The Fizz! Blog

Fuel costs rising

No doubt you’ll have noticed that petrol and diesel costs have increased recently.  The taxman has noticed too, and increased some VAT and tax allowances for fuel costs, albeit not by a great deal.

Employers can pay a mileage allowance of up to 40p a mile, tax-free, when employees use their own car for business.  That hasn't changed, it remains 40p.

You can’t reclaim VAT on all of the 40p, but you can reclaim VAT on the part that represents fuel, as long as you retain VAT receipts covering the cost.  As fuel costs have increased so sharply, the approved rates - the part of the 40p that the taxman is happy to accept as representing the cost of fuel - have just been increased once more.  The new list of rates is here:

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

The new rates are to be applied from 1 December.

The rates can also be used where someone has a company car but is required to pay for the fuel they use privately.  Either:

• The employer can pay for all the fuel, then the employee can work out their personal mileage and reimburse the employer at the approved rates, or

• The employee can pay for all the fuel, then they can work out their business (not commuting) mileage and the employer can reimburse them for it at the approved rates.

So, not an exciting change, but every little helps - and if you're running a fleet of vehicles it may represent a meaningful saving.

And if you're VAT registered, not on the flat-rate scheme, and failing to reclaim VAT on your mileage costs at all, you should start!  You can even reclaim some of the VAT you've missed out on in the past - get in touch with us to find out how.

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VAT rate change - planning opportunities

The VAT rate is going back up to 17.5% on 1 January.  At least, it's scheduled to go back up to 17.5% - there's a school of thought that says it might be raised higher, as a tax-raising measure.  I can't see it myself, I don't think another tax hike affecting poor and rich alike will go down well in an election year.  We'll have to wait and see.

In any case, there are some opportunites for a bit of VAT planning around the rate change.  If you're selling to VAT registered businesses, they won't be fussed if you charge them 15% or 17.5% as they can reclaim the VAT anyway.  But if you're dealing with customers who *can't* reclaim the VAT - like private individuals or many charities - then it might well be desirable to charge them 15%, not 17.5% - either because you'll lower your price to them, or you'll keep the gross price the same but be able to give less to the taxman and keep more yourself.

If so, then in most cases, if your customer agrees, you can invoice them in December, not January, fixing the VAT rate on the invoice at 15%.  There are some specific rules to prevent "abusive" early invoicing - in particular, on sales of more than £100,000 - but for many small businesses it's very workable.  Give us a call or email if you'd like to discuss it.

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Scam emails still doing the rounds

The scam emails that I've warned about before are still doing the rounds, apparently, and still raking in the bank details of the unwitting.  If you ever get any such emails, just delete them without a second thought.

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One supply or two?

A common theme of VAT cases is attempts by businesses to claim that they are selling two separate things when they're actually only selling one.  The reason that you'd try and do this is that some things have VAT on them - meaning that if you sell them you have to give some money to the taxman - but some things aren't - meaning that you can keep all of the money.

Though sometimes a claim will succeeds, often they're audacious or just silly.  The benchmark for some time has been Sky TV's claim that their subscribers were buying a) satellite TV and b) a monthly magazine.  If they'd succeeded in that claim, they would have been able to cut their VAT payments, as there's no VAT on magazines.  Of course, they didn't succeed, as it was a ridiculous claim, and every level of tribunal and appeal quite rightly found that the prospect of a magazine didn't enter into a customer's mind when they signed up - it was very much incidental to the main supply of TV channels.

But, following a VAT tribunal case in the summer, Sky have lost the crown for the most ridiculous claim, which now belongs to Purple Parking.  They're one of the companies that provide parking near airports, and then drive you from the car park to the terminal.  Their - undeniably imaginative - claim was that their customers are purchasing two things - a) car parking and b) a ride in a bus.  When the tribunal had stopped laughing, they told Purple Parking that their customers were plainly buying parking - the clue is kind of in the name Purple Parking - and that the bus ride part is incidental to that.  Sometimes you do wonder how much thought goes into making these claims, particularly bearing in mind the hefty professional fees that must be involved.  Although you often have to applaud creative attempts to minimise tax burdens, this isn't one of those cases!

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BBC presenters attempt to avoid 50% tax

Many papers (such as the Telegraph) ran a story over the weekend about BBC presenters setting up companies so that they can come off the BBC payroll, freelance, and avoid the new higher income tax rates coming in from 6 April.

It's a more complicated story than that presented in the papers - just deciding to be a paid as a freelancer when really you should be an employee potentially has nasty tax consequences from either "freelancer" or "employee".  I've written about IR35 on this blog several times before.

But, it does illustrate the point that simply hiking the top rate of tax doesn't necessarily lead to a proportional increase in the tax take - people start to take action to restructure their affairs to reduce their tax liability, or they just don't bother to seek further income.  In fact the highest rate of tax won't be 50% next year, it will be 61% - which I'll discuss in another article.  And, however great your desire to effect redistribution of wealth via tax policy, there's no question that the prospect of only being allowed to keep 39% of some of their earnings is likely to change the behaviour of some taxpayers.

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Divorce as a tax-planning tool?

Here's a brief summary of a tax case from the summer that made me laugh.

Mr Rockliff was a retired policeman.  He received a pension from his former employer.  His wife had no income, and consequently had a 0% tax band going to waste.  He decided that he would just declare half of his pension on his own tax return, and have his wife declare the other half.  That way, less tax would be payable on the income overall.

Not surprisingly, Her Majesty's Revenue and Customs didn't agree with this creative approach to taxation.  It's been a central principle of UK tax for quite a while now that an individual's income is his or her own, and can't just be allocated to a spouse.  Despite this major flaw in his plans, Mr Rockliff decided to take the issue to a tax tribunal.

Showing a further capacity for imagination that, if we're honest, is not generally associated with the police force, Mr Rockliff's argument to the tribunal was that if a) he were he to be divorced from his wife, and b) a court were consequently to order his pension to be split between him and his ex-wife, then some of the pension would be taxable on him and some taxable on his wife.

Unfortunately, the tribunal pointed out that a) he wasn't divorced from his wife and b) a pension sharing order therefore hadn't been made.  So, he lost.  Why Mr Rockliff had pursued the matter I don't know, because there was never any chance he would win.

Of course, if Mr R shows a bit more commitment, he might want to consider actually getting divorced, and have a pension sharing order made, thereby achieving his goal.   However, the danger is that might be a bit of a short-term saving at the expense of long-term cost - the reliefs available against Capital Gains Tax and Inheritance Tax are much more generous to married couples than other co-habitors.  And of course divorce isn't cheap in itself.  So it's probably not a tax-planning strategy that is going to be advisable for many couples.

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NDO - "New Disclosure Opportunity"

A couple of years ago, HM Revenue & Customs had a sort of semi-amnesty for people who had failed to declare income from offshore bank accounts or assets.  A lot of people are under the misapprehension that interest on offshore bank accounts isn't taxable.  That's wrong.  It's basically no different from UK bank interest for most people.

That semi-amnesty was quite successful, so now HMRC are having a second go.  Called the New Disclosure Opportunity, and running for three months from 1 September, it enables taxpayers to declare previously undeclared foreign income.  There will still be a penalty to pay (hence my calling it a semi-amnesty), but it will be significantly lower than usual - just 10% of the tax due - or 20% if you spurned the opportunity to come clean last time.

Historically, people have generally got away with not declaring offshore income.  However, financial institutions are increasingly being forced to share their records with tax authorities so that evaders can be identified.  Which is, by and large, a good thing.  Anyone not declaring such income would probably be well advised to tell the taxman now rather than having the bank snitch on them after the NDO window closes.

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Clampdown on R&D incentives on the way?

It's being suggested that the Revenue may start looking harder at claims for Research and Development Tax Credit, to try and restrict the amount they pay out.  Historically, despite one or two high profile cases where companies have plainly tried it on and claimed when they're not entitled, the Revenue have always been reasonably happy to dish out R&D credits without too much scrutiny. I suspect that means that a lot of suspect claims are paid out without question, so I'm not surprised if it's an area they've decided they should look at more closely.

Of course, if you're entitled to the credit then a more vigorous claim inspection shouldn't deter you - but if you're relying on a cash repayment, it might be sensible to budget for receiving it a month or two later than you'd normally anticipate it.

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"Tax refund" scams

Although I've often read warnings about emails purporting to be from the taxman offering a tax refund in return for your bank details, this morning is the first time I've actually received one:

ATTN: Dear Applicant,
2009 - Recalculation Tax Refund

After the last annual calculation of your fiscal activity we have determined that you are eligible to receive a tax refund of 284.23 GBP Your TRN (TAX REFUND NUMBER): 2 7 9 0 2 1 6 8 1 5, please fill the payment form attached in the email.
Please submit the tax refund and allow us 3-9 business days in order to process it.

Note: For security reasons, we recommend that you close your browser after you have finished accessing your refund status.
- For security reasons, we will record your ip-address and date.
- Deliberate wrong inputs are criminally pursued and indicted.

Best Regards,
Greg Stephen
Tax Credit Office Agent
Preston
PR1 0SB
Telephone: 0845 300 3900
Opening hours:
8.00 am to 8.00 pm, seven days a week

Two things betray this as a scam.  Firstly, the Americanisms that clearly indicate that the email has been written by someone not from the UK - "fiscal", "indicted" (and GBP, for that matter).  But more importantly - the Revenue open seven days a week, until 8pm?  Whoever has written the email clearly doesn't have any first-hand knowledge of the tax system here.  If they put Monday to Friday, 10am until 3pm, they would have a much better chance of fooling people!

The Revenue will never contact taxpayers in this way - if you get an email like this, just delete it.

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Fuel-only mileage rates change

As of 1 July, the Revenue have updated their fuel-only mileage rates. These can be used a) for reclaiming VAT on that part of the 40p a mile mileage allowance that represents fuel and b) reimbursing employees for business fuel costs where the employee buys all the fuel but it's a company car. To be honest, I'm not sure why they've bothered, because the rates aren't very different from the old ones - in fact some of them, including the rates for petrol cars up to 2 litres - which I'm guessing is the most common category - have stayed the same.  In any case, the new rates are here:

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

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