number of businesses don’t reclaim the VAT on the Fuel element – see VAT Notice 700/64
8.7 My employees are paid a mileage allowance, how do I work out my input tax?
You work out your input tax by multiplying the fuel element of the mileage allowance by the VAT fraction. You can do this for all fuel bought
The allowance paid to employees must be based upon mileage actually done.
|Company cars: advisory fuel rates
|The rates below apply from 1 December 2011.
|1400cc or smaller
|1401cc to 2000cc
|Bigger than 2000cc
|1600cc or smaller
|1601cc to 2000cc
|Bigger than 2000cc
So this is how to work out the claim:
1000 business miles = 1000 x 45p = £450
On which VAT (assuming a 2000cc (bigger) Diesel) 1000 miles x 18p divided by 1.2 x 20% VAT = £30 VAT to reclaim
For large businesses there could be a lot of VAT to reclaim
A classic car is one where:
- the age of the car at the end of the year of assessment is 15 years or more and
- the market value of the car for the year is £15,000
I found a 1968 Jaguar MkII for sale for £15,000 on
The Mark 2 gained a reputation as a capable car among criminals and law enforcement alike; the 3.8 Litre model being particularly fast with its 220 bhp (164 kW) engine driving the car from 0-60 mph (97 km/h) in 8.5 seconds and to a top speed of 125 mph (201 km/h) with enough room for five adults. Popular as getaway cars, they were also employed by the Police to patrol British motorways.
The Mark 2 is also well known as the car driven by fictional TV detective Inspector Morse played by John Thaw
Assuming the list price was £2,000 (I can’t find the actual list price), the taxable benefit in kind would be £2,000 x 35% (maximum)x 40% (higher rate tax) = £280
As long as the Market Value is below £15,000 these rules apply above £15,000 the market value is used for the calculation, you can pay for your private fuel to avoid the tax on that.
Many Directors borrow money from their Limited Company, but there are 2 key costs:
If, your company, purchased assets and you used those assets privately, the treatment is much more favourable:
- The cost of the asset is allowed against Corporation Tax and you can claim Capital Allowances and the Annual Investment Allowance
From April 2012 the rates of capital allowances have been reduced from (a) 20% to 18% and from on the Main Rate Pool (b) 10% to 8% for ‘special rate’ expenditure respectively. At the same time the maximum amount of the Annual Investment Allowances (AIA) will be reduced to £25,000 a year (currently £100,000).
- The Benefit In Kind is generally 20% of the market value http://www.hmrc.gov.uk/paye/exb/a-z/a/assets-available.htm#2
- So, based on buying an asset for £10,000 – there will be saving in Corporation Tax of £2,000 and the Benefit In Kind Tax of £1,076, thats a net saving in year 1 of £924 compared to a cost in year 1 of £2715.20 on a loan (total difference £3,639.20), although the benefit in kind will be £860.80 more expensive in future years.
The Assets could be purchased from the Director but they must be transfered at Market Value.
According to Indicator ‘Tax Breaks for Directors’ assets owned by companies include antiques, paintings, furniture, business suits (but not vehicles) and the 20% benefit in kind amounts can be deducted from the value of the asset should it subsequently sold to an employee or director.
Generally you can only reclaim VAT on the purchase of Assets for Business Use http://www.hmrc.gov.uk/vat/managing/reclaiming/private-use.htm
The small companies rate of Corporation Tax is 20% compared to main rate of 24% (2012/13). The small company rate is applied if your profits are below £300k, however, if you have associate companies, the £300k is spread between them equally.
For the purposes of CTA10/S25 (4), formerly ICTA88/S13 (4), a company is an associated company of another at a given time if at that time:
- one of the companies has control of the other, or
- both of the companies are under the control of the same person or persons
But what some business forget is that if you have a subsidiary that has become dormant it stops being associated
an associated company which has not carried on any trade or business at any time during the accounting period is disregarded – if it is an associated company for part only of the accounting period, the rule applies to any time during that part.
Most takeaway and sandwich shops are not part of the big chains like Greg’s, McDonalds or Subway, they are just small businesses doing their best to comply with complicated and confusing VAT rules, here is a quick summary to help those businesses account for their sales. Basically by using keeping 3 separate receipt books it will make it easier for their accountants to calculate the VAT, rather than a single takings book which almost inevitably means making estimates of the split between zero rates and vatable.
The rules are in HMRC Notice 709/1
So what changed in the Budget 2012
Food is subject to VAT once it is heated to “above air-ambient temperature”, and meant to be eaten in or near the shop or restaurant. So “takeaway food” is already subject to VAT, while most hot food sold by bakers and supermarkets is exempt as it has been heated to improve its appearance (ie it could equally be enjoyed cold); or it will be eaten at home.The aim of the change is therefore to “clarify the definition of ‘hot takeaway food’ to confirm that all food (with the exception of freshly baked bread) that is above ambient temperature when provided to the customer is standard [VAT]-rated”.
VAT can be very complicated as highlighted in the case of Jaffa Cakes – Cakes or Biscuits?
The leading case on the borderline is that concerning Jaffa cakes: United Biscuits(LON/91/0160). Customs and Excise had accepted since the start of VAT that Jaffa cakes were zero-rated as cakes, but always had misgivings about whether this was correct. Following a review, the department reversed its view of the liability. Jaffa cakes were then ruled to be biscuits partly covered in chocolate and standard-rated: United Biscuits (as McVities, one of the largest manufacturers of Jaffa cakes) appealed against this decision. The Tribunal listed the factors it considered in coming to a decision as follows.
- The product’s name was a minor consideration.
- Ingredients:Cake can be made of widely differing ingredients, but Jaffa cakes were made of an egg, flour, and sugar mixture which was aerated on cooking and was the same as a traditional sponge cake. It was a thin batter rather than the thicker dough expected for a biscuit texture.
- Cake would be expected to be soft and friable; biscuit would be expected to be crisp and able to be snapped. Jaffa cakes had the texture of sponge cake.
- Size: Jaffa cakes were in size more like biscuits than cakes.
- Packaging: Jaffa cakes were sold in packages more similar to biscuits than cakes.
- Marketing: Jaffa cakes were generally displayed for sale with biscuits rather than cakes.
- On going stale, a Jaffa cake goes hard like a cake rather than soft like a biscuit.
- Jaffa cakes are presented as a snack, eaten with the fingers, whereas a cake may be more often expected to be eaten with a fork. They also appeal to children, who could eat one in a few mouthfuls rather like a sweet.
- The sponge part of a Jaffa cake is a substantial part of the product in terms of bulk and texture when eaten.
Taking all these factors into account, Jaffa cakes had characteristics of both cakes and biscuits, but the tribunal thought they had enough characteristics of cakes to be accepted as such, and they were therefore zero-rated.
Surely there must be a way to simplify the rules?
The CBI have been telling us we need to export more and work with the BRIC’s (Brazil, Russia, India, and China), Georgia have been working hard to make friends inthe UK.
Economics minister Vera Kobalia was featured in the press this weekend (Sunday Express – Tracey Boles)
She would like Easy Jet and Ryanair to join BMI in direct flights from the UK. Georgia wants Free Trade agreements with the UK and many of its citizens speak English. Tourism has increased 40% this year and for hotels willing to set up in Georgia they could get free plots of land and no tax for 15 years.
BP has already invested and Georgia is particularly keen to tap into the UK’s martime expertise to benefits it ports.
The Employment Status Test has been around for a few years now, see my recent Blog https://stevejbicknell.com/2012/01/28/so-you-think-you-are-self-employed-does-hmrc-agree/ but now IR35 is going to get special attention from HMRC.
What is IR35?
The Term “IR35” became established following a Budget press release issued by the Inland Revenue on 23rd September 1999. That press release was called “IR35”. At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of Tax and National Insurance.
The latest IR35 Forum minutes show that a new trial IR35 business test will be made live on the HMRC website in April, together with a set of typical scenarios to help establish how likely a business is to be caught by IR35.
The minutes for the last two IR35 Forum meetings (21st February and 8th March) have been published on the HMRC site.
Out of an initial set of 17 IR35 scenarios examined by the Forum, the external members and HMRC agreed on 14 of them.
It was agreed that in order to avoid confusion, just 6 scenarios would be published online. Of these, two were ‘IR35 caught’ contracts, two were outside of IR35, one is a ‘grey’ case, and the final case begins outside IR35, but moves within the scope of the rules due to changes in the company’s practices.
Clarity on tax rules is always a good thing, but it will be interesting to see where the lines have been drawn.