from A newsletter for proactive planning... In this edition... Should I file my tax return early? Claiming overlap relief Self-serve Time to Pay for VAT Are you using the correct tax-free mileage rates? Take advantage of the tax exemption for mobile phones September 2023 Issue www.compassaccountants.co.uk
PAGE 2 Should I file my tax return early?
PAGE 3 Claiming overlap relief If you are self-employed, the way in which your profits are taxed is changing. As a result of this, you only have a limited window in which to claim relief for any profits which have been taxed twice. Basis period reform For 2022/23 and earlier tax years, self-employed individuals, whether sole traders or partners in a partnership, were taxed on a current year basis. This meant that you were taxed on the profits for the accounting period that ended in the tax year. However, from 2024/25, you will be taxed on the profits for the tax year. If you prepare your accounts to 31 March or 1 to 5 April, this is deemed to be equivalent to the tax year. However, if you prepare your accounts to another date, you will need to apportion the profits from two accounting periods to arrive at the profits for the tax year. To move from the current year basis to the tax year basis, the 2023/24 tax year is a transition year. If your accounting date does not correspond to the tax year (or is not treated as corresponding to the tax year), you will be taxed on more than 12 months’ profits in 2023/24. The profits taxed are those for the 12 months from the end of your 2022/23 basis period, plus those for the remainder of the 2023/24 tax year, less any overlap relief. For example, if your prepare your accounts to 30 September, in 2023/24 you will be assessed on the profits for the year to 30 September 2023 plus the profits from 1 October 2023 to 5 April 2024, less any overlap relief. The profits from 1 October 2023 to 5 April 2024 are the transition profits. These profits, less any overlap relief, are spread over five tax years from 2023/24, unless you elect otherwise. Overlap relief Overlap profits are profits that are taxed twice. This may occur either in the early years of a business or on a change of accounting date. Under the current year basis, relief for overlap profits (overlap relief) was given on cessation or in a tax year in which there was a change of accounting date and as a result more than 12 months’ profits were taxed in that year. If you have overlap profits in respect of which relief has not been claimed, the last chance to do this is for the 2023/24 tax year. Relief will normally be claimed against the transition profits for that year. Overlap relief must be claimed in your 2023/24 tax return, which must be filed by 31 January 2025. Determining your overlap profits To claim overlap relief, you will need to know what your overlap profits are. This may not be a number that you have easily to hand, particularly if you started your business many years ago. HMRC are launching an online form which can be used to submit requests for details about overlap relief. At the time of writing, it was expected that the service would be available from 11 September 2023. They will only be able to provide information on overlap relief if the figures are recorded in their systems, taken from tax returns that you CONT ON PAGE 4
PAGE 4 submitted previously. If the information was not provided to HMRC in your tax returns, HMRC will be unable to provide it. When making a request for overlap relief information, you need to supply some details about your business to HMRC. You can make a request for information on your overlap profits ahead of the launch of the online form. If you choose to do this, you will need to supply the following information: your name; your National Insurance number or your Unique Taxpayer Reference (UTR); a name or description of your business, or both; whether you operate as a sole trader or are in a partnership; the date that you commenced as a sole trader or the date of commencement of the partnership, as applicable; the start and end date of the most recent accounting period; and the year(s) in which the accounting date changed, if relevant. Relief for overlap profits that is not claimed in 2023/24 will be lost. Are you using the correct tax-free mileage rates? As an employer, you can pay your employees tax-free mileage payments where they use either their own car or a company car for business journeys. However, the rates that you can pay tax-free depend on whether the car is the employee’s own or a company car and, where the employee drives a company car, the engine size of the car and the fuel that it uses. It is important that you use the correct rates to avoid landing the employee with an unwanted tax bill. Employees using their own cars Where an employee uses their own car for business journeys, you can pay mileage payments tax-free up to the approved amount. For tax (but not National Insurance), the approved amount is calculated for the tax year as a whole by multiplying the employee’s business mileage for the year by the approved rate set by HMRC. For cars and vans, the approved rate is 45p per mile for the first 10,000 business miles and 25p per mile for any subsequent business miles. This means that if an employee drives 12,000 business miles in the tax year, you can make mileage payments of up to £5,000 tax-free. If you pay less than this, or do not make mileage payments, the employee can claim a tax deduction for the difference between the approved amount and the amount you pay, if any. You can also make tax-free mileage payments if an employee uses a motorbike or bicycle for business journeys. The approved rates are set at 24p per mile for motorcycles and at 20p per mile for bicycles. For National Insurance purposes, the 45p rate for cars and vans is NIC-free regardless of the employee’s annual business mileage. The approved rates are the maximum you can pay tax-free, even if the actual costs are higher. Anything in excess of the approved rates is taxable.
PAGE 5 Employees driving company cars Where an employee has a company car but meets the costs of their own fuel, the mileage payments that can be made tax-free are lower than for employees using their own car for business. HMRC publish advisory fuel rates quarterly which are the maximum amounts that can be paid tax-free where an employee uses a company car for business journeys. The rates change on 1 March, 1 June, 1 September and 1 December. Different rates are set for diesel cars, petrol cars and cars running on LPG. The correct rate also depends on the engine size of the car. HMRC also set an advisory fuel rate for electric cars. The following rates apply from 1 September 2023. ENGINE SIZE 1,400cc or less 1,401cc to 2,000cc Over 2,000cc PETROL- RATE PER MILE 13p 16p 25p ENGINE SIZE 1,600cc or less 1,601cc to 2,000cc Over 2,000cc LGP RATE PER MILE 10p 12p 19p PETROL- RATE PER MILE 12p 14p 19p From 1 September 2023, you can also make a payment of 10p per mile where the employee drives a fully electric company car.
PAGE 6 Self-serve Time to Pay for VAT For some time, taxpayers within Self Assessment have been able to set up a Time to Pay arrangement online, allowing them to pay their tax bill in instalments if they cannot pay it in full and on time. The facility to set up their own Time to Pay arrangement has now been extended to VATregistered businesses. Setting up a VAT payment plan online If you operate a VAT-registered business and you are struggling to pay the VAT that you owe, rather than having to contact HMRC to set up a Time to Pay agreement, you may now be able to do it yourself online. A Time to Pay agreement will enable you to pay the VAT that you owe in instalments. Payments are collected via direct debit. You will be able to use the online self-serve facility if the following conditions are met: ·you have filed your last VAT return; ·the amount that you owe is £20,000 or less; ·you are within 28 days of the payment deadline; ·you do not have any other payment plans or debts with HMRC; and ·you plan to pay what you owe within six months. However, you cannot use the online service if you use the VAT cash accounting scheme or if you use the VAT annual accounting scheme. You are also unable to use the online service if you make VAT payments on account. To set up a payment plan online, you will need to sign into your Government Gateway account. As you need to set up a direct debit to collect the payments, this is something you must do yourself. While an adviser can guide you, they cannot do it on your behalf. Unable to self-serve If you are not eligible to use the online service and are struggling to pay your VAT bill, you may still be able to agree an instalment plan with HMRC. However, to do so you will need to contact HMRC by calling the VAT payment service on 0300 200 3831.
PAGE 7 Take advantage of the tax exemption for mobile phones The tax legislation contains a number of exemptions which allow benefits in kind to be provided to employees without a tax charge arising. Some of the exemptions are more useful than others. One of the more valuable ones is that for mobile telephones. The exemption enables you to provide one mobile phone to an employee for their use. However, it only applies if there is no transfer of property – you must retain ownership of the phone. The exemption covers the provision of the phone for the employee’s use, plus the cost of private calls and data usage. More than one phone The exemption is limited to the provision of one phone per employee. If the employee is provided with second or further phones for private use, or if phones are provided to members of their family for private use, the additional phones represent a taxable benefit. The tax charge is calculated in accordance with the rules for making an asset available for an employee’s private use. Business use exemption If an employee is provided with a second phone for business use only, and the employee does not use that phone for private use, there will no tax charge in respect of that phone. Consequently, the employee can be provided with one phone for private use (or business and private use) and one phone for business use without a tax liability arising. However, if the employee is provided with two phones both of which can be used for business and private use, the exemption will only apply to one of them, whereas the other will be taxable. Thus, if the employee is to be given the use of two phones, it is beneficial from a tax perspective to restrict the use of one of them to business use only. Any incidental private use of a business-only phone is disregarded. Beware salary sacrifice Do not be tempted to use a salary sacrifice arrangement to provide an employee with the use of a mobile phone for private use as this will result in the exemption being lost. Instead, the employee will be taxed by reference to the amount of salary given up in exchange for the phone.
PAGE 8 TAX DIARY SEPTEMBER 2023 19th September – Deadline for payment of PAYE and NICs etc to HMRC’s Accounts Office by non-electronic methods 22nd September – Deadline for online payment of PAYE and NICs etc to HMRC’s Accounts Office 30th September – VAT tax return deadline 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
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