Frequently Asked Questions

Q. I have recently started a new job and, for the first time in my career, I have been provided with a company car. I have to pay for fuel for private use but my employer says I can claim mileage for business journeys. Will I have to pay tax on fuel payments? 

A. In addition to the company car benefit charge employees have to pay tax on any fuel their employer provides that is used for private mileage. For 2016-17 you would calculate this amount by multiplying the car's CO2 percentage by £22,200. So, if the percentage is 28, the tax charge for petrol is £6,216. For a basic rate taxpayer, the after-tax cash equivalent is £1,243 and for a higher rate taxpayer £2,486. The charge is the same regardless of whether you use 2 litres or 2,000 litres of fuel.

However, this tax charge can be avoided if you pay all the private fuel costs back to your employer. You need to keep accurate records (mileage logs and fuel receipts) to support such a claim to HMRC.

Your employer can give you a tax-free fuel allowance if you pay for fuel used for business travel in your company car. HMRC publish new advisory fuel rates four times a year. The most recent rates, apply from 1 September 2016.

Rates currently range from

11p per mile for smaller petrol cars (under 1400cc);

13p for those with engines between 1401cc and 2000cc,

20p per mile for larger petrol cars (over 2000cc).

Lower rates apply for cars using cheaper liquid petroleum gas (LPG),ranging from

7p (1400cc or less);

 9p (1401cc to 2000cc); and

13p (over 2000cc).

Rates for cars with diesel engines currently range from

9p per mile for cars with engines of 1600cc or less;

11p per mile for those with engines of 1601cc to 2000cc; and

13p per mile for those with engines larger than 2000cc.

 Petrol hybrid cars are treated as petrol cars for this purpose.

HMRC accept that, where an employer reimburses an employee for the cost of fuel for business mileage in a company car at the above rates, no taxable benefit arises.

A full list of past and current mileage rates can be found on the HMRC websitehttps://www.gov.uk/government/publications/advisory-fuel-rates

 

Q. I am a director of a limited company, which is registered for VAT. I have recently formed a limited partnership, with my limited company being the only general partner and another business being a limited partner. HMRC have written to me advising that I am unable to register the limited partnership for VAT as my limited company is already VAT-registered. Is this correct? 

A. Yes. In a limited partnership there must always be at least one general partner with unlimited liability. A limited partnership, composed of individual limited partners, and a corporate general partner, offers a combination of total limited liability and the advantages of the partnership structure.

If a limited partnership is registered with the Registrar of Companies, then HMRC will only allow the registration in respect of the general partners, not any of the limited ones. This is because a limited partner cannot be held liable for any debts or obligations of the limited partnership. If the limited partnership goes into debt, the limited partner is liable to lose only the contribution he made to the partnership, the remaining debt will fall to the general partners.

In your case, because the limited company is already VAT-registered and is the only general partner of the limited partnership, you would be treated as the same legal entity for VAT registration purposes and would not be able to obtain separate VAT registrations.

 

Q. Having been an employee of a company for many years, I was appointed to the board of directors from 1 March 2016. I understand that Class 1 National Insurance Contributions (NICs) are calculated differently for directors. Can you please explain how it works and let me know what will happen for the rest of the current tax year?

 
A. NICs for directors are calculated by reference to an annual, rather than weekly or monthly earnings period. You became a director in week 44 of the 2015/16 tax year, which means that the primary threshold and upper earnings limit are calculated for the rest of the tax year by multiplying the weekly values by 9 (the earnings period starts with the week of appointment). So, from your date of appointment in 2015/16 to the end of the 2015-16 tax year, you will pay Class 1 NICs at the main rate of 12% on your director's earnings between £1,008 (9 x £112) and £7,353 (9 x £817) and at the additional 2% rate on all earnings above £7,596 paid up to 5 April. 
 
For 2016/17 you will pay Class 1 contributions evenly throughout the year. If, for example, your monthly salary is £9,000, you will pay Class 1 contributions as follows:
 
April (month 1) - salary £9,000 - NICs payable £112.80 (£9,000 - £8,060 (being the primary threshold) x 12%)
 
May (month 2) - salary £9,000 - NICs payable £1,080.00 (£9,000 x 12%)
 
June (month 3) - salary £9,000 - NICs payable £1,080 
 
July (month 4) - salary £9,000 - NICs payable £1,080 
 
August (month 5) - salary £9,000 - NICs payable £840.00 (£7,000 x 12% plus £2,000 x 2%: upper earnings limit of £43,000 reached)
 
September (month 6) to March (month 12) - NICs payable each month: £9,000 x 2% = £180.00
 
Total NICs due for tax year: £5,452.80

 

Q. I have recently changed jobs and need to use my car to make business journeys. Will I have to pay tax on the mileage expenses my employer reimburses me for these trips? 

A. Employers can pay employees a tax-free and national insurance-free amount for every mile they drive on business duties, currently:

- 45p per mile for the first 10,000 miles
- 25p per mile for each subsequent mile
- 24p per mile for motorcycles
- 20p per mile for bicycles
- 5p per mile extra for each passenger carried on work-related journeys

If your employer reimburses your mileage at less than these rates, you can claim the balance (but not the 5p per mile passenger extra) against your taxable income. For instance, if your employer gives you 35p per mile for 1,000 miles, you have a 10p per mile shortfall and can claim £100 against your taxable income. The big exception to business mileage is the daily commute from home to work and back again. 

 

Q. When do I need to register for VAT?

A. Changes have been made to the April 2010 edition of VAT Notice 700/1: Should I be registered for VAT? To reflect:

- the introduction of a new online system for registering for VAT; and
- the removal of the VAT registration threshold for non-established taxable persons

Very broadly, you need to register for VAT if your annual turnover reaches the current annual registration threshold limit (£83,000 for 2016/17). This threshold operates on a month-by-month basis so you need to check at the end of each month to make sure that you haven't gone over the limit in the previous 12 months so you look at it on a rolling 12 months ie look at the previous 12 months and as you move on a month, look at the last 12 months from that point. Often business owners only look when their final accounts are prepared which in many cases can mean that they are late in registering. You also need to think about whether you're going to go over that limit in the following 30 days). If you think you may, you probably need to register.

You can register for VAT even if your turnover is below the threshold and you may actually save tax by doing so, particularly if your main clients or customers are organisations that can reclaim VAT themselves. You may also wish to register early and use the flat-rate VAT scheme, this simplified scheme often means that the business pays less than they have received net.

You must register with HMRC within 30 days of being aware that you're going to exceed the threshold and your vat registration will begin at the beginning of the month following a clear month from the date of exceeding the limit. See the gov.uk website at https://www.gov.uk/vat-registration for further information on registration. 

 

Q. What are payments on account and how do they affect me?

A. These are part payments for the next year. As, when it is due (31st Jan) it is nine months in to the next tax year, HMRC ask you to pay half of your expected bill for the following year. (ie 6 months tax but paying it 9 months into the year). You do not know exactly what you will need to pay for that year yet, as clearly the year has not finished, so they calculate half of your bill for the previous year and ask you pay this as your first payment on account, they then ask you for a second payment on account by 31st July (3 months after you have finished your year).

When you finally do know the liability for the following year ie 2014-15 then you set off the payments on account against this liability and make any balancing payment the following 31st Jan. If however, you have paid too much, once HMRC know what you should have paid (by receiving your tax return) they then re-pay this to you, or if it is close to the next payment date they will hold it and set it off against the amount becoming due.

These payments on account can be reduced if you believe the next year's bill will not be as much, using form SA303 or we can reduce this for you. However, if it turns out later that your bill was higher than you reduced it to, you will be charged interest from the date they asked for the payments on account.

 

Q. My cafe was badly damaged in the recent riots, but my loyal customers have collected £3,000 to help me open the business as quickly as possible. How should I treat this sum for tax purposes? Is it a personal gift, or a contribution to be set against my repair costs? 

A. This gift from your customers should be treated as income for your business for income tax or corporation tax purposes. You are likely to have a lot of repair expenditure to set against your income for the current period, so you may well not have a profit to declare even after including the gift as income.

Q. I've received a tax refund for 2010/11, but I'm worried that it's not correct as I usually have tax to pay each year. Also I haven't even submitted my 2010/11 tax return yet.

A. You are right to be worried about the tax refund, as the Taxman's computer has issued some incorrect refunds recently. If you normally complete a self-assessment tax return but also have some income taxed under PAYE, the computer should wait until your tax return has been submitted before calculating the tax to be refunded. In a few cases this has not happened, and the tax refund has been based only on the taxpayer's PAYE income. Please ask us to check the tax calculation that should have arrived with your refund cheque.

Q. The Tax Office has written to me saying £2,800 tax I owe will be collected by restricting my PAYE code for 2012/13. What does this mean?

A. The Taxman is now permitted to collect up to £3,000 of unpaid tax or overpaid tax credits through PAYE codes. Your PAYE code tells your employer how much of your income to treat as tax free, and thus how much tax to deduct from the rest. A common PAYE code for 2011/12 would be 747L, which gives you tax free income of £7,475 for the year. If you owe £2,800 in unpaid tax, and your highest marginal tax rate is 40%, your tax free income will be reduced by £7,000 (£2,800/ 40%), leaving you with tax free income of £475 and a PAYE code of 47L. The numbers will be slightly different in 2012/13, but essentially you will pay more tax each month from April 2012 until the tax debt is eliminated. 

 

Q. I generally invoice about £5,000 per month, some £60,000 per year, so my business is not yet VAT registered. However, from 1 April a new customer will provide an additional £2,000 of sales per month. When exactly will I have to register for VAT?

A. You currently have a margin of £13,000 between your regular sales and the new VAT registration threshold of £73,000 (from 1 April 2011). Your new income will fill that margin in 7 months. If your regular sales remain constant your turnover for the past 12 months will exceed £73,000 in mid October 2011. You will need to register for VAT by 30 November 2011. As the VAT registration process can take at least a month, you should send in your application for VAT registration (online or in paper form) as soon as you realise your sales have exceeded £73,000. On that form be careful to state the date from which you become liable to register for VAT, even if that is some weeks in advance.

 

Q. My PAYE tax code is 647L, but the websites I've looked at say it should be 747L, which is correct?

A. The personal allowance for individuals aged under 65 for the tax year 2010/11 (which ends on 5 April 2011) is £6,475. If you have no deductions to set against your personal allowance your tax code for 2010/11 should be 647L. The standard personal allowance for the tax year 2011/12 (from 6 April 2011 to 5 April 2012) will be £7475, so your tax code for 2011/12 will be 747L.

 

Q. I work through my own UK company that has secured a 6 week contract to be performed in Amsterdam. I plan to stay with my cousin in Amsterdam while working on that contract. As I won't have receipts from a hotel, what can I claim as expenses?

A. HMRC set benchmark scale rates for business trips in most countries. These cover costs for accommodation, meals, and other sundry expenses known as the residual rate. Your company can reimburse your expenses at the benchmark scale rates without receipts. However, if you are staying with a friend or relative and do not pay for accommodation or meals you can only reclaim 10% of the residual rate for the area. Where you pay for some meals (e.g. lunch) you should claim the specific meal rate or the actual expense supported by receipts. On top of these expenses you can also claim personal incidental expenses of £10 for every night that you are working abroad.

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