For the fourth article in our year end series, we look at some considerations for directors and employees.
‘Making good’ benefits
Where an individual receives a benefit from their employer they can avoid being taxed on it if they ‘make good’ the value of benefit by reimbursing the employer. There are strict time limits for doing this.
All reimbursements of taxable nonpayrolled benefits for 2019/20 must be made by 6 July 2020, which aligns with the date for submitting the forms P11D.
The dates for making good on payrolled benefits-in-kind provided in 2019/20 are:
- 1 June 2020 for the value of road fuel used
- 5 April 2020 for all other benefits
The deadlines for making-good specifically don’t apply to interest payable on beneficial loans and overdrawn directors’ loan accounts. Where such loans exceed £10,000 at any point in the tax year there is a taxable benefit if insufficient interest is paid. This taxable benefit can be avoided if interest at least equal to the official rate is reimbursed, where the borrower is contractually obliged to pay it. The official rate for 2019/20 is 2.5%.
Despite the exclusion for beneficial loans, most people should try to pay any interest due on a loan by the 6 July following the tax year, to avoid any doubt as to whether a benefit arises at the time the P11D form is being prepared.
Slowness fines
If you miss the deadline for filing your self-assessment tax return (31 January for online filing) you will be charged a £100 penalty.
If the return is filed more than three months late, an additional £10 per day is charged, and after six months another penalty is imposed as the higher of £300 or 5% of the tax due. The flat-rate penalties will stand even if the tax return shows no tax.
Your company’s Corporation Tax return is due a year after the end of the accounting period. The penalty for being even one day late is £100 and another £100 is imposed after three months, then 10% of the tax due if the return is six months late. If you make a habit of submitting late company returns, the fixed penalties rise to £500 each time.
The penalties for paying VAT late can amount to up to 15% of the delayed payment, for even one day late.
Pay attention to any electronic warning notices from HMRC about penalties due. If you have a ‘reasonable excuse’ you may escape the penalty, but lack of funds is generally not an acceptable reason.
Excited about electrics
If you are considering acquiring a new company car, take account of the changing tax incentives for electrics.
The taxable benefit for having an electric company car is currently calculated at 16% of its list price when new, but from 6 April 2020 the taxable benefit for driving an electric company car will drop to 0% of its list price. However, this zero-rate is only due to last for one tax year: 2020/21, after which the taxable benefit will be increased to 1% of list price, and 2% for 2022/23.
Where a business buys a new electric car it can claim 100% of the cost as a capital allowance in the year of purchase, if the car is acquired before 1 April 2021. So 2020/21 will be the sweet spot for acquiring electric company cars.
If a business installs electric vehicle charging points before 31 March 2023 it can claim 100% of the cost in the year.
Where employees are permitted to freely charge up electric vehicles at work, there is no taxable benefit for the use of that free electricity. Drivers of electric company cars who pay for their own charging can claim a tax-free allowance from their employer of 4p per business mile driven.
Drivers who use their own electric cars for business journeys can claim the normal mileage rates of 45p per mile for the first 10,000 miles and 25p for any additional business miles driven in the tax year.
Money for miles
If you use your own car for a business journey, perhaps to travel to a customer, you can claim mileage expenses for that journey. Many employers pay the full taxfree amount of 45p per mile, which drops to 25p for miles in excess of 10,000 in one tax year.
If your employer doesn’t pay the full rate, you can claim tax relief on the shortfall, either on your tax return or on form P87. You need to submit your claim within four years of the end of the tax year in which you made the business journey. Claims for 2015/16 must reach the tax office by 5 April 2020.
Once HMRC has accepted your mileage claim for one tax year, subsequent claims for up to £1,000 per year can be made by phoning the tax office on 0300 200 3300.
Please contact Vinnie Rome or Nick Luck if you would like to discuss any of the tax planning points covered in this series; on 01689 877081 or complete our online form.
Registered as Auditors in the United Kingdom by the Association of Chartered Certified Accountants.
