Steve J Bicknell Tel 01202 025252
Helpful Comments on Tax and Finance – Bicknell Business Advisers Limited www.bicknells.net
Its a busy time for Government Consultations, we have one currently underway called
But everything else is up for grabs for example parking…
Which of your salary sacrifices are at risk?
steve@bicknells.net
Based on HMRC Statistics approximately 1 million employees have a company car, its the 2nd most popular benefit in kind. The most popular benefit in kind is Private Medical Insurance (2.2m employees).
Often employees will change cars or start/stop having fuel for cars during a tax year and the tax on company cars can be significant, you can use this HMRC calculator to assess the the tax.
http://cccfcalculator.hmrc.gov.uk/CCF0.aspx
HMRC have just introduced a new Check and Update Service for Employees so that you can make sure HMRC have the correct information
https://www.gov.uk/update-company-car-details
You may find that it would be better for your employer to give you a loan, beneficial loans up to £10,000 aren’t a taxable benefit.
https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/whats-exempt
There companies like Maxxia that promote salary sacrifice schemes for cars
http://maxxia.co.uk/asset-finance/car-salary-sacrifice/
steve@bicknells.net
Doctors often agree to pay for their own continuing training personally because of a shortage of NHS funds but when they do pay for courses its unlikely they will be able to claim tax relief.
EIM32530 states that it is well established that employees are not entitled to an expenses deduction under Section 336 ITEPA 2003 for the expenses continuing professional education (CPE). The Commissioners and the Courts have traditionally held that the duties of trainee doctors, for the purpose of the expenses rule, are limited to the clinical work that they do for the NHS Trust by whom they are employed. Their training activities are not undertaken “in the performance of” those duties for the purpose of Section 336 . That is so even though the training activities may be compulsory, and failure to complete them may lead to the employee losing his or her professional qualifications, and/or their job.
The Commissioners and the Courts upheld that view in a number of cases, as follows:
Parikh v Sleeman (63TC75) – a hospital doctor was refused relief for the expenses of attending training courses during periods of study leave.
Snowdon v Charnock (SpC282) – a specialist registrar was refused relief for the expenses of undergoing mandatory personal psychotherapy.
Consultant Psychiatrist v CIR (SpC557) – an NHS consultant was refused relief for the expenses of CPE necessary to maintain her professional qualification.
Decadt v CRC (TL3792) – a specialist registrar was refused relief for the expenses of taking professional examinations, even though it was a condition of his employment that he should do so.
In the recent case of Revenue & Customs Commissioners v Dr Piu Banerjee ([2010] EWCA Civ. 843), the Court of Appeal accepted that a deduction for training costs incurred by an employee should be allowed if the employee was employed on a training contract where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.
Salary Sacrifice solves this problem.
Salary sacrifice works particularly well for training because except in the most extreme cases, employees cannot claim a tax deduction for training costs that they pay personally but if the employer pays for training that is work-related:
EIM01210 confirms this.
steve@bicknells.net
Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI
HMRC decided on 9th April 2013 that it was time to “clarify” in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….
You (HMRC) may get requests for advice:
- on how to set up a salary sacrifice arrangement, or
- on whether draft documentation will achieve a successful salary sacrifice.
You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.
The specific updates are:
EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes
EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions
EIM42778 – Exemption from Tax/NIC – basically stating that exemption may require that the sacrifice may be available to all employees but that the sacrifice must not reduce the employees wages below National Minimum Wages
The following is an example of an unsuccessful Childcare Salary Sacrifice:
The pay slip for the month ended 31 July 2006 gives monthly pay as £2000 plus overtime of £100, deductions for tax of £355 and NIC. The pay slip for the following month shows monthly pay of £2000 plus overtime of £100, deductions for NIC, childcare vouchers of £200 and tax of £310. The code number operated on the salary has not changed.
The situation is not clear from the payslip. When asked, the employer explains that for August, because childcare vouchers of £55 a week are exempt, £220 of vouchers has been deducted from the gross pay of £2100 and tax charged on the net figure of £1880. Further information is needed, for example a copy of the employment contract and any variations agreed by the employer and employee to that contract.
It is established that in July the employee bought childcare vouchers. The employer was not involved. The employer accepts that as the childcare in July was not provided by him, no tax exemption is available. In August the employee asked the employer to buy the childcare vouchers to take advantage of the exemption. The employer did this and deducted the cost from the monthly salary. The contract of employment shows that the employee is entitled to a base salary of £24000 to be paid monthly. This contract has not been varied. As the employee’s entitlement has remained the same, this is not a successful sacrifice. (See EIM42766).
If you operate salary sacrifice schemes its worth checking that your schemes comply, the tax consequences of failure to comply could be substantial.
steve@bicknells.net
Let’s take an example:
VW Golf Blue Motion 1.6 TDI 105PS £18,860 Diesel CO2 99g/km
http://www.volkswagen.co.uk/#/new/golf-vi/which-model/engines/overview/
Using the HMRC calculator http://cccfcalculator.hmrc.gov.uk/CCF0.aspx
Tax Liability indicator: 20% 40%
Company Car Tax (2012/2013) £490.20 £980.40
Company Car Fuel Tax (2012/2013) £488.80 £977.60
Total £979.00 £1,958.00
If you (the employee) pay for your private fuel you won’t have to pay tax on it.
The Employer will need to pay Class 1A National Insurance on the benefit in kind
Car benefit charge (2012/2013) £2,451.00
Car fuel benefit charge (2012/2013) £2,444.00
Total £4,895.00
Class 1A 13.8% £675.51
In addition the employer will have to fund the purchase of the car based on this link the interest will be at 4.5% http://www.volkswagen.co.uk/#/new/golf-vi/which-model/compare/483/ over 36 months that’s a cost of around £3,572.30 in total
Assuming the car is purchased rather than just hired, to offset Depreciation your employer can claim Capital Allowances based on CO2 emissions:
|
CO2 emissions |
Capital allowances treatment of expenditure |
|
Over 160 grams per kilometre (g/km) |
Goes into the special rate pool and qualifies for writing-down allowances at the rate for the special rate pool, currently 10 per cent per annum. |
|
160g/km or less but more than 110g/km |
Goes into the main pool and qualifies for writing-down allowances at the rate for the main pool, currently 20 per cent. |
|
110g/km or less (but note that the first-year allowance for cars in this category is due to expire in 2013) |
You can claim up to 100 per cent allowance in the accounting period when they were bought, the balance (which may be nil) goes into the main pool in the next year. |
http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1086394511&type=RESOURCES
So in our case the CO2 emissions are 99 g/km so 100% allowances apply, but subject to a balancing charge on disposal.
So what if your employer offered you a car allowance of £300/mth and business mileage at approved mileage rates http://www.hmrc.gov.uk/rates/travel.htm
If you were a 20% tax payer you would pay tax (20%) and NI (12%) on the extra income so net, your car allowance would be £204/mth x 12 = £2,448
Assuming you do 10,000 business miles that’s worth £375/mth x 12 = £4,500 (note that the mileage rate drops to 25p after 10,000 miles)
Less the cost of Fuel using HMRC rates http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
Is 12p per mile so the cost is £100/mth or £1,200 per year
So overall from the employees perspective, using this example (ignoring private mileage), Net Allowance £204 plus Mileage £375 less Fuel £100 = £479 per month the cost of the Blue Motion is £320.94 a month per VW Finance (excluding the £1,886 deposit), so the allowance is a good option.
The employers NI at 13.8% on the car allowance is £300 x 13.8% x 12 = £496.80 so that’s cheaper the the Class 1A of £675.51
However, the employer losses the Capital Allowances and the Diesel would be cheaper if the employer purchased it.
Other points to be aware of are:
VAT http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm#6
H&S http://www.hse.gov.uk/pubns/indg382.pdf
It is also possible with the right advice to create a salary sacrifice scheme relating to car leasing, advisors such as Dave Hedges at http://www.edge-tax.com are experienced in these schemes.
In conclusion, in my opinion, it all depends on how much the allowance is (Car and Fuel) and what car the employee needs (size and mileage), the only way to work out the best solution is by running the calculations to find out.
steve@bicknells.net
Most employees pay 20% tax, 12% Ees NI and their employer pays 13.8% NI, so thats a total tax of 45.8% on employment income.
There are a range of tax and NI free benefits, for example childcare vouchers, where £55 per week can be paid by the employer, so lets use that as an example, using the calculator
http://listentotaxman.com/index.php
An employee earning £30k a year gets
| Wage Summary | Yearly | Monthly | Week |
| Gross Pay | £30,000.00 | £2,500.00 | £576.92 |
| Tax free Allowances | £7,475.00 | £622.92 | £143.75 |
| Total taxable | £22,525.00 | £1,877.08 | £433.17 |
 Tax due |
£4,505.00 | £375.42 | £86.63 |
| National Insurance | £2,732.64 | £227.72 | £52.55 |
| Total Deductions | £7,237.64 | £603.14 | £139.19 |
| Net Wage | £22,762.36 | £1,896.86 | £437.74 |
| Employers NI | £3,164.06 | £263.67 | £60.85 |
Total Tax and NI = £10401.70
If they use Salary Sacrifice for £55 x52 = £2860, new salary would be £27140
| Wage Summary | Yearly | Monthly | Week |
| Gross Pay | £27,140.00 | £2,261.67 | £521.92 |
| Tax free Allowances | £7,475.00 | £622.92 | £143.75 |
| Total taxable | £19,665.00 | £1,638.75 | £378.17 |
| Tax due |
£3,933.00 | £327.75 | £75.63 |
| National Insurance | £2,389.44 | £199.12 | £45.95 |
| Total Deductions | £6,322.44 | £526.87 | £121.59 |
| Net Wage | £20,817.56 | £1,734.80 | £400.34 |
| Employers NI | £2,769.38 | £230.78 | £53.26 |
Total Tax and NI = £9091.82
A saving of £1309.98 (45.8% of £2860)
For saves on this scale should you be looking at Salary Sacrifice schemes for your employees,I have seen schemes where it can be applied to a wide variety of things from Pensions to Cars
steve@bicknells.net
