HMRC recently lost a first tier tribunal case on the recovery of VAT on the purchase of six cars.
Although most VAT registered businesses are able to recover the VAT on the purchase of commercial vehicles the rules for the recovery on a car state two conditions must be met:
- the vehicle must be used exclusively for business purposes and
- it is not made available for private use.
In the case of Zone Contractors Ltd the court accepted that six cars were not available for private use which allowed the business to successfully recover the VAT on the six cars.
The business had a strongly worded contract of employment that prevented employees from using company cars for private travel. This was the crucial factor in this case and allowed the business to recover over £27,000 in input VAT on the purchase of six new cars.
The tribunal was satisfied that the cars were wholly used for business purposes and were not available for private use. The tribunal also rejected HMRC’s argument that the company had failed to demonstrate that the cars were not available for private use.
Other factors which were relevant:
- The Tribunal was satisfied that all employees signed a contract when they first joined the company, which included the following ‘It is hereby strictly forbidden for the Employee to use the Company vehicle for any personal use inside/outside their employment hours’.
- The six cars were always kept overnight at the company’s offices or were left on site.
- Zone Contractors carry out groundwork projects and the vehicles were appropriate for for site based work.
- The taxpayer also successfully counteracted HMRC’s argument that the insurance cover of the vehicles included use for ‘social, domestic and pleasure’ (SDP), and was not just restricted to business use. But the tribunal accepted it was impossible to have a business only policy without the SDP clause.
- HMRC also put forward an argument that private use of a car would include detours to buy ‘cigarettes or lunch while out on a business journey or even going off site to collect lunch’. The tribunal concluded that such use could be ignored as de minimis.
- The intended use of the car at the time it is purchased is crucial. The private use issue means that either a legal restriction to prevent such use or a physical restriction must be in place.
HMRC may appeal against the decision.
Internet link: Tribunal decision
HMRC have announced further details of the new Tax Free childcare scheme which is to be introduced in 2017.
To be eligible, families will have to have all parents in work and each expecting to earn at least £115 per week and less than £100,000 a year and not be already receiving support through Tax Credits or Universal Credit.
The government will top up the account with 20% of childcare costs up to a total of £10,000 – the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children).
HMRC are asking childcare providers to register for the scheme as soon as possible.
Tax-Free Childcare will be launched from early 2017. The scheme will be rolled out gradually to families, with parents of the youngest children able to apply first. Parents will be able to apply for all their children at the same time, when their youngest child becomes eligible. All eligible parents will be able to join the scheme by the end of 2017.
The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until April 2018.
The existing system of employer supported childcare provides an income tax and national insurance contributions (NIC) relief. The maximum relief is an exemption from income tax and NIC on £55 a week. This relief is per employee so if both parents are in employment the maximum exemption is £110 per week. In the new scheme the limit is per child.
Throughout September and October 2016, letters are being sent to regulated and approved childcare providers asking them to sign up online for Tax-Free Childcare. Only childcare providers registered with a regulator (such as Ofsted) can receive Tax-Free Childcare payments.
The government will make more information available, including details of how parents can sign up, later this year.
Internet link: GOV.UK tax free childcare
HMRC have issued a series of consultation documents outlining further plans for the government’s Making Tax Digital (MTD) initiative.
HMRC have published six consultation documents on MTD. The six consultations set out detailed plans on how HMRC propose to make tax digital and to simplify the tax system. The consultations look at the following areas:
- How digital record keeping and regular updates will operate – this considers compulsory digital record-keeping and quarterly ‘updates’ to HMRC and an End of Year declaration within nine months of the end of the period of account.
- Options to simplify tax for unincorporated businesses, including changes to basis periods, extending cash basis accounting and reducing reporting requirements for unincorporated businesses.
- Extending cash basis accounting to unincorporated property businesses.
- Voluntary pay as you go arrangements, where taxpayers can pay what they want when they want, subject to the normal payment on account rules. Regular direct debit arrangements and quarterly payments on account are also being considered.
- Changes to tax administration, including changes to the enquiry regime, penalties for late submission of quarterly updates and End of Year declarations and also the late payment of tax.
- How HMRC will make better use of the information which they currently receive from third parties, including updating of PAYE codes more regularly and coding out of bank interest via PAYE.
Commenting on the plans, Jane Ellison Financial Secretary to the Treasury said:
‘This new system will make the UK’s tax administration more efficient and straightforward and will offer businesses greater clarity when it comes to paying their tax bills.’
However professional bodies have expressed their concerns about HMRC’s proposals. Frank Haskew, Head of the Tax Faculty at the Institute of Chartered Accountants in England and Wales, said:
‘This is not the time to be rushing through fundamental changes to business processes that are likely to result in major upheaval and extra costs, especially when the business benefit to the UK has not been clearly demonstrated.’
Under the Government’s plans, the changes to the tax system will be introduced gradually between 2018 and 2020. We will keep you informed of developments.
Internet link: GOV.UK MTD
The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. NMW rates increases come into effect on 1 October 2016.
- the rate for 21 to 24 year olds will increase by 25 pence to £6.95 per hour
- the rate for 18 to 20 year olds will increase by 25 pence to £5.55 per hour
- the rate for 16 to 17 year olds will increase by 13 pence to £4.00 per hour
- the apprentice rate will increase by 10 pence to £3.40 per hour.
The mandatory National Living Wage (NLW) applies for workers aged 25 and above. This is £7.20 an hour.
NLW and NMW rates will in the future be uprated every April starting in April 2017.
Penalties may be levied on employers where HMRC believe underpayments have occurred and HMRC may ‘name and shame’ non-compliant employers.
National Living Wage hits small business costs
According to research, 47% of small business owners blame increased wages following the introduction of the NLW as the main contributor to rising costs.
The research, carried out by the Federation of Small Businesses (FSB), revealed that a third of FSB members claim that the NLW has led to a small increase in their wage costs while one in five have said that their staff costs have increased significantly. Although 59% of FSB members absorbed the increased costs through reduced profitability, 35% have increased prices, 24% reduced staff hours and 23% cut investment.
HMRC have updated their guidance on payroll reporting including what employers should include on the Full Payment Submission (FPS) and Employer Payment Summary (EPS) returns.
Please contact us if you would like help with your payroll.
Internet links: ACAS article FSB press release Payroll guidance