News from Cryer Sandham Limited
Business and financial news

October 2008 Newsletter

 

 

A) Employer compliance

 

Once again we would like to issue a warning over payroll and directors/shareholders remuneration in general. This is a prime area for an HMRC enquiry. PAYE/NIC visits are a cost-effective tool in HMRC's investigation armoury.  They generally yield substantial settlements (often going back several years) with minimal HMRC time input. In Taxation it was reported that the top 10 subjects in a PAYE enquiry hit list are:

 

1. Termination payments

2. Status (employed/self employed)

3.  Expatriates

4. Entertaining

5. Fuel scale charges

6. Construction industry scheme

7. Personal incidental expenses

8. NICs and aggregation

9. Home to work travel

10. Long-service awards.

 

 

 

A number of the items listed above can simply be labelled as completion of incorrect end of year P11D forms or the complete lack of said forms. Also it remains a priority that companies operate due procedure for the processing and payment of dividends.

 

 

B) Cars - planning ahead

 

Company car drivers are likely to see their income tax bills increase over the next three years.  Employers will face corresponding increases in their Class 1A National Insurance costs. 

 

The Chancellor's drive towards cleaner vehicles, making fewer journeys, goes on.  The percentages that are used for calculating the benefit of having a company car will increase in 2008/09 and again in 2010/11 for all but the 'cleanest' cars. This means that the tax you pay in the future will be higher than that you pay today despite driving the same vehicle.

 

 The only company car drivers to avoid these increases are those driving cars with carbon dioxide (CO2) emissions under 130g/km who do not have private fuel provided. The Chancellor has also brought in a new 10% band (previously the lowest percentage chargeable is 15%) on 'QUALECS ' (qualifying low emissions cars) where CO2 emissions do not exceed 120 g/km.

 

If fuel is provided for private use (in addition to the provision of a company car) the tax charge is based on the same percentage used in calculating the taxable car benefit. The percentage is then applied to a fixed (amount of £16,900 (previously £14,400).

 

Expenditure on a new car qualifies for 100% first year allowances for the business provided the following conditions are met:

           expenditure incurred to 31 March 2013;

           CO2 emissions no more than 110g/km from 1 April 2008 (this was previously 120) OR it is electrically propelled

 

In all other cases it is restricted to the standard annual 20% writing down allowance as restricted for expensive cars (i.e. those costing more than £15,000).

 

 

C) Vans - planning ahead

 

Since April 2005 company vans can be taken out of the benefit in kind rules where there is a minimal actual benefit from the use of the van e.g. those who have to keep the van at home, but have no other private use for it.  If there is no tax charge there will also be no Class 1A NIC charge. The private usage must be restricted to ordinary commuting.

 

Where private use is unrestricted or is significant the scale charge for unrestricted private use is £3,000.  This is a steep charge and if there is employer provided fuel, an additional fuel charge of £ £500 will apply.

 

Those employers who believe their employees fall within the exemption above should be keeping appropriate records in case of a HMRC query

 

 

D) Other vehicle issues

 

There are also other issues to think about for the employer who provides company vehicles or who have members of staff driving on company business in their own vehicle. With the introduction of the Corporate Manslaughter Bill, which became law in April 2008, there has become even more pressure put on companies to keep records of all drivers and vehicles used on company business however minor that trip might be.  Records suggest between 1 and 3 million vehicles are used on company business and surveys show that some 60% are not properly maintained and 33% are not properly insured.  The law suggests there is a duty of care that an employer needs to be aware of as in the event of a serious accident or fatality they could face prosecution.

 

The records kept by the business (in respect of company or personal cars used for the business) must be adequate to show that

 

-           There is a current and valid licence for the vehicle.

-           There is correct insurance cover for the journeys undertaken.

-           The vehicle is suitable for the purpose to which it is going to be used.

-           The vehicle is roadworthy.

-           The vehicle is serviced as per the manufacturer’s guidelines.

-           The vehicle is currently taxed and MOT’d, where applicable.

 

 

E)  Residence changes

 

Taxpayers who become non-resident in the UK have the ability to keep tax out of the UK tax-net.  Whether they are or are not resident here primarily depends on the number of days which they spend in the UK.

 

The method for counting days for UK residence purposes has been amended.  During 2007-08 and for many years before, days of arrival in and days of departure from the United Kingdom were not included when working out how many days a person was physically present here.  This was vital in determining the day-count for whether someone was resident or non-resident, e.g. for the statutory '183 day' test and the '91 day' averaging test found in HMRC leaflet IR20.

 

On or after April 6, 2008, UK residence will be determined by reference to the number of days that the individual is present in the United Kingdom at midnight (the 'midnight test'). Days in transit in the United Kingdom (for example where waiting for travel connections) will not count unless the individual takes part in an activity that is not related to their transit.

 

 

F) Non-domiciled individuals

 

The dramatic change to the residence and domicile rules in FA 2008 mean a major rethink for many taxpayers.  The main plank of the new rules is a £30,000 annual charge for non-domiciled individuals who claim the use the remittance basis of taxation.  This applies to adults (over 18 years old) who have been resident in the UK for more than 7 of the past 10 years and who have unremitted foreign income and gains in excess of £2,000.  Individuals who elect for this charge to apply will no longer be eligible to claim the annual personal tax allowances for income tax or the annual CGT exemption on any income whether generated in the UK or overseas. Although the £30,000 charge only applies to individuals who meet the 7 out of 10 year rule, the loss of Annual PA’s is applicable to all non-domiciles who elect the remittance basis.

 

The £30,000 charge is annual and is only payable in any year the election is made. An individual is free to choose whether or not to elect this basis each and every year. Computations will therefore be required to ensure that it is only paid when required, which will mean taking a close look at the taxpayer's world-wide affairs.  In order to achieve the best possible tax position under the double taxation treaties careful records will be required to look at what income is 'nominated' as being subject the charge.

 

Obviously where a taxpayer is subject to UK tax on their worldwide income (either on the arising or the remittance basis) any overseas withholding tax suffered should be taken into account and thus reduce the individuals UK tax charge in accordance with the double taxation treaties between the UK and other countries.