Car or Van?

When in the market for a new vehicle it is worth considering the tax implications of what can be a large purchase for a small business.

The current tax regime offers a generous 100% Annual Investment Allowance for qualifying capital expenditure up to £250,000.  For most small businesses this will cover all of the annual capital expenditure but to qualify your new vehicle needs to be classed as a van not as a car.

HMRC provide us with the following on their website...

In deciding whether or not a particular vehicle counts as a car for car benefits purposes, the starting point is the definition in Section 115(1) Income Tax (Earnings and Pensions) Act 2003 (ITEPA). This works by exception: every mechanically propelled road vehicle is a “car” unless it is
(i) a goods vehicle (a vehicle of a construction primarily suited for the conveyance of goods or burden of any description),
(ii) a motor cycle (as defined in Section 185 Road Traffic Act 1988),
(iii) an invalid carriage (also as defined in that Act), or
(iv) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

The result of this is that the primary function of the vehicle must be for the conveyance of goods or burden.  Therefore luxury off-road vehicles would not qualify but some (not all) pick-up trucks would qualify.

Where the vehicle doesn't qualify as a van the tax treatment will depend on the CO2 emissions resulting in annual allowances of 18% for a cleaner car (currently those with CO2 emissions over 130g/km) or 8% for a "dirty" car.

The result of this is very much delayed relief so worth considering when you are choosing your vehicle.

It is worth noting that Vehicle Excise Duty and VAT legislation are both different to tax legislation, so the same vehicle can be treated differently by the different agencies. For instance, VED is based on type approval at the time the vehicle is first registered, whereas VAT and the tax/NICs regimes consider the nature of the vehicle at the time of the transaction or in the relevant tax year.

If you are unsure please contact us before you buy!
For a helpful list from HMRC try here.

August Newsletter

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Small businesses 'generate more for local economies' - now there's a surprise!

How long do I have to keep all this paperwork?

Personal Tax Records

If you're not running a business, you'll normally have to keep your tax records for at least 22 months from the end of the tax year to which they relate.

For example, if you gave a property to a charity in September 2012, you must keep any records relating to it until at least 31 January 2015.

Trade Records

If you're in business (as a sole trader or partnership) you must keep your tax records for at least five years and one month after the end of the tax year to which they relate.

For example, if you bought an asset in October 2012 you must keep your records until at least 30 April 2018.

HMRC Enquiry

If HM Revenue & Customs make any enquiries about your tax return you will need to keep your tax records until the enquiries are completed.

Don't throw it all!

There is certain information that you would be wise to keep for much longer than the statutory minimum as it may help mitigate future tax bills.

For example, the completion statement you receive on purchasing a second home may be needed to calculate the Capital Gain if the property is sold in the future.  This could be many years down the line!

Find out more

More information can be found here, or contact us on 01395 516658.

July Newsletter

Please see here for details of the latest news including the latest backtracking from HMRC in the implementation of RTI.

A host of information can be found through viewing past Newsletters on our Newswires page.

June Newsletter

Please see here for details of the latest news including the Queen's Speech and Tax Avoidance.

A host of information can be found through viewing past Newsletters on our Newswires page.

RTI - HMRC make a small concession

HMRC has bowed to pressure and will allow some employers more time to submit their RTI reports.

PAYE Real Time Information (RTI) is mandatory for employers from April 6. Since this date, each time you pay an employee you must report their earnings and the corresponding tax and NI contributions to HMRC no later than when you pay your workers. However, it's now offering a little leeway.

HMRC's press release of March 19 is worded a little oddly; it says that employers with fewer than 50 employees can defer making their RTI reports until "the date of their regular payroll run but no later than the end of the tax month (5th)".

In practice. Tax months end on the 5th of the month. Therefore, HMRC is saying that if you pay your workers weekly, say on a Friday, then for the April tax month paydays will be the 12th, 19th, 26th plus May 3. You must make an RTI report for these by no later than May 3, but only where this is the date on which you work out the total tax and NI payable for the month for each employee. If you run a full payroll earlier, then a report will be required at that time.

The RTI reporting concession is short lived. Only payments to employees up to and including October 5 are covered. Thereafter, every time you make a payment you must submit an RTI report.

Under current rules employers, no matter how many workers they have, don't have to make an RTI report for certain one-off or unusual payments until they make their main payroll run.

Year end tax planning

The current tax year ends on 5th April so now is a good time to plan to ensure the best use of individual’s allowances, exemptions and reliefs.  In difficult economic times, we all wish to minimise the contribution to the Chancellor of the Exchequer, which would otherwise be taken by way of direct or indirect taxes both immediately and in the future:

Income Tax

The number of people facing higher rate tax is increasing as tax thresholds reduce, leaving more people worse off, so either directing income from one spouse to another by transferring income producing assets, especially where one spouse pays tax at a lower rate could be advantageous, or investing funds in a non-taxable environment, for example an Individual Savings Account, might be opportune.

Capital Gains Tax

Individuals are each currently entitled to an annual exemption and now that Capital Gains Tax is again linked to income tax thresholds, a capital gains rate of 28% and 18% applies to chargeable gains falling in to higher rate and basic rate thresholds respectively and therefore, planning to minimise exposure is essential, especially as unused annual exemptions cannot be carried forward to a new tax year.
Spouses who live together could consider transferring assets on a ‘no gain/no loss’ basis and provided such arrangements are made on ‘an arms length basis’, it might be possible to use both, rather than one annual exemption on subsequent disposals making best use of both spouses exemptions and thresholds.
Where chargeable Gains arise, the timing and use of Capital Losses and, the possibility of spreading disposals over two tax years, in order to maximise use of current and future exemptions and postpone any liability due, could also be contemplated.

Inheritance Tax

This is a tax on Estate value and to maximise the transfer of wealth to the next generations, the main exemptions, listed below, can be considered:-

1. Most transfers between spouses.
2. The first £3,000 of lifetime transfers in any tax year, plus any unused balance from the previous tax year.
3. Gifts of up to, but not exceeding, £250 per tax year to any number of persons.
4. Gifts made out of income that form part of normal expenditure and do not reduce the donees standard of living.
5. Gifts in consideration of marriage of up to either £5,000 per parent, £2,500 per Grandparent, or £1,000 by any other person.
6. Gifts to Charities.

The use of gifts to a Discretionary Trusts might also be considered but the tax consequences, where the subject of the gift could trigger a Capital Gain, must be carefully considered.

In all matters relating to tax planning, individuals must take appropriate professional advice.