Company Car Tax 2014-15 – Allowable Expenses and Benefits

Changes from 2014-15

The lower threshold will be reduced from 115g/km to 110g/km.

11 per cent will now apply to cars with CO2 emissions of 76g/km to 94g/km for petrol cars and 13 per cent for diesel cars.

The appropriate percentage will increase by 1 per cent for all vehicles with CO2 emissions between 95g/km and 210g/km, to a maximum of 35 per cent.

Here are some examples of the lower % benefit in kind (BIK) tax:

Model List Price CO2 emissions g/km BIK % Tax at 20% Tax at 40%
Audi A3 Hatchback 1.2 TFSI 105 S Line 3dr £21,655 114 15% £650 £1,300
BMW 1 Series Hatchback 116d ED 3dr £20,830   99 15% £625 £1,250
Fiat 500 Hatchback 0.9 Twin Air 105 GQ 3dr £15,260   92 11% £336 £   672
Ford Fiesta Hatchback 1.6TDCI 95 Titanuim ECOnetic 3dr £16,345   87 13% £425 £   850
Hyundai i10 Hatchback 1.0SE Blue Drive 5dr £  9,795   98 12% £235 £   470
Mini Cooper Hatchback 1.5D 3dr £16,450   92 13% £428 £   856
Toyota Auris Hatchback 1.8 VVT-I Icon Hybrid 5dr £20,595   84 11% £453 £   906
Volvo V40 Hatchback 1.6D2 115ES 5dr £20,345   88 13% £529 £1,058

Of course, the lowest appropriate percentages are still 0 per cent and 5 percent.

The 0% BIK cars are electric, for example BMW i3 Electric Car 127kW Auto Electric drive-train, 5 door, the list price for this is £30,625 but you’ll pay £25,625 with the £5,000 government subsidy.

In addition, these cars also benefit from lower road tax:

Petrol car (TC48) and diesel car (TC49)

Band CO2 emission (g/km) 12 months rate 6 months rate
A Up to 100 £   0.00 Not available
B 101-110 £ 20.00 Not available
C 111-120 £ 30.00 Not available
D 121-130 £110.00 £60.50
E 131-140 £130.00 £71.50

If you want advice on your company car tax position and what may be best for you and your business, please get in touch.

5 simple rules to keep the tax inspector happy!

To put your mind at ease we’ve been taking a look at past inspections and the reasons behind them, and we’ve come up with five simple rules to keep you in the taxman’s good books!

Rule 1 – Record your Expenses and Mileage as they happen

Yes, it may appear a simple suggestion, but it’s a vital task that people often neglect. You don’t want to find yourself scratching your head, wondering what that £70 train ticket last January was for. It’s not just best-practice either – HMRC demand you keep expense receipts going back six years in case they come knocking.

Rule 2 – Review your contracts for IR35 liabilities

It can be a real headache to determine whether you fall foul of IR35 Legislation, especially when HMRC themselves can’t tell you with any real certainty. But as IR35 remains one of the main reasons tax inspections are launched, you need to make sure you’re on top of it.

Simply put, IR35 is used to determine whether you are “employed” by your client or providing “self-employed” contracting services through your limited company. However, the real confusion lies in how they determine this, and the legalese they use to describe said process. If unsure, always consult an expert.

Rule 3 – The proper use and recording of Dividends

Give HMRC half an inch to reclassify your dividend as a director’s loan and they’ll certainly try. This means that if you owe your company in excess of £5,000 it qualifies as a Benefit in Kind, and begins attracting additional tax and National Insurance liabilities.

To keep the inspectors off your back it’s advisable to only take a dividend if you have the profits available to do so. HMRC are vigilant towards the use of company funds for personal use, so try to keep everything simple and above board.

Rule 4 – Don’t pay Personal Expenses through your Company

When you set up your limited company you created it as a legal entity separate to yourself, you need to remember that your business is not a personal bank account for you to abuse.

There is some discretion with regards to personal expenditure that is collectively under £5,000, but it’s best to avoid bad habits where possible.

Rule 5 – Be on time and up to date!

Late tax payments or no payments at all will attract the tax inspectors like bees to honey!

Make sure to plan properly, know when your returns to HMRC and Companies House are due, and that you have allowed enough time to complete them.

Chase up all your debts and keep your records as accurate as possible. This means raising invoices, recording expenses and regular bank reconciliation. Stay on top of these and you’ll be golden should the taxman knock on your door.

5 Ways to Make the Most of your Accountant

Your accountant can sort out your tax return, your annual accounts or provide advice on a range of issues, but how do you get the best return on the fees you pay to an accountant?

An accountant can help in many different areas of your business and by following my tips below, it will help you get the most from this vital business relationship:

1. Choose Carefully

Look for accountants with experience of your type of business. Anyone can set up as ‘an accountant’, so look for chartered or certified accountants, whose qualified status is backed by membership of a professional body. A large firm suggests reliability, a smaller one may respond better to your needs and be more proactive on your behalf. Ask prospective accountants how they can help your business. Request references and proof they have professional indemnity insurance, before you make your final decision.

2. Ask Plenty of Questions

Check what other services your accountant can offer you. These could include guidance on setting up your business, preparation of financial forecasts, help with loan applications, audits, investment advice, and other suggestions for minimising your tax liability.

3. Be Clear about your Expectations

Your accountant will summarise terms and conditions in a letter of engagement. But make sure you put your expectations in writing, too. Describe the level of service you require, for example, how quickly you need queries to be answered. And ask to deal with a specific contact, to help build a close professional relationship.

4. Maintain User-friendly Records

If necessary, ask your accountant for their advice about how best to maintain your financial records. If your books are easier to read, you will save them time, which should mean a lower bill at the end of the day.

5. Communicate Regularly

By talking to your accountant on a regular basis this helps them to better understand your business, your needs, and will help you get the best possible value from the relationship. Make sure you schedule quarterly meetings (or phone / Skype calls) to review your firm’s performance, so you can better plan for the future and minimise the risk of avoidable cashflow or financial issues. A good accountant will provide proactive advice on financial planning and considerations that will help your business run smoother. Be sure to meet before producing your end-of-year accounts or tax return, this inevitably provides the opportunity for minimising tax liabilities by utilising all available allowances open to your business.

If you’re fed up of trying to make sense of numbers and financial spreadsheets, call In the Black on 01483 222858 or email jeanc@intheblacksolutions.co.uk. We could make all the difference to your business.

Why is cash flow vital to your small business?

Cash flow is vital to your small business as it’s the single biggest reason for business failure. It can be a fantastic, profitable business but without cash flow the business will suffer. Failure to pay staff, suppliers or HMRC on time, can have consequences and can ultimately lead to winding up proceedings being issued on the company.

Many business owners do not pay enough attention to the cash requirements of their business and how to improve this.

There are 5 simple ways to improve your small business cash flow:

1. Invoicing not completed on a timely basis

If you haven’t sent the invoice you can’t receive the money, simple as that! So by making sure that all invoices are sent on time then you will automatically improve your cash flow. Don’t leave them to the end of the month, if the work has been completed or the goods have been shipped then make sure the invoice is sent. This helps in other ways too, if there is a dispute on an invoice it’s much easier to resolve if it’s fresh in your mind.

2. Lengthy payment terms

How long do you give your clients to settle your invoice? You can decide what payment terms are appropriate to your business and shorten them where possible. If you’ve completed a service then it is quite acceptable to extend 14 day terms, not 30 days and this means the money should be in your account sooner.

3. Offer settlement discounts

In situations where shortening the payment terms isn’t possible then it may be possible to offer a small discount for those clients that can pay sooner.

4. Inadequate credit control

How often do you review your debtors list and contact late payers? This should be carried out regularly. Where possible, I would advocate a system where the invoice is followed up with a brief call to check the client has received the invoice, a monthly statement of account and a telephone call if the invoice has exceeded the payment terms.

5. Lack of follow-up

What do you do if your client still doesn’t pay? Make sure you follow-up and have clear procedures in place for when a client doesn’t pay. If the statement, phone call and emails are not yielding payment, then make sure you have a 7 day letter to send. Then if they still don’t pay, it is time to issue a county court summons. Depending on the value of the debt this can all be done online, it’s quick, easy and cost effective. The claims process is outlined here.

If you are currently experiencing cash flow issues and would like a Business Review and some advice of how you can improve this in your small business, do contact us. We can help.

VAT – A Guide for Small Businesses

Despite HMRC’s best efforts it seems that many small businesses are still not aware of all the different schemes available to help them with their VAT.

Standard VAT accounting

Most businesses operate their VAT on the basis of invoices sent and invoices received, this is the accrual based method.

Common mistakes with this basis include not claiming bad debt relief when an invoice sent remains unpaid after 6 months. Conversely, businesses also often fail to pay over the VAT if the supplier hasn’t been paid for an invoice after 6 months, despite claiming the VAT when the invoice was processed.

Simplified methods include the following:

1. Cash Accounting

This allows the VAT registered business to account for their VAT on a cash basis instead of the standard basis. This is obviously simpler for cash businesses but is also beneficial to businesses where customers take longer to pay than 30 days. To be eligible to use this method you must have a taxable turnover of less than £1.35 million. Once on the scheme you can continue to use this method until your turnover reaches £1.6 million.

You cannot use cash accounting if:

  • you are not up-to-date on your VAT Returns and VAT payments;
  • you have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year;
  • your VAT taxable turnover is over £1.35 million per year.

When you must not use cash accounting

Even if you use cash accounting, you must still account for VAT using standard VAT accounting when you:

  • buy or sell goods using lease purchase, hire purchase, conditional sale or credit sale;
  • import goods or acquire goods from other EU states;
  • remove goods from a Customs warehouse or free zone;
  • issue a VAT invoice that isn’t due to be paid for six months or more;
  • issue a VAT invoice in advance of providing goods or services.

2. Annual Accounting

With annual accounting you only need to submit one VAT return per year. You pay the VAT liability in nine equal instalments based on the VAT you paid in the previous year. The balance is paid when the VAT return is submitted and you are given two months to prepare and submit the return.

The benefit of this scheme is that it reduces paperwork as you’re only submitting one VAT return per year. It can also benefit cash flow if the turnover is increasing as your monthly payments are based on the previous year until the return is submitted at the end and the balance is paid.

Annual accounting is not suitable for businesses that regularly reclaim VAT as you would only get one repayment at the end of the year.

Another disadvantage of annual accounting is that if your turnover decreases, your interim payments may be higher than under the standard VAT accounting.

The same turnover limits apply to annual accounting as to cash accounting, you must have a taxable turnover of less than £1.35 million. Once on the scheme you can continue to use this method until your turnover reaches £1.6 million.

3. Flat Rate Scheme

This scheme is ideal for small businesses who don’t have a lot of vatable expenditure as it allows the business to pay over VAT based on a flat rate and gives an allowance for vatable purchases.

It is only suitable for small business with a turnover of less than £150,000 but once on the scheme you can remain until the taxable turnover reaches £230,000.

If you are newly VAT registered you can reduce your flat rate by 1 per cent until the day before the first anniversary of your VAT registration.

Using the Flat Rate Scheme you do not have to calculate the VAT on each and every transaction. Instead, you simply pay a flat rate percentage of your turnover as VAT. This gives you the following benefits:

  • easier record-keeping – no need to separate out the gross, VAT and net in your accounts;
  • fewer rules to follow – no more problems about what VAT you can and cannot reclaim on your purchases;
  • peace of mind – less chance of mistakes, so fewer worries;
  • certainty – you always know how much of your takings you will need to pay to VAT

For more information on the above schemes, please see the HMRC website.

Of course, there are other schemes that affect particular businesses like the margin scheme, but if you require more information on these please do get in touch and we can advise you on the best VAT scheme for your business.