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Tax efficient Xmas Gifts and Parties

‘Tis the season to be jolly and you might be wanting to thank some of your clients for their business during the year.  Whilst tax may not be top of your agenda right now – can you do this tax efficiently?

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

  • NOT food, drink, tobacco or a voucher AND
  • Carry a conspicuous advert for your business AND
  • The cost of that gift, and any other to that person in the year is under £50

(That’s why your gift may be an embossed diary/mug!)

If you want to give your staff a Christmas gift, it may well be covered by the “trivial benefit” rules I have covered in a previous blog.  Here if it is classed as “staff entertaining” you may well be able to reclaim the vat.

What about the Xmas party?

Most people are aware about the rules for the staff Xmas party.  For a limited company, the cost for the annual party is allowable for tax as long as it is under £150 per head (all staff have to be invited but the cost is per head – so that includes their “plus ones”)

But a lot of us work for ourselves and don’t have staff – we employ subcontractors.  What are the rules if we want to take them out at Xmas as a thank you.

These guys are not your employees so they are not covered by the above rule.  Any money spent on entertaining them is deemed customer entertaining and therefore won’t be allowable for tax in your accounts, (but – you should probably still take them out!!)

So what about you, the business owner?

If you are a director, then you are classed as an employee and you can treat yourself to a Xmas do.

If you are a sole trader, then Im sorry, it’s the final of Strictly and a bottle of cheap plonk for you!

 

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Christmas Giving

‘Tis the season to be jolly and you might be wanting to thank some of your clients for their business during the year.  Whilst tax may not be top of your agenda right now – can you do this tax efficiently?

 

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

  • NOT food, drink, tobacco or a voucher AND
  • Carry a conspicuous advert for your business AND
  • The cost of that gift, and any other to that person in the year is under £50

(That’s why your gift may be an embossed diary/mug!)

If you want to give your staff a Christmas gift, it may well be covered by the “trivial benefit” rules I have covered in a previous blog.  Here if it is classed as “staff entertaining” you may well be able to reclaim the vat.

 

What about the Xmas party?

Most people are aware about the rules for the staff Xmas party.  For a limited company, the cost for the annual party is allowable for tax as long as it is under £150 per head (all staff have to be invited but the cost is per head – so that includes their “plus ones”)

But a lot of us work for ourselves and don’t have staff – we employ subcontractors.  What are the rules if we want to take them out at Xmas for a piss up, thank you?

These guys are not your employees so they are not covered by the above rule.  Any money spent on entertaining them is deemed customer entertaining and therefore won’t be allowable for tax in your accounts. ( But – you should probably still take them out!!)

So what about you, the business owner?

If you are a director, then you are classed as an employee and you can treat yourself to a Xmas do.  If you are a sole trader, then Im sorry, it’s the final of Strictly for you and a bottle of cheap plonk.

 

Have a good one!

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Do I need to keep petrol receipts as a sole trader?

Petrol receipts are notorious for getting lost on the floor of the car, at the bottom of your bag or anywhere other than in your filing system!  But do you actually need to keep them if you use your car for business?

Like working from home, there are 2 main methods of claiming motor expenses – one more complicated than the other.

 

The Mileage Method (simple!)

This is simple to work out and generally used if you are not doing lots of business mileage in your car.  If you use the family car occasionally for work, then this method would be the one for you to use.

You simply keep a record of the number of business miles you do and then calculate a flat rate of 45p per mile (for the first 10,000 miles) and then 25p per mile on anything over this.

You then do not charge the business for any other car related costs such as insurance, servicing, petrol etc.  These should all be paid for privately, and therefore you don’t need to keep the petrol receipts.  The actual cost of buying the car is not separately reflected in your accounts either under this method.

You can claim for extra journey costs such as parking, congestion charge and toll roads in addition to the 45p per mile.

Obviously you need good record keeping for this method – most people keep a note in their diary or in a notebook in the car of business miles done.

You can only use this method if your turnover is below the VAT registration threshold (currently £83,000) and once you have started using it, you can only change methods if you change your car – you can’t chop and change methods each year.

The Actual Cost Method

This is more complicated to work out, but generally beneficial is you use your car predominantly for work, with little private usage – or you have high repair bills!

Under this method, the business pays for all your motor costs.  You can include fuel, repairs, MOT, servicing, insurance, tax and breakdown cover, and therefore you do need receipts to back up your expenditure.  You then work out the percentage of your costs that relates to private use and disallow the private element in your accounts.  So if you use your car 80% for business, and 20% privately, then the business can pay for 80% of the cost.  In reality, what usually happens is you pay for all the costs from the business and then your accountant will make the adjustment in your accounts at the year end to reflect the private usage of the car.

You will need to keep records to be able to estimate the percentages – HMRC would really like to see records for about 3 months to give you an idea of the business usage.

The cost of the car can also recorded in the accounts under the actual cost method, and tax relief given via capital allowances but that’s for another blog!!

Under both methods, parking, speeding fines and driving awareness courses are never a business expense so don’t try to claim them!!

If you have any queries, then please contact Rosie Forsyth at Wilkins & Co.

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What can I claim for working from home?

If you are self-employed and work at least partly from home then you are entitled to include part of the running costs of your home in your accounts.  But how much?

You have 2 options as to how to work out how much you can claim.

  1. Flat Rate Method

    If your sales are under the VAT threshold (currently £83,000) and you are self-employed then you can use this method. You simply work out how many hours a month you spend on average running your business from home and then include a fixed amount in your accounts, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

The flat rate covers the running costs of your home; you can also claim a proportion of the fixed costs and your phone/broadband as per option 2.

 

  1. Actual Costs

This method requires a little more effort, but it may give you a higher figure and therefore save you more tax.  Under this method, you need to apportion the running costs of your home on a “fair and reasonable” basis between those that are personal and those that relate to the business.

This is usually done by reference to the number of rooms you have in your house and the amount of time you use them for business.  There is no laid out formula though and therefore how you allocate costs will vary from business to business.  Keep any workings you have done so you can back up your figures to HMRC if necessary.

The costs you can actually claim can be spilt into fixed costs, running costs and phone/broadband.

Fixed Costs

  • Mortgage interest (not capital) or rent
  • Council tax
  • Insurance
  • Water rates

Running costs

  • Electricity
  • Gas
  • Repairs and maintenance
  • Cleaning

For example, assume you work from your sitting room 8 hours per day 4 days per week.  Your total fixed costs are £6,600 per year and your running costs £1,500.  You have 6 rooms in your house. A reasonable allocation of the fixed costs would be £6600 x 1/6 x 4/7 x 8/24 = £210.

An allocation of the running costs could be £1500 x 1/6 x 4/7 x 8/12 (as gas etc not used during the night) = £96

The phone and broadband is claimed on a usage basis only, so if you use your internet 50% business, 50% private you can claim 50% of the cost, including line rental.

If a property repair works solely to the area that you use for business, you can include the full cost in your accounts – for example, your office roof needs repairing.  If the repair is to the whole house – then claim in proportion as above.

So claiming costs of working from home is not as simple as it sounds.  The flat rate method will give you a quick answer, but the actual costs option may give you a higher figure.  If you need any further help then please contact Rosie Forsyth at Wilkins & Co.

Note – these rules only apply to the self-employed and not to owners of limited companies.

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Staff perks – new rules mean you should be treating your staff more often!

How often do you treat your staff?

Being a lovely employer and giving your staff little treats before April 16 often ended up with accountants telling you that your gift has landed your staff an unwanted tax charge.

From April 16 there is a new exemption which everyone should be taking advantage of!

The exemption covers “trivial benefits”.

At its most simple, the new rules state that gifts to employees, their family or household members by their employer are not taxable so long as:

  • The cost is under £50
  • The benefit is not cash or a cash voucher
  • The benefit is not contractual or habitual (ie done every month)
  • The benefit is not linked to performance or in recognition of a particular service provided by the employee, so no bottles of champagne for reaching a target or clinching a deal

There is no limit to the number of gifts that can be given to staff members in a year – but if the cost of a gift is over £50, the whole lot is taxable not just the excess.

That sounds great – but before you get carried away – there is a limit imposed on close companies (that is a company controlled by less than 5 people – so in reality – most family companies.)   For these companies there is an annual cap of £300 per director, which is still generous.  Gifts to any family member, who is not themselves an employee would be included in the director’s limit.

There are lots of examples provided by HMRC as to what qualifies – but things such as birthday presents, flowers on special occasions, Xmas gifts for staff, theatre tickets, would all potentially qualify.  So up to the limit, for family companies, these should all be going through the company from now on!

You do need to note that the exemption is only on the tax the employee would have suffered – there is no change to the tax in the company.  For example if you pay for a birthday meal out – it may still count as entertaining which would not be allowable for corporation tax in the company.

So what are you waiting for – go ahead and treat your staff (and directors) every now and again!

Im off to enjoy the chilled bottle of wine the company has just very kindly treated me to – what a lovely employer I have!!

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Working from home – how much can you claim from your business?

If you are self-employed and work at least partly from home then you are entitled to include part of the running costs of your home in your accounts.  But how much?

You have 2 options as to how to work out how much you can claim.

  1. Flat Rate Method

    If your sales are under the VAT threshold (currently £83,000) and you are self-employed then you can use this method. You simply work out how many hours a month you spend on average running your business from home and then include a fixed amount in your accounts, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

The flat rate covers the running costs of your home; you can also claim a proportion of the fixed costs and your phone/broadband as per option 2.

 

  1. Actual Costs

This method requires a little more effort, but it may give you a higher figure and therefore save you more tax.  Under this method, you need to apportion the running costs of your home on a “fair and reasonable” basis between those that are personal and those that relate to the business.

This is usually done by reference to the number of rooms you have in your house and the amount of time you use them for business.  There is no laid out formula though and therefore how you allocate costs will vary from business to business.  Keep any workings you have done so you can back up your figures to HMRC if necessary.

The costs you can actually claim can be spilt into fixed costs, running costs and phone/broadband.

Fixed Costs

Mortgage interest (not capital) or rent

Council tax

Insurance

Water rates

Running costs

 

Electricity

Gas

Repairs and maintenance

Cleaning
For example, assume you work from your sitting room 8 hours per day 4 days per week.  Your total fixed costs are £6,600 per year and your running costs £1,500.  You have 6 rooms in your house. A reasonable allocation of the fixed costs would be £6600 x 1/6 x 4/7 x 8/24 = £210.

An allocation of the running costs could be £1500 x 1/6 x 4/7 x 8/12 (as gas etc not used during the night) = £96

The phone and broadband is claimed on a usage basis only, so if you use your internet 50% business, 50% private you can claim 50% of the cost, including line rental.

If a property repair works solely to the area that you use for business, you can include the full cost in your accounts – for example, your office roof needs repairing.  If the repair is to the whole house – then claim in proportion as above.

So claiming costs of working from home is not as simple as it sounds.  The flat rate method will give you a quick answer, but the actual costs option may give you a higher figure.  If you need any further help then please contact Rosie Forsyth at Wilkins & Co.

Note – these rules only apply to the self-employed and not to owners of limited companies.

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How is my Company Car taxed?

This week we are looking at company cars and explaining how they are taxed on both the company and the individual.

When a car is made available to an employee, or member of his household, by an employer, he will be charged tax on the value of the car as an employment benefit if he also has private use of the car.  It doesn’t matter how the company finances that car, it is still a benefit in kind to the employee.

The amount of tax the employee pays depends on:

  • The list price of the car plus accessories (not the price the company paid for it), and
  • Its CO2 emissions

Using this table, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/532303/TC2b.pdf

each level of Co2 emission is given a percentage and you then multiply that percentage by the list price to give you the taxable benefit.  This value is effectively “additional salary” on which you will pay income tax.   Diesel car owners have a 3% supplement over petrol owners – this was due to be scrapped but will now remain until 2021.  The percentages are set to increase by 2% each year, making company cars even more expensive in the future.

So, as an example, in 2016/17 my company provides me with a diesel car with a manufacturer’s list price of £30,000 and CO2 emissions of 165g/km.  The appropriate percentage is 33%.

The benefit in kind is 33% x 30,000 = £9900.  If I am a basic rate taxpayer, I will therefore pay £1,980 in income tax on this car in this tax year, and if I’m a higher rate taxpayer – £3,960.

If the company also pays for all my fuel (personal and business) there is a further tax charge.  This is worked out by multiplying the same percentage by a fixed amount agreed for each year.  For 16/17 the amount is £22,200 – so for my car above – the additional benefit is £7,326 and my tax bill £1,465 or £2,930.  You need to do a fair few miles in your car to make this worth having!

For the company , they will pay class IA NIC on the value of the benefit, so each year they will pay 13.8% x 30,000 = £4,140 for my company car, though this and the running costs are tax deductible in the accounts.

So a company car is often not a cheap option and you should work out whether it is the right option for you.

Having a company van may be tax efficient than a company car as there is a fixed benefit of £3,170 – but there are strict rules about what is a van – and what is a car!

If the car is a genuine “pool car” then it can be provided tax free – but the qualifying conditions of being a pool car must be met.  These are:

The car

  • Is used for business purposes and any private use of the car is incidental.
  • Private use should account for no more than 5% of the car’s annual mileage on an irregular basis.
  • The same car not used exclusively by one or two employees in a tax year.
  • The car is not normally taken to an employee’s home at night.

HMRC will look at any pool car arrangement closely – and will expect mileage logs, written agreements, place for keys to be kept at work, employees personal cars etc so if you do think you have a pool car – make sure your records accurately detail its movements!

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