August - Monthly update
New measures for company car tax
You may want to review your company car needs in the light of changes to the company car tax rules coming in next year.
Do you know your WLTP from your NDEC? If you drive a company car or administer a company car scheme, you’ll find it useful to understand the distinction between the two:
- WLTP is the Worldwide Harmonised Light Vehicles Test Procedure, the latest way to measure vehicle emissions and fuel consumption based on something approaching real world data. For cars registered from 6 April 2020, the WLTP figures will be the yardstick for company car tax (and vehicle excise duty).
- NDEC is the New European Driving Cycle, which for years has provided emission and fuel consumption measures and is the current basis for company car tax. Last updated in 1997, it has become a discredited metric because of the way it has been gamed by car manufacturers. Just to confuse matters further, at present there are also NDEC numbers being published that are calculated by adjusting the WLTP figures which manufacturers now must produce.
The switch from the older, inaccurate NDEC to the more realistic WLTP has resulted in increases to measured CO2 emission figures. The size of the increase varies between vehicles, but European Commission research in 2017 suggested an average of 22% for petrol cars and 20% for diesels, with smaller engines attracting the largest rise.
Company car tax scales for 2020/21, when WLTP starts to apply to new vehicles, were set back in 2017, before the full impact of WLTP was understood. In July 2019 the Treasury announced that the company car scale rates set in the Finance (No 2) Act 2017 for cars registered after 5 April 2020 would all be cut by 2% in 2020/21 and 1% in 2021/22. NDEC figures will continue to be used for older cars.
Good and bad news
The good news is that in the next tax year electric-only vehicles will have a taxable benefit of zero, whereas at present the benefit is 16% of their list price. The bad news is that other newly registered cars will mostly see an increase in their benefit value over the 2019/20 figure because of the higher WLTP measures of CO2 emission.
For example, a £30,000 petrol car with 104g/km NDEC emission now (and a 2019/20 taxable benefit of £7,200) could have WLTP emission figure of 126g/km, implying a 2020/21 benefit value of £8,400 if registered after 5 April 2020.
If you are due to change your company car in the next year, make sure you know what tax you are going to pay for it. It might be worth making sure the car is registered before 6 April 2020. It could also make sense to review whether, as the tax screw is turned further, a company car makes financial sense.
Self-employed hit by self-assessment system error
If you are self-employed, you may find you have been affected by an HMRC system error which could mean a higher tax bill in January.
Self-assessment statements for payments on account affecting the self-employed have either not been sent out at all or show a zero balance where a payment was due on 31 July. If you’re not entirely clear about when you need to pay what you owe, the consequences of the incorrect information may mean you have skipped an outstanding payment for July or have been undercharged. When it comes to the next payment period in January 2020, you could be faced with a much higher bill to pay to cover the missed July payment.
The fault apparently lies in the HMRC system failing to generate payments on account for 2018/19 for some taxpayers. Despite knowing about the error for some months, HMRC has not corrected it, leading to incorrect balances showing for the 31 July payment.
The implications for cashflow are obvious where money set aside for your tax payments could end up being spent over the next six months, not to mention the usual post-Christmas expenses most of us tend to find in January.
If you were expecting to submit a half-yearly payment and either received a low or zero balance or no statement at all, you should contact HMRC as soon as possible. While the Revenue has said taxpayers affected will not have to pay interest for underpayment or non-payment at July, there will not be such generosity on demands for the full amount owed in January.
With rising numbers turning to self-employment, it’s not always easy to get to grips with all the processes involved in keeping on top of your finances. Planning to file your tax returns and pay regularly should be factored into your financial workflow, regardless of whether HMRC notifies you or not. HMRC does not regard lack of understanding of the finer points of self-assessment as a ‘reasonable excuse’ for late filing, so do get in touch if you may have been affected by this latest problem.
Time to overhaul inheritance tax?
July saw the publication of the long-awaited second report on inheritance tax (IHT) from the Office of Tax Simplification (OTS) with a range of useful proposals.
Focused on simplifying the structure of IHT, the report, contained some surprises, not only in the recommendations it makes, but also in those areas it has left untouched.
A new take on gifts
The OTS suggests that the annual exemption (£3,000 since 1981) and the wedding gifts exemption (a maximum of £5,000 and a minimum of £1,000, unchanged since 1975) should be combined into a single ‘personal gift allowance’. While no specific number was pinned on the new allowance, the OTS did note that the annual allowance would be £11,900 in 2019/20, had it been inflation proofed.
Currently you need to survive seven years for any lifetime gifts not to form part of your estate on death and, in some instances, gifts made up to 14 years before death could affect the level of tax payable. The OTS says that only gifts made within five years of death should be relevant. That sounds like good news, but there is a sting in the tail: the OTS wants to scrap taper relief, which currently reduces the tax payable – if any – on gifts made more than three years but less than seven years before death.
While the paper discusses the criticisms received about the complexities of the relatively recent residence nil rate band (RNRB), the OTS says it is too early to propose any changes. However, it does quote an HMRC estimate that for the same tax cost, scrapping the current £150,000 RNRB would only allow the main nil rate band to be increased by £51,000.
The OTS paper discusses the availability of 100% business relief for holdings of AIM shares, but to the surprise of some does not propose the relief’s withdrawal. However, it does make some recommendations about business relief generally and its twin, agricultural relief, which could have a major impact.
The OTS report will now be considered by the (new) Chancellor. What changes Mr Javid puts through will in part depend upon parliamentary arithmetic and for how long the government survives. In the event of a Labour Party win in a potential general election, IHT could be replaced by a much harsher lifetime gifts tax. All of which means that if you are thinking about estate planning, waiting for the dust to settle could be a risky strategy.
Improved protections against redundancy for new families
Extended legal protections against redundancy for pregnant women, new mothers and adoptive parents have been confirmed by the Department for Business, Energy and Industrial Strategy (BEIS).
Government consultation revealed that new parents continue to face discrimination at work, with up to 54,000 women saying they felt they had to leave their jobs due to pregnancy or maternity discrimination. Research for BEIS in 2016 showed one in nine women saying they had been made redundant or fired after returning from maternity leave or were made to feel so uncomfortable they had to resign.
After further industry consultation, the current rules will be extended by six months, giving a two year legal protection against redundancy for women returning from ordinary or additional maternity leave, plus those taking adoption or shared parental leave. This will take effect from the date of the mother’s return to work.
While adoption leave has been included in the initial announcement, further consultation may mean that this ends up with slightly different treatment than maternity leave. Parents of sick and premature babies may also receive new entitlements to additional leave.
The changes, yet to be legislated, are part of the Good Work Plan which the government hopes will encourage shifting practices to keep pace with changes in how we now work. With short term and zero hour contracts, gig work and working from home, employment practice needs to reflect the altered working environment.
During this holiday season, it’s also sobering to read research from the TUC in July showing that nearly two million workers don’t receive the minimum paid annual leave entitlement, with around a million not receiving any paid leave. The Working Time Regulation 1998 entitles employees to 5.6 weeks of paid leave, roughly 28 days a year including public holidays. Employers and employees need to take responsibility for ensuring that individuals take their entitled leave.
A taskforce of family groups and employers will be set up to contribute to an action plan to help pregnant women and new mothers stay in work, with an added remit around raising employer awareness of obligations and employee rights.
The taxing problem of plastics – a challenge for all
The Treasury has said a single use plastic waste tax will be brought in – but not for three years. What can you do in the meantime to help tackle the environmental challenge?
Legislation on a plastics tax is now slated for April 2022 following proposals expected to be included in the next Budget. The initial consultation received a record of over 160,000 replies, reflecting the importance of the subject to the public. Draft legislation is expected in 2020, with the actual mechanism of the tax yet to be revealed.
From the business point of view, it’s not just about doing our bit, but also long term commercial sustainability. From shoes made out of recycled plastic, mattresses made from plastic bottles to sustainable fabrics in clothing retailers, the marketing messages are straightforward. But some businesses can find the cost is too high to go green. Production costs on more sustainable materials can be lower, but higher transportation and energy costs may make a switch harder. With clients increasingly are including sustainability and green credentials in their selection processes, each sector has to work through its options.
What you can do
On a basic level you can make some changes long before the new tax comes into operation. If you’re shrink wrapping a magazine, for example, explore recyclable covers. Do you still have plastic cups for drinking water in the office? Have you reviewed your energy supplier? But there are also tax-saving measures you can take with wider ramifications.
If you offer company car benefits, then electric cars should be on your radar. Not only are they emission free, but there are no benefit-in-kind charges. They may appear more expensive up front but are more economical when the tax advantages are factored in. For employees who prefer to cycle to work, HMRC has said the cycle to work scheme can cover bikes worth over £1,000 which includes electric bicycles.
Research and development tax credits are another way to help you shift towards greater sustainability. There are also innovation grants available. Carbon accounting has been around for a few years and will become increasingly important as the country moves towards the goal of carbon neutrality in 2050. Starting to measure your businesses environmental performance now will not only set you on the right path for the planet, but also motivate staff and send a positive message to clients
Reversing the damage of plastic waste and carbon emissions is a global movement now regularly in the headlines. But it’s not just up to the legislators and big corporations. As a famous slogan once had it ‘Every little helps’.