from A newsletter for proactive planning... In this edition... Making tax-free mileage payments Business Asset Disposal Relief – Have you exceeded the limit? Avoid the traps when providing eye tests for employees How to appeal a tax penalty Do we need to register for VAT? Tax Diary- August 2023 August 2023 Issue www.compassaccountants.co.uk
PAGE 2 Making tax-free mileage payments If you have employees who use either their own car or a company car for business mileage, you can pay mileage allowances tax-free up to certain limit. However, if you pay more than the permitted amount, the excess is taxable and liable to Class 1 National Insurance. The amount that you can pay tax-free depends on whether the employee uses their own car for business or has a company car. Employees using their own car for business journeys Where an employee undertakes business mileage in their own car, you can make tax-fee mileage payments up to the ‘approved amount’. This is simply the employee’s business mileage in their own car in the tax year multiplied by the approved rate. For cars and vans, the approved rate is 45p per mile for the first 10,000 business miles in the tax year and 25p per mile thereafter. So, if an employee drives 12,000 business miles in the tax year, you can make mileage payments of up to £5,000 tax-free (10,000 miles @ 45p per mile plus 2,000 miles @ 25p per mile). Any excess over the approved amount is taxable. However, if you pay less than the approved amount (or do not pay mileage allowances), the employee can claim tax relief for the difference between the approved amount and the mileage payments received, if any. The approved amounts are the maximum that can be paid tax-free. You cannot make higher payments taxfree even if the actual costs incurred by the employee exceed the approved amount. You can also make mileage payments free of National Insurance. However, for National Insurance purposes, the 45p rate is used for all business mileage. Any amount paid in excess of this should be included in gross pay for National Insurance purposes. Employees using a company car for business journeys The approved rates do not apply where the employee has a company car. These rates include an element for insurance and depreciation as well as for fuel. Instead, HMRC publishes fuel-only rates (the advisory fuel rates) which can be used to make tax-free mileage payments to employees who use a company car for business mileage and who pay for their own fuel. The rates are published quarterly. The rates applying from 1 June 2023 are as follows: ENGINE SIZE 1400cc or less 1,401 to 2,000cc Over 2,000cc PETROL 13p per mile 15p per mile 23p per mile ENGINE SIZE 1,600cc or less 1,601cc to 2,000cc Over 2,000cc LPG 10p per mile 12p per mile 18p per mile DIESEL 12p per mile 14p per mile 18p per mile If the employee has an electric company car, you can pay a rate of 9p per mile tax-free. Payments up to the advisory rates can also be made free of National Insurance.
PAGE 3 Business Asset Disposal Relief – have you exceeded the limit?
PAGE 4 Avoid the traps when providing eye tests for employees The exemption The exemption prevents a tax liability arising where an employee is provided with an eye and eyesight test or special corrective appliances that an eye and eyesight test show to be necessary. The corrective appliances must be for display screen equipment use only – if the employee needs glasses for reading or everyday use, these fall outside the scope of the exemption. The availability of the exemption is contingent on two conditions – condition A and condition B – being met. Condition A is that the provision of the test or appliances is required by regulations made under the Health and Safety at Work etc. Act 1974. The law requires employers to arrange eye tests for display equipment users and provide glasses where needed for display equipment work only. Condition B is that the tests and corrective appliances must be made available generally to those employees for whom the regulations necessitate their provision. To comply with the health and safety legislation, it does not matter if the employer arranges the test with the optician and pays for it, the employee arranges it and the employer pays the optician on the employee’s behalf or the employee arranges it and pays for it and the employer reimburses the employee. However, from a tax perspective, all routes are not equal. Employer arranges and pays for the test Assuming the conditions are met, the exemption will apply if the employer arranges the test with the optician and pays for it – here the employer is providing the employee with an eye test. If corrective appliances are provided, the exemption will similarly apply as long as the employer arranges their provision and pays for them. Employee arranges the test and the employer pays From a tax perspective, if the employee arranges the test and the employer pays for it on the employee’s behalf, the employer is settling an employee’s private bill rather than providing an eye test. The exemption only applies to the provision of an eye test or corrective appliances, not to the settling of a pecuniary liability. To avoid falling foul of this trap, the employer should arrange the test directly with the optician and pay the optician. Employer reimburses the employee In the event that the employee arranges and pays for an eye test and is reimbursed by the employer the exemption for eye tests is not in point as the employer is not providing an eye test. The exemption for paid and reimbursed expenses will only apply if the employee would be entitled to a tax deduction if they met the cost themselves. This is not the case here. Consequently, any reimbursement of the cost of an eye test or corrective appliances is taxable.
PAGE 5 How to appeal a tax penalty There are various reasons why HMRC may issue a tax to You will needyoutell them what your reasonable excuse penalty. You may receive a penalty if you file your tax return is. However, should bear in mind that HMRC’s idea late, your tax return is inaccurate, you are late paying tax that you owe or you fail to keep accurate records. If you do not agree with the penalty, you can appeal against it. The appeal route depends on whether the penalty relates to a direct tax, such as income tax, capital gains tax or corporation tax, or to an indirect tax, such as VAT. Direct tax penalties If you receive a penalty in relation to a direct tax by post, the appeal letter will contain instructions on how to appeal and also a form which can be used. An appeal must be made within 30 days of the date on the penalty notice. If you miss the deadline, you must explain the reason for doing so to HMRC so that it can decide whether to consider your appeal. Self Assessment Penalties If you have received an automatic £100 penalty for missing the deadline for filing your Self Assessment tax return, you can appeal online by signing into your Government Gateway account. Alternatively, you can appeal by post. If you did not need to send a return, HMRC should cancel the penalty. If you submitted your return late and have a ‘reasonable excuse’ for doing so, HMRC may allow your appeal. of a reasonable excuse may be different to yours. It will only accept serious events such as the death of a partner or close relative, a serious or life threatening illness or an unexpected hospital stay, delays related to a disability or mental illness that you have, service issues with HMRC’s online services, a computer or software failure while filing your return, a fire, flood or theft that prevented you from filing your return on time as valid reasons for late filing. HMRC may also accept that you had a reasonable excuse if, despite taking reasonable care, you misunderstood or were not aware of your obligations or relied on someone else to file your return and they did not. HMRC will expect you to send your return as soon as you are able once the reason for not filing it on time has been resolved. If you need to appeal other self-assessment penalties, you should do this by post or on form SA370. PAYE penalties If you are an employer and you receive a PAYE penalty, you can log into your PAYE Online for Employers CONT ON PAGE 6
PAGE 6 account and appeal using the ‘Appeal a penalty’ option. You will receive an immediate acknowledgement of your appeal. Indirect tax penalties If you are charged a penalty in relation to an indirect tax, for example, a VAT penalty, the penalty letter will offer you a review, which you can choose to accept. Alternatively, you can appeal to the tax tribunal. Review by HMRC If you are not happy with the outcome of an appeal against a direct tax penalty or you are issued with an indirect tax penalty, you can take up the offer for HMRC to review the penalty decision. The decision will be reviewed by someone who was not involved in the original decision. The review will normally take 45 days (although HMRC should tell you if it will take longer than this). HMRC will tell you the outcome of the review. Appeal to the tax tribunal If you disagree with the review decision or do not want to accept a review, you can appeal to the tax tribunal. Again, you have 30 days to lodge your appeal. Alternative dispute resolution If you have appealed to the Tax Tribunal, you can opt to use the Alternative Dispute Resolution procedure to resolve the dispute rather than it being heard by the Tax Tribunal. Under this route, a mediator will work with you and HMRC to find a solution.
PAGE 7 Do we need to register for VAT? If you make VAT-able supplies, you will need to register for VAT if your taxable turnover reaches the VAT registration threshold. The VAT registration threshold is set at £85,000. The need to register for VAT is triggered if your VAT taxable turnover for the last 12 months exceeded £85,000 or if you expect your VAT taxable turnover to go over £85,000 in the next 30 days. Taxable supplies Taxable supplies for VAT purposes are supplies that are made in the UK and which are not exempt from VAT. This includes supplies liable at the zero rate of VAT, as well as those charged at the standard and reduced rates. You do not need to take account of exempt supplies when checking whether you need to register for VAT. Voluntary registration Registration is compulsory if your VAT taxable turnover meets either of the tests set out above. However, if you make taxable supplies but your taxable turnover is below the VAT registration threshold, you can choose to register for VAT voluntarily. This will be beneficial if the value of your input VAT exceeds the value of your output VAT, allowing you to reclaim the difference from HMRC. This may be the case where the supplies that you make are predominantly zero-rated (for example, if you sell zero-rated food items or children’s clothes). When to register If your VAT taxable turnover in the last 12 months exceeded the VAT registration threshold of £85,000, you must register for VAT within 30 days of the end of the month in which your turnover for the previous 12 months went over £85,000. Your effective date of registration is the first day of the second month after the threshold has been breached. Example Molly’s VAT taxable turnover for the previous 12 months exceeded £85,000 on 2 August 2023. This is the first time that she has exceeded the VAT registration threshold. Molly must register for VAT by 30 September 2023 (30 days from the end of August 2023 – the month in which her turnover exceeded the threshold). Her VAT registration is effective from 1 October 2023. If your VAT taxable turnover will exceed £85,000 in the next 30 days, you must register by the end of the 30day period. Your effective date of registration is the date that you realised that this would be the case, not the end of the 30-day period. Example On 6 August 2023, Paul agreed a contract for £120,000 to provide services in August 2023. He will be paid on 30 August 2023. He realised on 6 August that his turnover will go over £85,000 in the next 30 days. He must register by 5 September 2023. His registration is effective from 6 August 2023. How to register You can register for VAT online via the gov.uk website. You can also ask your agent to register on your behalf.
PAGE 7 Compass Client to Climb the Three Peaks for Charity Compass Accountant’s client, Sam Morrison is about to embark on a gruelling 'Three Peak Challenge' to raise money for Friends Fighting Cancer, a non-profit organisation that hosts fundraising activities to benefit local families. Sam is no stranger to charity challenges, having appeared in the Compass newsletter last year, after signing up for a charity boxing match. This year, she is taking on the three peaks- Ben Nevis, Scafell Pike and Snowdon- the highest mountains in Scotland, England and Wales. The challenge will be to climb each of these three peaks one after the other in under 24 hours. Having been through chemotherapy, surgery and radiotherapy herself after a stage three diagnosis for breast cancer back in 2015, Sam understands how cancer impacts loved ones, family & friends. “It’s a great privilege to be able to raise funds for Friends Fighting Cancer, allowing families to receive financial help, that will alleviate some of their worries. I’ve been training a lot, but I know this is going to be one hell of journey for both my mind and body but I’m determined to make it to the end. I’m sure there will be lots of highs and lows, sore feet, aching joints and fatigue but I love a challenge and like to set the bar high. “Compass have been very kind and already sponsored me £100- but it would be great if others could dig deep and help me raise as much as possible to help support families locally!” If you would like to sponsor Sam, go to the link below and donate what you can: https://www.justgiving.com/fundraising/sam-morrison19
PAGE 8 TAX DIARY AUGUST 2023 2nd August – P46 (car) – company car changes in the period 6th April – 5th July 19th August – Deadline for payment of PAYE and NICs etc to HMRC’s Accountants Office by non-electronic methods 22nd August – Deadline for online payment of PAYE and NICs etc to HMRC’s Accountants Office 31st August – PAYE Settlement Agreement calculation deadline (specified in PAYE Settlement Agreement) For further information on any of the stories in this month’s newsletter, or for any other matter that Compass Accountants can assist you with, please contact us on 01329 844145 or contact@compassaccountants.co.uk To subscribe to the newsletter, so that each edition is delivered to your inbox, go to www.compassaccountants.co.uk and add your contact details. Compass Accountants, Venture House, The Tanneries, East Street, Titchfield Hampshire. PO14 4AR
Fleepit Digital © 2021