Spurred on by the recent queues for fuel, more and more people are looking at switching to electric cars when they next change their car.  Here we look at how tax efficient this can be when the car is purchased through your limited company.

Benefit in Kind Tax

As most company car drivers are aware, if you use a car owned by your company for private use, then each year you have a personal tax charge (known as a benefit-in-kind.) The more expensive the car and the higher its CO2 footprint, the higher the tax charge, as the BIK is calculated by multiplying a given percentage for each CO2 level by the list price of the car.

So a car with a list price of £30k and average CO2 emissions of 120g/km has a percentage of 28% and therefore a BIK value of 28% x 30,000 = £8400.  The employee is treated as having additional income in the year of £8400 and taxed on this accordingly (£1680 for basic rate taxpayers, and £3360 for higher rate).  The employer pays employers NIC on this amount as well – a total of £1160 (which will increase when the 1.25% increase to NIC comes in next year.)  Company cars are generally therefore expensive!

To encourage the switch to electric, the BIK on electric cars was initially set at 0%.  This has increased to 1% for fully electric cars for this tax year and will increase to 2% for 22/23.  The same car above, if it were fully electric would only have a BIK of £300, and a £60 tax charge for a basic rate taxpayer.

For hybrids, with Co2 emissions under 50g/km the BIK percentage depends on its electric range, but is still between 1 and 13% in this tax year.

Capital Allowances

Capital allowances are like a tax-deductible expense, so you can write off the cost of the car against your profits over a period of time. Without getting too technical, generally for a company car, it takes many years to write off the cost against your profit.

A brand new fully electric car qualifies for a first year allowance which means you can write off the full cost in the year you buy the car, reducing your company profit for that year and saving corporation tax.  Nearly new, or hybrids don’t qualify for the first year allowance and will be written off over a period of time.

VAT

For VAT, electric cars are sill cars and follow the general vat rules that the vat on the purchase price cannot be reclaimed by the business, unless the car is genuinely only used for business purposes (almost impossible to prove!)

Charging

The cost of installing a charging point at work (potentially AKA – home!) will also be fully tax deductible in the year, and there is no BIK on the employee for the cost of the electricity if the company allows employees to recharge at work.

Road tax and Congestion Charge

A fully electric car is exempt from the both the above.

The Downside!

There is always one – the cost of purchase – and the current lack of supply!

Electric cars are still an expensive option to purchase – I know – I’ve been looking! The initial outlay is higher than for a fuel or diesel car.  Also demand is high at the moment so you will need to be patient if you decide to make the switch.

Buying any car for your business is an investment and needs careful consideration of your own circumstances.  If you need any further information or guidance then please get in touch with us.

While the Christmas party debate rumbles on, we still want to tell our staff and clients that we are thinking of them at Christmas.  Tax shouldn’t be the main reason you chose your gift, but in these tough times, getting tax relief on the cost will help!

Your gifts will only get tax relief for your business, and you can only reclaim the VAT if the gift is:

• 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

A “conspicuous advert” means that your logo etc should be on the gift itself and not just on the packaging, which also makes it harder!

Whether you can get the tax relief or not on your Christmas gifts, why not support a local business this year that really needs your help. It has been a tough year and many local businesses rely on Xmas trade to keep them going throughout the rest of the year.  Rather than a generic voucher for someone who is hard to buy for, buy one from a local business or venue and show your support. Local facebook groups are full of small businesses advertising some lovely festive gifts.

You could also consider a donation to a local charity or business supporting those who are really going to struggle over the festive period. Charity donations through your limited company are tax efficient and another way to help those in need this Christmas.

What about the Xmas party?

If you do want to have a night out with your staff, a reminder of the tax rules surrounding Xmas parties.  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 – “plus ones” can also be invited.)  Staff means those on the payroll – freelancers, sub-contractors etc unfortunately don’t qualify!

Whatever you end up doing for Xmas with your colleagues, you’ve made it through the year – well done, and have a good break!

The way we work has changed and for many working from home has become the norm.

If you are self employed – then you will already be including in your accounts a charge for the additional costs incurred from working from home.  There are 2 ways you can calculate this charge – one is a simple flat rate method based on the hours you work from home, and the second is a more complicated calculation, based on allocating a percentage of the actual running costs of your home to your business.  Both methods are outlined in detail in my previous blogs.

Whichever method you use, the hours you work from home have probably increased significantly over the last 6 months, so you should ensure that this is reflected in the amount that you charge your business.  It may be that the second method would now give you a higher figure – you need to do the sums!

If you are an employee, and have been working from home since lockdown, there is also a small amount that you can claim.

Your employer can pay you the grand sum of £6 per week to cover the additional costs you are incurring from having to work at home.  If you don’t like to ask, or your employer is not able to pay you this, then you can instead claim tax relief on the £6 per week via HMRC.  Not a fortune, but a gain of £1.20 per week for a basic rate taxpayer, and £2.40 a week for a higher rate tax payer.

How to claim as an Employee?

Either claim on your tax return if you complete one, but if you don’t then you need to simply file a P87 form.  This can be done online if you have a government gateway set up – or by good old fashioned post otherwise.  The section to complete is the “using your home as an office” section.  Once submitted, your tax code will be amended to give you the tax relief on your claim.

Other costs

If you have had to buy other office equipment to use at home during lockdown, and your employer is paying you back for this, this would normally be taxed on you as a benefit in kind.  However, for this tax year, there is a relaxation of this rule!  With many more hours being spent in your home office, it is important to have the right equipment to enable you to work from home – a proper desk and office chair etc, to save aches and pains in the future!

If you would like any more information, then please do contact Rosie Forsyth at Wilkins & Co.

With the tax year ending soon have you been as tax efficient as you could have been this tax year?

What can you still do before the year end to maximise your tax efficiency?

Here are a few of my tips for tax efficiency:

• Use your personal allowance – everyone has a personal allowance of £12,500 for this tax year.  Consider family members who have no other income and if their allowance can be utilised.
• If you have a new limited company, have you taken a salary this year?  Low levels of salary may be able to be processed without the need to set up a PAYE scheme with HMRC, but generally you will need to register as an employer with HMRC to be able to pay yourself a salary from the company – you just about have time to do this before 5 April.
• If you have a limited company –have you paid dividends this year?  The dividend allowance is still £2,000, so the first £2,000 of dividend received in a tax year is tax-free, and then for basic rate taxpayers, the rate of tax on dividends is 7.5%.  Dividends must be paid out of available reserves and are payable per share -so if you have more than one shareholder in the company, you need to get the maths right!
• Check you and your partner’s total income for the year if you receive child benefit payments.  If you have the ability to determine your income for the year, by varying the level of dividend paid, keeping the higher earner’s income below £50,000 will ensure you retain your child benefit.  If one of you has earned more than £50,000 this year, be aware you will need to pay back some or all of your child benefit and may need to complete a tax return to do this.
• If you are considering buying capital equipment for your business, doing if before the end of the tax year will give you the tax deduction this year rather than next
• Pension contributions – very tax efficient for the company to contribute to your personal pension.  Review any payments made in the year and take advice from an IFA.
• Also think about contributing up to £3,600 into a pension scheme for a spouse, civil partner or a child, even if they have no earnings of their own, to obtain basic rate tax relief on the contributions
• If you have taxable income over £100,000, you will start to lose your personal allowance, and will receive no personal allowance once your income is over £125,000 – this makes your marginal tax rate 60% on this part of your income.  Consider making additional pension contributions or gift aid donations which may restore your personal tax allowance
• Use your allowance for tax free ISA saving; that’s up to £20,000 in this tax year. Under 18s can save £4,386 in a Junior ISA.  Also consider LISA’s to help your children get on the housing ladder.

Often simple steps can be taken to minimise your tax bill.  You should always however take professional advice to ensure the best tax saving strategy for you and your business.

Please contact us at Wilkins & Co if we can help you ensure that you and your business and operating as tax efficiently as possible.

If you have yet to file your personal tax return, you probably have a rising sense of panic as you now have less than 3 weeks to get it in!

There is an automatic £100 fine for your return being late, whether you owe any tax or not, and although you can appeal with the fine with an excuse, you are very unlikely to get it overturned!

I have put together a summary of blogs I have done over the last year to hopefully help you with the most frequently asked questions for a sole trader trying to prepare their accounts and tax return.  I hope you may find them useful.

1. Who needs to file a tax return?
2. How you work out the amount you can claim for working from home
3. What you can claim for using your personal mobile phone for work
4. The rules around working in coffee shops!
5. Payments on account – this was written in the Summer for the July payment on account, but the explanation of payments on account applies to January as well!

I’ll leave my blog about being organised and getting it done early in the year for another time!!

Good luck, and if you decide its all too much and this is the year you are going to do it differently and be organised – you know where I am (next year!)

Recent statistics show that the take-up of the new scheme has been low, not helped by widely-reported technical issues soon after the scheme was launched.

So what does the scheme offer – and can you take advantage of it?

Under the Tax-Free Childcare scheme, for every 80p you put into your online account, the government will add 20p.

In total you can use the scheme to help pay for up to £10,000 of childcare per child each year – giving you an extra £2,000 per child (up to £4,000 if your child has disabilities).

Tax-Free Childcare is open to all qualifying parents, unlike the old Childcare Vouchers scheme offered by some companies.  It is open to all working parents, including those who are self-employed, with children up to the age of 11 (or 17 if your children have disabilities)

You can get Tax-Free Childcare at the same time as 30 hours free childcare if you are eligible for both.  However, you won’t be able to get the tax-free childcare if you already get Universal Credits.

To qualify, you and your partner, need to be working and earning a minimum of £131 a week, and a maximum of £100,000 a year.  If one of you does not work, then you are not able to claim.

Tax-Free Childcare can be used to pay for activities by any regulated childcare provider who has registered with the Scheme, and this may include holiday and after-school clubs as well as the more obvious nurseries etc, so it is worth checking who is covered in your local area.

If you are eligible for the scheme, then you need to create an online childcare account via the Government Tax-Free Childcare site. You then pay the money into this account, and transfer funds from there to pay your childcare provider.

So even if you do not regularly use childcare, it is worth checking if any provider that you do use is signed up to the scheme, and if you could be saving money by setting up an account.

For more information, please contact Rosie Forsyth at Wilkins & Co.

As we approach the Christmas period, the question is always – what can we claim for a staff Christmas party?

Christmas Party

If you have a limited company, you can claim your festive or annual party as a deductible expense, subject to the limits below. As long as all of your employees are invited to attend, the whole event will not be taxable, even if you are the sole director/staff member. You cannot claim annual event expenses if you also entertain clients and associates.

You have £150 (including VAT) to spend per head, and you can also spend this on your “plus ones”. The £150 is an all-inclusive figure, so you need to add up the total costs of the evening (incl transport, accommodation, drinks) and divide it by the number of attendees. The total cost has to be under £150, – if it comes out to be £151 per head, the whole lot is taxable, so be careful!

An exemption, not an allowance

The £150 spend is an exemption, not an allowance. You will have to actually spend the money in order to claim the deduction.
If it is not used, the exemption will be lost.

Gifting employees/directors

Small gifts given to employees (and directors) can be exempt from tax as trivial benefits providing the following conditions are met:

• The cost of providing the benefit does not exceed £50 (including VAT).
• The benefit is not cash or a voucher that can be exchanged for cash
• The employee is not entitled to the benefit as part of any contractual obligation.
• The benefit is not provided in recognition of a particular service.

However, if the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.

Gifts to Clients?

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

So no excuses not to have that Christmas party!

Please note that these rules are for limited companies – unfortunately sole traders do not benefit from the same exemptions!

For more information please contact Rosie Forsyth at Wilkins & Co.

Setting up a new business can be daunting and the To Do list endless.  Here are 5 things that you need to do to get the financial side of your business up and running:

1. Register with HMRC

   You need to tell HMRC that you have become self employed.  You can do this online here.  You will receive your Unique Taxpayer Reference (UTR) in the post within about 2 weeks from HMRC.  This is a 10 digit number which you need to keep safe, as you need this to be able to file your tax return.

   You should register with HMRC as soon as possible after you start trading, and by 5 October following the end of the tax year in which you started self-employment at the latest.

2. Set up a Separate Bank account

   It is always a good idea to have a separate bank account that you just use for your business.  Not only does it make preparing your year end accounts easier, it makes sure that you account for all your business expenses, gives you a clearer idea of how your business is doing, and if HMRC were ever to enquire into your affairs, gives them less scope to start asking other questions!

   As a sole trader, you don’t need to set up a “business” bank account.  You just need to have an account in your name that you use solely for business purposes.  If you have any business related DD’s (mobile phone/subscriptions) move them over to this account.

3. Set your prices

   Presumably you want to make money out of your business, so you do need to think about what you are going to charge people for your services.  I’m not going to cover various pricing strategies here, but it is important to have think about all the different types of costs that are going to be involved with running your business, and to make sure that your prices will generate enough income to cover them.

   You also need to consider the amount of “admin” time that is involved in running a business.  Running that “hour workshop” won’t just take an hour of your time, you need to plan it, advertise it, deal with the finances of it, follow up etc so you need to build all this time into your pricing strategy.

4. Keep your records

   You need to get this organised from the start.  Unless you are going to be raising only a handful of invoices and have very few expenses, I would definitely consider using a cloud based accounting package.  These are subscription based, so you need to take this cost into account, but packages start at under £10 a month, so are well worth the cost. At Wilkins & Co, we use Xero with our clients, but there are many others to take a look at as well.

   Make sure you are aware of the types of expenses that you can claim against your business and keep records of all these, as you will need them to prepare your accounts for HMRC, or to pass to your accountant.

5. Put Money Aside for Tax

   Being self employed as opposed to employed, no-one pays your tax for you!

   It is your responsibility to pay HMRC your tax and NIC.  You will do this by preparing a set of accounts for your business and sending HMRC a tax return. Your accounts will generally be prepared to the end of the tax year (5 April), and then you have until the following 31 January to submit your tax return and pay your tax and NI.

   It is therefore a good idea to put money aside as you go along to pay your tax bill.  It is very easy to see money in your business bank account, and take it out and spend it – and then realise you have a tax bill to pay at 31 January that you have not budgeted for. How much you should put aside does depend on your personal situation, and what other income you may have in a tax year, but 20-30% of your profits put aside should cover your tax bill for the year.  Do check with an accountant though for personal advice on this.

6. Did I say 5 things – oh well!

   No 6 could be the most important – talk to an accountant!!!  You can contact me at rosie@wilkinsco.co.uk.

“I’ve bought a new outfit that I’m only going to wear for work – this must be a business expense?”

I hear this all the time but unfortunately HMRC may not agree with you as to what constitutes “workwear”.

So what are the rules?

HMRC will not let you claim any clothing that has dual use – eg that could be worn both personally and for your business.  So you may live 24-7 in jeans, and buy one “work outfit” to go to client meetings and networking events in, but HMRC are not going to let you claim the cost of it through your business, as you could very easily also wear it outside work.  The fact you don’t is irrelevant.

Branded clothing

If your clothing is visibly and permanently branded with your company logo, then HMRC will accept that it is only worn for business purposes and let you claim the cost (think branded polo shirts/fleeces etc)

The branding does have to be both clearly visible and permanent – so a badge won’t work, nor will a tiny label sewn or written on areas not generally seen!! (yes I have had a client try this one)

Nor will buying a green jacket, just because your company colours are green!

Safety wear and protective clothing

If you need safety wear or protective clothing for your business, then you can claim this.  But we are talking high viz jackets, steel capped boots, hard hats etc.  Buying a super warm jacket because you work outside a lot may protect you from the cold, but HMRC would not consider it a business cost.  You are quite likely to wear this walking the dog as well, so it has dual use.

Uniform or costumes?

Police, nurses uniform etc – yes (assuming this is your profession 😊)

White shirt and navy skirt because that’s what you are expected to wear – no.

“Sensible” shoes is one that people like to try to claim – if you are on your feet all day you are going to want comfortable shoes, but HMRC are unlikely to let you claim these, as again they have dual use, even if you wouldn’t be seen dead in them outside work.

Another common one is gym kit for personal trainers, yoga instructors etc.  Although you will have to purchase more of this than the rest of us, it still has dual use and therefore can’t be claimed.

So there is generally very little scope to claim any “workwear” as a business cost, which I agree in some circumstances may seem unfair!

For any further information or help with your accounts, please contact Rosie Forsyth at Wilkins & Co

If you are starting up in business,  here’s my summary of useful blogs to help you with your accounts if you are self employed!

1. Smile – 10 reasons to get your tax return done early
2. Who needs to file a personal tax return
3. What you can claim from your business for working from home
4. Claiming the cost of your mobile phone
5. Claiming travel and subsistence
6. What are payments on account of tax
7. How to budget for your personal tax bill
8. Maternity Pay for the self-employed
9. When do I register for VAT?
10. Are you getting paid on time?

Hopefully there is something there to help you, if you need help and want to get in touch, please contact Rosie Forsyth here.