Tag Archives: Allowable expenses

Getting Tax Relief for Gift Aid, Pensions and much more…

If you make any donations to a registered charity you can claim tax relief if you pay higher rate tax. You must keep a record of the payments you’ve made and to which charities, this is then recorded on your self-assessment tax return and allows you to claim relief by extending the basic rate band for the payments made. This way more of your income is taxed at the basic rate of 20% before being subject to the higher rate.

When you make contributions to a personal pension plan these are usually treated as net contributions and the pension provider claims tax back from the Government at the basic rate of 20%. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot. If you pay tax at higher rate, you can claim the difference through your tax return.

Expenses

Expenses that you have paid in order to do your job can be reclaimed via your tax return. For example, if you used your own car for a business trip and your employer only reimbursed at a rate of 30p per mile then you can claim the difference between the approved mileage allowance of 45p per mile and the 30p then you received from your employer as a business expense.

This includes items like work related training, if you as the employee have paid for this then this should be included on your tax return as a business expense. You therefore receive tax relief on the cost of anything work related.

Items that were recorded on your P11d, if these were wholly and exclusively for business purposes these should also be included on your tax return as business expenses to enable you to claim the relief for the reimbursement, otherwise these items are treated as taxable.

If you are unsure what you can claim for – we can help you make sure you claim what you are entitled to, please get in touch.

Childcare Vouchers – can you claim them?

The process of receiving and paying with childcare vouchers is designed to be simple and straightforward for both employers and employees.

Most employers who provide childcare vouchers do so through a salary sacrifice scheme. This means you agree to reduce your salary by a certain value, and receive childcare vouchers to the same value but pay no tax or National Insurance on these vouchers.

To join your employer’s childcare vouchers scheme you first of all need to complete a salary sacrifice agreement. Your employer will give you directions on how to do this.

After your agreement has been submitted to your employer, they will reduce your salary by the requested amount and arrange for vouchers to be provided to you.

Status	Annual Tax exempt amount*	Savings*
Basic rate (contracted out) 20% tax 10.6% NI	£2,916	£892
Basic rate (contracted in) 20% tax 12% NI	£2,916	£933
Higher rate category 40% tax 2% NI	£1,484	£623
Additional rate category 45% tax 2% NI	£1,325	£623

If you are found to fall into the higher rate category (as a rough guide this is likely to be those earning between £44,781 and £151,484) you will be able to get £124 a month tax and NI exempt (£28 a week).

An example for someone earning £20,000 per annum, £1,666.67 per month.

	Salary before scheme participation	Salary during scheme participation
Monthly Gross Salary	£1,666.67	£1,666.67
Childcare vouchers per monthGross salary sacrifice total		£243.00 £243.00
MONTHLY GROSS SALARY SACRIFICE		£243
Monthly Gross Salary after salary sacrifice Monthly NIC contribution (12%) Monthly income tax contribution (20%) Net Salary	£1,666.67 £120.48 £189.00 £1,357.19	£1,423.67 £91.20 £140.40 £1,192.07
MONTHLY NET SALARY REDUCTION	£1,357.19 minus £1,192.07 =	£165.12
MONTHLY SAVING	£243.00 minus £165.12 =	£77.88
ANNUAL SAVING	£77.88 x 12 =	£934.56

If you want advice on claiming childcare vouchers and what may be best for you, please get in touch.

Dispensations

A dispensation is a notice from HMRC that removes the requirement for the employer to report certain expenses and benefits at the end of the tax year on forms P11D or P9D. There is also no need to pay any tax or National Insurance contributions on items covered by a dispensation.

It also removes the requirement for employees to submit claims for deductions against expenses previously reported on forms P11D or P9D.

Once granted, dispensations last indefinitely. However, HMRC reviews them regularly (usually at intervals of five years or less) to make sure that the conditions under which they were issued still apply.

What items can and can’t be covered by a dispensation?

You can apply to HMRC for a dispensation to cover expenses or benefits for which your employee gets a full tax deduction.

The main expenses routinely covered by a dispensation are:

travel, including subsistence costs associated with business travel
fuel for company cars
hire car costs
telephones
business entertainment expenses
credit cards used for business
fees and subscriptions

Systems you must have in place

You must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than the employee claiming the expenses check that the:

amount claimed isn’t excessive
claim doesn’t include disallowable items

If it is not possible for you to operate an independent system for checking and authorising expenses claims – for example, because you are the sole director of your company and you have no other employees – you will only be able to obtain a dispensation if you:

ensure all expenses claims are supported by receipts for the expenditure
demonstrate that the claim relates to expenditure that can be covered by a dispensation – your receipts may be sufficient for this purpose, but if not you must retain additional information

Getting tax relief for expenses

If you don’t have to fill in a tax return, you can get tax relief for your allowable expenses by:

Filling in form P87 Tax Relief for Expenses of Employment
By Phone

The first time you ask for tax relief for your expenses you’ll have to contact HMRC in writing. To do this you should complete a form P87.

The form asks for details about your expenses and how you worked out the amount you want to claim.

If you have more than one job, or if you change jobs during the tax year, you’ll need to fill in a separate form P87 for each job.

Go to form P87
By phone

If you phone HMRC to ask for relief for your expenses they will only be able to give you tax relief if all of the following conditions are met:

your expenses are less than £1,000 (or £2,500 for professional fees and subscriptions)
you’ve claimed them in a previous tax year for the same employment
HMRC has accepted your earlier claim
you haven’t already been sent a P87 to complete

If you meet the conditions, HMRC will give you tax relief right away and repay any tax you’ve overpaid. Otherwise, you’ll have to fill in form P87 before they can allow your claim.

Mileage Payments – Allowable Expenses

Most people are aware that you can claim a mileage allowance when using your own car for business purposes.

For Business Owners

The approved mileage allowance for cars is 45p per mile for the first 10,000 miles and 25p per mile thereafter. But did you know that you can also claim an additional 5p per mile for each passenger travelling with you for business?

If you use the approved mileage allowance then there is no need to complete these details on the P11D at the end of the year.

For Employees

Also, the approved mileage allowance doesn’t just apply to those claiming for their own business but also applies to employees.

An example, if your employer only pays you 30p per mile for business, the approved amount is higher so you’re entitled to Mileage Allowance Relief on the difference.

For example: if you use your own car for 900 business miles and your employer pays you 30p per mile. The approved amount is £405 (900 x 45p). The allowance you get from your employer is £270 (900 x 30p). Your Mileage Allowance Relief is £135 (£405 less £270).

The Mileage Allowance Relief will reduce the amount of income you pay tax on, so your tax bill will reduce by £135 at 20% (if you’re a basic rate taxpayer) or at 40% (if you’re a higher rate taxpayer) and at 45% (if you’re an additional rate taxpayer)

You are only entitled to Mileage Allowance Relief if your employer pays you:

no mileage allowance
less than the approved amount. If your employer pays you more than the approved amount, you’ll have to pay tax on the extra.

The mileage allowance also applies to motorcycles and bicycles

For a motorcycle you can claim 24p per mile and there is no upper limit as with cars.
For a bicycle you can claim 20p per mile.

What records you must keep?

You need to keep records of dates, mileage and details of all work journeys. Your employer needs this information to make expenses payments to you. You also need them to get any Mileage Allowance Relief.

If you use different vehicles

If you use more than one vehicle of the same kind add all your business miles together in one calculation.

If you use vehicles of different kinds make separate calculations for each one.

If you would like some advice on what business and personal expenses are allowable, please get in touch.

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.