Tax and the Electric car revolution

electric tax accountants kendal cumbria grange

From 1 September 2018 a new advisory fuel rate of 4 pence per mile applies to electric vehicles. This means that if your employees have electric company cars and they meet the cost of electricity for business journeys, you will be able to reimburse them at a rate of 4 pence per mile without triggering a tax liability or having to report the payment to HMRC. If, however, the payment exceeds 4 pence per mile, any excess over that amount is taxable and you must report the profit element to HMRC on the employee’s P11D or deal with it through the payroll.

Speak to the electric car accounting experts in cumbria to find out what the new rate means for your business.

ELECTRIC CARS

From 2020/21 new company car bands are being introduced which will significantly lower the benefit in kind tax charge for electric company cars. The benefit in kind tax charge for electric cars and those with emissions of between 0 and 50g/km is currently 13% of its list price; this is to increase to 16% for 2019/20. However, from 2020/21, the charge for zero emission cars will drop to 2%, whereas that for cars in the 1 to 50g/km band will depend on the electric range of the car, as set out in the table below:

CO2 emissionsElectric rangeAppropriate percentage
0g/km2%
1–50g/km 130 miles or more2%
1–50g/km 70 to 129 miles5%
1–50g/km 40 to 69 miles8%
1–50g/km 30 to 39 miles12%
1–50g/km Less than 30 miles14%

Looking ahead, the potential tax savings to the employee from choosing an electric car are significant. The reduction in the charge will also reduce the amount of Class 1A National Insurance that you, as an employer, will pay.

Speak to Electric car tax advisors Grange, Kendal and Ulverston to see how you can plan ahead to make the most of these changes.

ELECTRIC CHARGING POINTS

No fuel benefit charge arises if you provide electric charging points for your employees to use to charge an electric company car. HMRC do not regard the provision of electricity to power a company car as a ‘fuel’ and consequently there is no fuel benefit charge if you meet the cost of electricity for employees’ private journeys in an electric company car.

With backdated effect from 6 April 2018, a new exemption is being introduced which prevents an income tax charge from arising if an employee uses an employer provided charging point to charge their own electric or hybrid car, or one in which they are a passenger. However, the exemption only applies to electric charging points provided at or near the workplace, and is dependent on charging facilities being available to all employees who wish to make use of them. However, if you have more than one site, you do not need to provide a charging point at each of them for the exemption to apply.

 

 

MAKING TAX DIGITAL FOR VAT

The start date for Making Tax Digital (MTD) for VAT is fast approaching. If you are a VAT-registered business with turnover in excess of the VAT registration threshold of £85,000, you will need to comply with the requirements of MTD for VAT from the start of your first VAT accounting period beginning on or after 1 April 2019. If you are VAT registered but your VATable turnover is below £85,000, you can choose whether to join in, but if you do there is no going back and once in MTD for VAT you will need to stay within MTD for VAT as long as you remain VAT registered.

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Making Tax Digital by April 2018

Making Tax Digital (MTD) is an initiative by the Government to turn the UK into one of the most digitally advanced tax administrations. The proposals are far reaching and will ultimately affect all taxpayers.

Under the MTD reforms, businesses will be required to keep digital records and report digitally to HMRC each quarter. MTD is being introduced gradually and will apply from April 2018 to unincorporated businesses and landlords with turnover in excess of the VAT registration threshold – set at £85,000 from 1 April 2017. This is less than a year away and does not allow very long to get systems in place to meet the requirements which MTD will impose.

Unincorporated businesses and landlords should discuss what MTD means for them with their tax advisers sooner rather than later to ensure that they are ready by April 2018.

Capital Gains Tax 2017/2018

The annual exempt amount is increased to £11,300 for 2017/18. However, the rates are unchanged, remaining at 10% to the extent that total income and gains do not exceed the basic rate band. For Scottish taxpayers, this is £33,500 as capital gains tax is not devolved. To the extent that total income and gains exceed the basic rate band, capital gains tax is charged at the rate of 20% for 2017/18. Higher rates of 18% and 28% respectively apply to gains on residential property.

Trading and Property Allowances 2017/2018

New tax-free allowances for trading and property income are available for 2017/18 and later tax years. The allowances, each set at £1,000, mean that trading and/or property income no longer needs to be reported to HMRC where the income is less than £1,000 in the tax year. Where a person has both trading income and property income, he will be entitled to both allowances.

Where trading income or property income is more than £1,000, the profit or loss can be worked out in the usual way or the £1,000 allowance can be deducted rather than deducting actual expenses.

VAT Flat Rate Scheme Changes 01.04.2017

Limited cost traders

The VAT flat rate scheme aims to simplify the tax affairs of smaller businesses by allowing them to work out the VAT that they pay over to HMRC by applying a flat rate percentage to their VAT-inclusive turnover, rather than working out the difference between the VAT that they have charged and the VAT that they have incurred.

Prior to 1 April 2017 the flat rate percentage depended only on the sector in which the business operated. From 1 April onwards it is also necessary to work out whether the business is a ‘limited cost trader’. This is a business that spends less than 2% of its VAT inclusive turnover on relevant goods or one that spends more than 2% of its turnover but less than £1,000 per year on such goods.

For periods of less than one year, the £1,000 figure is proportionately reduced and thus equates to £250 a quarter.

Relevant goods exclude capital expenditure, food or drink for consumption by the business or its employees, vehicles, vehicle parts and fuel (unless the business operates in the transport sector), goods for hire or resale unless that is the business’s main business activity, goods for disposal, such as promotional items, and all services.

A business that meets the definition of a limited cost trader must use a VAT flat rate percentage of 16.5% rather than that for its business sector.

If you use the VAT flat rate scheme, it is advisable to discuss with your tax adviser whether these changes affect you. This is likely to be the case if you supply labour-only services. Your adviser will be able to discuss whether it remains beneficial to stay within the scheme. Businesses making taxable supplies in excess of the VAT registration threshold, set at £85,000 from 1 April 2017, must be registered for VAT.