Value Added; Confused about the changes in this year's Budget? Tax expert Bruce Wilson puts you right on three of the most frequently asked questions.
Q MY company has a small salesforce and every member has a company car. I know that the rules on company car tax have changed, but I am not sure what they are and how they will impact on my business. Can you explain?
A UNDER the new system, taxation is calculated according to the volume of CO2 emissions produced by the car.
Traditionally, high mileage business users have benefited from the lowest tax rates of 15 per cent. The low mileage business user, whose car is largely a perk, suffered most, being charged at 35 per cent.
Now, under the new system, many light business users may find they are in fact better off.
Take a pounds10,000 company car, petrol engine and CO2 emissions measuring 160g/km. The car is rarely used for business.
Under the new system, the perk car driver has a tax bill calculated at the lowest possible rate (15 per cent). The pounds600 bill is more than half of what it was previously.
Now take the hard-pressed, far-travelled sales rep, driving a petrol engine car with 270g/CO2/km. The list price is pounds20,000 and he clocks up 25,000 miles a year. Previously, the reps enjoyed the benefits of their high-mileage travel, in this case resulting in a tax bill of pounds1200. The new system sees the tax rate jump from 15 per cent to the highest rate 35 per cent, with a new tax bill of pounds2800.
It would seem that fuel-efficient cars, even if they are a perk, will be much more of a tax-efficient choice.
There are further tax breaks for those who choose vehicles which burn LPG (liquified petroleum gas) and hybrid cars which run on both petrol and electricity. However, drivers should fully assess the cost and benefit of going "green".
If your company car is registered after January, 2000, you will benefit from the reduced tax rates for emissions from LPG, but for vehicles registered before January, 2000, regular petrol rates apply. The only saving here will be on the price of LPG.
So, unless your car is less than a year old, there is little incentive to go "green", unless you purchase a new bi-fuel or hybrid vehicle, which carries a further two per cent tax relief on the regular rates.
Employers must also be aware that the new regime also has an impact on Class 1A National Insurance. High-mileage business users now cost companies a great deal more in NI than low mileage perk users. On top of all these changes, diesel company car users will also have to pay a three per cent supplementary tax on that calculated for their petrol counterparts.
Q I RUN a small packaging business with total sales of around pounds80,000 per year. Completing VAT returns is a time- consuming task. Can you explain what April's Budget means for me?
A YOUR VAT exclusive taxable turnover is under pounds100,000 per annum so you are now eligible to join the new Flat Rate Scheme (FRS).
This means that you can calculate your net VAT due simply by applying a flat-rate percentage to your tax-inclusive turnover.
The rate percentage depends upon which trade sector your business is in. For the purposes of the scheme your rate will be nine per cent. A hairdresser, for example, will have a flat rate of 13 per cent and a transport operator, including removals and tax, has one of 10 per cent.
If you opt into the scheme you will not need to record individual sales and purchase figures as the rate is applied to the total sales. You will still need to issue VAT invoices to your VAT registered customers.
If you normally receive repayments from Customs, the FRS is not for you. There are also other circumstances which prevent you using the scheme, so it's best if you discuss your own position with your accountant.
You can apply by completing form VAT600 (FRS) available from Customs as part of Notice 733, or print the form from the government website.
Alternatively, the annual accounting scheme allows a business with taxable turnover of up to pounds600,000 to make one VAT return a year, rather than quarterly. Another major change from April means a business with taxable turnover of up to pounds100,000 can now join the scheme as soon as they register and no longer wait for a qualifying period of one year.
It would perhaps be of benefit to you to take this option, although you may wish to take professional advice.
Automatic penalties for VAT payments and returns made late are now removed for businesses with turnovers of up to pounds150,000, but don't let yourself slide with your record-keeping, however, as this could lead to problems with the Inland Revenue. And remember, the VAT man will still want to make sure your books are in order.
Q MY first baby was born on April 17 and I understand that there may be some tax breaks available to me or my husband for the baby. What are they and what do we have to do? I am a partner in a hairdressing salon and I expect to cut my hours when I return, so my profit share may be reduced. My husband is managing director of his own company.
A YOU may claim Children's Tax Credit (CTC) including an additional "baby rate". The tax credit is a maximum of pounds5290 on which tax relief is given at 10 per cent and the additional baby rate for the current tax year 2002/03 is a further maximum pounds5200 also given at 10 per cent. This works out at a total tax saving of pounds1049. Families who have one or more children under 16 living with them may claim.
If the child is not the claimant's own (for example, lives with a grandparent), the claim may still be made providing the person making the claim maintains the child at his or her own expense.
The full amount of relief is restricted if you have an income which falls into the higher rate tax bracket.
This applies to total taxable income of pounds29,900 after the personal allowance. The amount clawed back is pounds2 for every pounds3 you are in the higher rate band. If your taxable earnings are pounds37,835 after the personal allowance there will be no credit available.
However, as your child was born in this tax year, you may claim the additional baby rate. This means that some credit relief is available for 2002/03 up to the point where taxable income reaches pounds45,635.
For example, if your share of profit is pounds40,000, deducting the personal allowance of pounds4615, you have taxable earnings of pounds35,385. Your tax credit calculation will be: Full amount (pounds5,290 + pounds5,200) pounds10,490, less: clawback (pounds35,385-pounds29,900) x 23) pounds3656 making a tax credit of pounds6834.
With relief at 10 per cent, this is worth pounds683 to you. There is a special rule where the person claiming the credit is one of a married couple or a partner, i.e. one of an unmarried couple living together as husband and wife. The credit can only be claimed by the higher-rate tax earning partner.
If neither of you are higher-rate taxpayers the whole credit can be claimed by the lower earning partner or the credit can be split equally between both of you. There are also special rules to deal with situations where couples separate.
If you are claiming the CTC, the claim must be included in your self- assessment tax return for the year. This may be done at any time after April 5, 2003 for the current tax year 2002/03 but before January 31, 2004, which is the final deadline for getting this return to your Inspector of Taxes.
If your husband is making the claim he, as an employee, may make it during the tax year using form 11 CTC which he sends off to his taxman. Alternatively he too can claim when he does his self-assessment return.
However, as you can see, this is quite a confusing relief and one on which you may wish to consult a tax adviser.
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|Title Annotation:||Scotland Means Business|
|Publication:||Daily Record (Glasgow, Scotland)|
|Date:||Jun 13, 2002|
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