Knowing the tax impact of using a company car

August 20, 2023

Knowing the tax impact of using a company car

Do you know the tax implications of a company car? We can explain the impact of a company car on your benefits in kind (BIK) and company taxable costs.

Having the use of a company car is a great perk. But are you aware of the tax impact of a company car and how having this vehicle may affect your company benefits?

Two of the key tax considerations related to company cars are the benefits in kind (BIK) tax charges incurred by the driver, and the tax deductions which benefit the company. At present, it’s also worth understanding the benefits of running an electric or low-emission vehicle.

Understanding the BIK charges on your company car

The BIK amount you’re taxed on as the driver of a company car is calculated as a percentage of the list price of the vehicle when new. The list price includes delivery charges, optional extras and VAT but not the registration fee or the first year’s vehicle excise duty.

Because it’s based on the original ‘list price when new’ value, any discounts are ignored, and even for used cars, the original value is retained.

The percentage applied depends on CO2 emissions, and for hybrid vehicles the on-electric range, as you can see in the table below:

It’s worth noting that:

Diesel vehicles registered before January 2021 that aren’t RDE2-compliant attract a 4% surcharge on their published BIK rate, up to a maximum total of 37%
Where fuel is provided by the company for private mileage, the same percentage is applied to a value of £27,800.

Claiming company benefits against the cost of a company car

Although the driver is taxed on the perk of driving a company car, the company can benefit by claiming deductions for the costs involved in running this vehicle.

All expenses in connection with the operation and maintenance of the car are deductible as trading expenses, including things such as insurance, fuel and maintenance. Capital allowances are also available in respect of the purchase price of the vehicle.

Depending on the vehicle, the capital allowances available are:

100% First Year Allowance – this is only for new zero-emission cars.
18% annual allowance on written-down value – this is for second-hand electric vehicles and all vehicles with emissions between 1 and 50 g/km
6% annual allowance on written-down value for all other new and used vehicles.

Talk to us about the tax implications of company cars

If you’re thinking about investing in a company car, it’s worth considering that there are tax advantages for both the company and the driver in selecting an all-electric vehicle. There are also advantages, to a lesser extent, in opting for a low-emission vehicle.

We can calculate the likely personal BIK tax charge on any vehicle you’re considering buying through your business, as well as advising on the tax and other implications for the company.

Talk to us before purchasing a company car for personal use. The tax charges can be higher than you may expect, so it’s worth considering the BIK impact before you buy.

Get in touch for a chat about your company car plans from us at The Stan Lee.

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Spreading your tax costs with Time To Pay

July 13, 2023

Spreading your tax costs with Time To Pay

Have you been hit with an unexpectedly large tax bill? One way to manage this is to apply for a Time to Pay arrangement with HMRC. We’ve got the lowdown on how to do this.

HM Revenue & Customs (HMRC) expects you to pay your taxes on time. But if you’re finding it difficult to pay in full, HMRC can be approached to allow a Time to Pay arrangement.

A Time to Pay arrangement will allow you to pay your debt off in pre-agreed instalments, reducing the impact of a large tax bill – and helping you manage your debt and cashflow.

How does Time to Pay work?

If you need to request a Time to Pay arrangement for self-assessment tax, Employer’s PAYE and VAT, these can often be made online using a ‘self-service’ system.

Where you owe other types of tax, or where the conditions for online applications are not met, you’ll need to contact HMRC to discuss your situation.

The easiest (although not always the quickest) way to discuss your Time to Pay request is by telephone to 0300 200 3835.
HMRC agents will want to know about all taxes you owe, not just the one(s) where you want to spread payment. They will also ask for details of your income and outgoings, and any savings or assets that may be able to be used to reduce the amount owed.
Presuming that you agree to a payment plan with HMRC during the call, they will usually want to set up a Direct Debit straight away.

Making use of the self-serve Time to Pay system

If you don’t have any existing payment plans or debts with HMRC, the ‘self-serve’ system may be more straightforward, provided that the applicable tax returns have already been filed. The conditions and amounts vary depending on the particular tax.

For example:

Self-Assessment: You must apply no more than 60 days after the payment deadline and owe no more than £30,000.
Employer’s PAYE: You must be within 35 days of the deadline, owe no more than £15,000 and have no outstanding penalties. The maximum period over which the amount due can be spread is six months.
VAT: For VAT, you need to apply within 28 days of the due date and owe no more than £20,000. You can’t apply for a Time to Pay arrangement through the self-serve scheme if you use either the cash accounting or annual accounting schemes.

The self-serve option for Time to Pay does make the process easier, but remember that HMRC isn’t obliged to offer you the option of settling your taxes owed via instalments.

If you fail to pay your taxes, HMRC can take recovery action in the County Court, and apply for the taxpayer to be put into liquidation or made bankrupt where appropriate.

Talk to us about making Time to Pay work for you

One of the best ways to avoid getting into difficulties with your tax liabilities is to work more closely with your accountant. As your tax adviser, we’ll produce regular forecasts so that any financial stresses can be foreseen well in advance.

Where unexpected circumstances do arise, putting a suitable payment plan in place with HMRC is the most sensible way to manage this situation. Ignoring your tax problems won’t make them go away and burying your head in the sand can lead to serious penalties and legal action.

Get in touch to talk about Time to Pay and let’s find out how we can help from The Stan Lee.

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Back to Tax Basics: What taxes will I need to pay as a director?

June 11, 2023

Back to Tax Basics: What taxes will I need to pay as a director?

Are you aware of the personal taxes you’re liable for as a company director? We’ve got the lowdown on self-assessment and capital gains tax – and can help you plan your wealth management as a director.

When you set up a new company, there are certain business taxes you’ll be liable for as a business. But have you also planned for the personal taxes you must pay as a director?

As a company director, it’s not just the company’s corporation tax that you have to pay. You also need to pay the requisite taxes on your own income. This might be dividends payments from the company’s year-end profits, or even the income you receive from any property, shares or investments you own.

Knowing which personal taxes to plan for

A fundamental distinction to understand is the difference between company assets/profits and your own personal money.

Money that’s been generated by your company will sit in your business bank account and can be seen as the cash assets of your business. But, as a director, this is not your money. It’s the company’s money. This cash only becomes yours once it’s been paid to you, either as a dividend, a loan or via a salary paid through the company’s payroll.

HM Revenue & Customs (HMRC) will charge the company corporation tax on the company’s earnings. But HMRC will also need to charge you income tax on the cash you’ve been paid as a director – and this means planning for these tax costs as part of your wealth management strategy.

As a director, you’ll need to plan for:

Self-assessment income tax – self-assessment is the way that directors and self-employed people pay their income tax and National Insurance contributions (NICs). In addition to any tax and NIC collected monthly via PAYE as part of your normal payroll, with self-assessment, you must complete an annual personal tax return and submit this to HMRC. You then have to pay two ‘on account’ payments of tax and NICs.
Paying your self-assessment tax – paying your self-assessment tax bill is generally done by making two payments on account – one by the 31 January in the relevant tax year and one by the 31 July following the end of the tax year. If needed, a final ‘top up’ payment may be required at the end of January, following the end of the tax year. Through this system, not only does the company pay tax on its profits, but you also pay income tax when you take any of the remaining after-tax profits out of the business as dividends.
PAYE income tax – if you pay yourself a salary through the company’s payroll, this income will be taxed at source via the pay-as-you-earn (PAYE) system. The PAYE system will deduct your income tax and National Insurance (NI) contributions via your in-house payroll and this will then be paid directly to HMRC. This income will need to be accounted for in your self-assessment tax return, but you’ve already paid the income tax that is due on this salaried income.
Capital gains tax – capital gains tax (CGT) is a tax you pay on ‘gains’ you’ve made during the tax year. CGT is paid on the profit you make when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. So, for example, if you sold your business at a profit, you’d be liable for any gain (increase in value) that you’d made on selling the company. The rate of CGT that you pay will depend on your own income tax band and the nature of the gain that you’ve made. Reliefs are available, including the Business Asset Disposal Relief.

Learn more about the basics of directors’ personal tax

If you’d like to have a chat about your self-assessment or capital gains liabilities, please do contact us. The earlier you plan for these taxes, the more you can mitigate their impact.

Get in touch if you have any questions about your tax and let’s find out how we can help you from the The Stan Lee.

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What business taxes will your company need to pay?

June 4, 2023

What business taxes will your company need to pay?

Are you in the dark when it comes to business taxes? We’ve got the lowdown on the key taxes your new business will need to pay – so you’re on top of your tax liabilities.

Once you’ve registered your business as a limited company, you become liable for paying taxes on the profits you make. But what business taxes are there? And how do you know which of these taxes to pay?

To answer this, we’ve created a short ‘Back to Tax Basics’ email series, to give you the full lowdown on your tax responsibilities as a company director.

Understanding the main business taxes

Despite HMRC’s motto of ‘tax doesn’t have to be taxing’, the UK tax code can be a complex thing to get your head around.

If you’re not a trained accountant and have limited experience in financial management, understanding the rules around business taxes can be confusing. So, to start with, let’s look at the main business taxes you’re likely to register for.

Key business taxes include:

Corporation tax (CT) – corporation tax is a tax that’s levied on your profits as a limited company. At the end of your accounting period, you must submit a corporation tax return, and pay the CT that’s due. The rate from 1st April 2023 will be up to 25%, although companies with profits not exceeding £50,000 will pay 19%, with the full 25% rate applying to companies earning over £250,000.
Value-added tax (VAT) – VAT is a consumption tax that’s levied on goods that have had value added at each stage of the supply chain. When you buy these goods, you’ll pay VAT. And when you sell these goods, you will collect VAT. At the end of each quarter, the VAT funds that you’ve collected must be paid to HMRC. You can also claim back the VAT you’ve spent on certain qualifying goods and services too. The standard rate of VAT is 20%, the reduced rate is 5% and certain goods can also be zero-rated.
Pay-as-you-earn (PAYE) – PAYE is a way to collect income tax and National Insurance Contributions (NICs) from your employees. If you have employees and run a payroll, then you’ll need to collect the required amounts of income tax and NICs from your employees’ wages as part of your payroll process. Then you must report on these deductions and pay the tax and NICs to HMRC, either monthly or quarterly after the pay period, depending on the amount involved. In addition to the income tax and NICs you deduct from your employees, the company may also have to pay Employer’s NICs as a business expense.

Learn more about the basics of business tax

So, there you have it. That’s the basics of the key business taxes you’ll need to think about as a new business owner. In the next part of this series, we’ll look at the taxes you’ll be liable for as a director, and how these personal taxes tie in with the profits you take out of your business.

Get in touch if you have any questions about tax and let’s find out how we can help from The Stan Lee.

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Reporting P11D and Its about Benefits in Kind

June 12, 2022

Reporting P11D and Its about Benefits in Kind

You might give a wide range of employee benefits outside of the salary and those benefits in kind could be subject to reporting to HM Revenue and Customs. In this article, we have a closer look at the P11D form; a note on the P11D, benefits that included on the P11D form, the compliance on this and how The Stan Lee can help your business.

What is the P11D?

The P11D form is used when reporting the benefits in kind to HMRC and this is once in a year for those companies that providing the taxable benefits to their employees. The employer pays the Class A1 NI contributions to HMRC, and you have additional taxable income as an employee (effectively increase your salary).

Which benefits included in the P11D?

A wide variety of employee benefits need to be on the P11D form that the company gives to their employees and some of them are:

Cars and car fuel
Living accommodation
Cheap or interest free loans to the directors or employees (£10,000 or more)
Private health and medical insurance
Travel and entertainment expenses for non-business purposes

However, the business travel, business entertainment, fees and subscriptions are exempted from the benefits in kind and no reporting on P11D.

Compliance requirements about the P11D

The P11D should be submitted annually with the amount of Class 1A NICs payable on form P11D(b) on or before 6 July following the end of the tax year. At the same deadline, the P11D copy should be distributed to the relevant employees. The NICs (Class 1A) on expenses or benefits must be paid by 22 July (19 July if pay by cheque). Failure to comply with the P11D, you could get penalty of £100 monthly per 50 employees.

However, you will not have to submit the P11D if you pay any PAYE tax or Class 1 NI owed on expenses or benefits on payroll system. Instead, you must register with HMRC using the “payrolling employees taxable benefits and expense service”.

How can The Stan Lee help?

At The Stan Lee, we offer P11D preparation and submission to HM Revenue Customs with employee benefits related other ad hoc services at reasonable fees so that you have one step less stress about the P11D compliance.

For further information, any questions or concerns and advice about the P11D, please call one of the team here at The Stan Lee and let’s find out how we can help.

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