Ask anyone who either uses their vehicle for business reasons, or puts fuel in a company car, and you will soon realise business mileage can be a confusing topic.

It’s important to know that if you fall into either of these two categories, you might be able to claim tax relief for business mileage.

HM Revenue & Customs’ (HMRC) business mileage rates have stayed the same for the past 12 years, and currently stand at:

• 45p for the first 10,000 miles
• 25p for each business mile above the 10,000-mile threshold.

What’s more, being clear on what HMRC defines as business mileage will save you time when you claim back what you are entitled to.

HMRC currently defines business mileage as any travel that you do whilst doing your job. This can also be extended to cover travel made to a temporary workplace.

There are, however, certain caveats to this definition where relief isn’t available. These include:

• Normal travel between your home and permanent place of work
• Any travelling you conduct privately.

Even though the business mileage rates outlined above are HMRC’s standard, employers do not need to use these rates when paying business mileage and they could choose to set their own rates.

There is a provision for employees to claim the difference at the end of each tax year where a company mileage rate is lower than HMRC’s. However, if your employer pays a higher rate of mileage than the HMRC standard, this will be subject to tax.

You must keep accurate records of all the mileage, dates, and details of your business travel, as you will need this information if you want to claim Mileage Allowance Relief.

HM Revenue & Customs (HMRC) has announced plans to offer a recurring direct debit to employers as part of their wider payment modernisation programme.

At present, employers can only set up a direct debit to collect a single payment.

The launch of this service, slated for mid-September this year, will see a change to the employer’s liabilities and business tax account (BTA) screens.

A link will also be included that will enable client companies to mandate a direct debit instruction, which will authorise the tax authority to collect money directly from their bank account.

Much like any other direct debit mandate, employers will be able to view, amend, or cancel the direct debit via a “manage your direct debit” once it has been set up.

Along with this update, HMRC stated that it has been extending employer PAYE for agent online services to allow accountants and adviser to see payment records held by HMRC along with employer liabilities.

Link: Employer PAYE — new recurring Direct Debit functionality

A new study has revealed the cashflow struggles faced by small businesses across the UK, resulting in calls for Government action.

The research, conducted by Xero Small Business Insights and Accenture, discovered that the average UK small business experienced a “cash flow crunch” for more than four months every year.

A cash flow crunch is when monthly takings do not sufficiently cover outgoings.

This issue often comes hand in hand with late payments, which have worsened since the Covid-19 pandemic. Late payments are cited as one of the main reasons for a stunt in business growth.

Alex von Schirmeister, Xero’s Managing Director for Europe, the Middle East and Africa, said: “We are seeing big businesses purposely withholding cash from their small customers. We must move away from calling it ‘late payments’, which legitimises poor practice and lacks urgency. It’s time we labelled this ‘unapproved debt’.

“Given the steady post-pandemic resurgence in cash flow issues that we’re seeing in the UK, we urge the Government to help.”

According to the research, 23 per cent of small businesses experienced a cashflow crunch for over six months each year, with 94 per cent doing so no less than once during 2021.

Hospitality sector worst affected

Firms impacted most negatively were those in the hospitality sector, struggling to keep their heads above water with the introduction of Covid-19 restrictions.

As a result, most companies in the industry with negative cash flow peaked at 54 per cent in July 2020.

Link: Cash flow crunch continues to hamper UK small businesses

With fluctuating incomes and the costs of living hitting businesses and individuals alike, people who have never previously had any issue with paying tax bills on time may have found themselves passing the 31 July payment on account deadline without being able to pay what they owe.

If this is the position you find yourself in, what should you do?

Don’t bury your head in the sand!

The very worst thing you can do when you owe money to HM Revenue & Customs (HMRC) is to do nothing.

Failing to act will see interest and penalties increase rapidly, meaning you’ll have to find even more money to cover your debt, plus any interest or fines charged.

Do speak to HMRC

For Self-Assessment debts of up to £30,000, HMRC lets you set up an instalment plan online to pay off the debt in more manageable monthly payments.

You can do this here.

To be eligible, you must be within 60 days of the payment deadline and able to make the repayments within 12 months.

If that is not the case, then you should call HMRC on 0300 200 3822.

If you cannot access HMRC’s Time to Pay arrangements, you might be able to spread the cost of your bill with a tax-specific loan.

The Recovery Loan Scheme, which helped businesses throughout the pandemic, has been extended for a further two years.

Launched on 6 April 2021, the Recovery Loan Scheme (RLS) was one of several finance schemes available to struggling businesses.

It provided financial support to businesses across the UK as they recovered and grew following the Coronavirus pandemic.

Nearly £80 billion was lent to SMEs through these schemes, but only £1 billion of borrowing was made via the Recovery Loan Scheme.

Scheme supported 19,000 businesses

The RLS has supported almost 19,000 businesses with an average of £202,000 in support.

It could be used to finance any legitimate business purpose – including managing cash flow, investment and growth. However, you had to be able to afford to take out additional debt finance for these purposes.

It was thought the scheme would be replaced with a version called RLS2, but now the Government has decided to extend the original scheme with the addition of a personal guarantee from borrowers.

How will the scheme work?

Businesses will be able to apply for the latest version of the scheme in August. The £2 million maximum loan amount remains the same and the Government will underwrite 70 per cent of lender liabilities, at the individual borrower level, in return for a lender fee.

Business Secretary, Kwasi Kwarteng, said: ‘‘The extension of the recovery loan scheme will help ensure we continue to provide much-needed finance to thousands of small businesses across the country, while stimulating local communities, creating jobs and driving economic growth in the UK.”

Shevaun Haviland, director general of the British Chambers of Commerce, added: “The two-year extension to the recovery loan scheme will be a lifeline for many businesses facing a rising tide of costs. It is now essential that businesses in need of this extra support can access the scheme as quickly as possible.”

If you intend to make use of this extension to the Recovery Loan Scheme, then you must seek professional accounting advice beforehand to make sure you maximise your use of the funding.

Link: Further support for small businesses feeling the squeeze as £4.5 billion Recovery Loan Scheme extended

Corporation Tax (CT) rates are set to rise in the UK from 1 April 2023. From this date, the main rate of CT will increase to 25 per cent for all companies with taxable profits over £250,000.

There will also be a small profits rate for companies with taxable profits of £50,000 or less of 19 per cent, while businesses that fall between these two thresholds will effectively be taxed at 25 per cent, but enjoy a marginal relief based on their specific level of profitability.

Although the future of the Corporation Tax rise is currently up in the air due to pledges made during the Conservative Party leadership contest, it is worth considering what impact this change could have on group companies.

Under the changes to CT, the existing 51 per cent group company test will be replaced by associated company rules.

These rules will determine whether a group should be deemed a large company (taxable profits in an accounting period between £1.5 and £20 million), or a very large company (profits in excess of £20 million) and should make payments through instalments due to this association.

Association is determined according to whether a company has been connected with another company for the 12 preceding months and, whether either, one company has control of the other or both companies are under the control of the same person or group of persons.

These rules apply to a company’s worldwide associations, regardless of their tax residency. However, the associated company rules don’t apply where a company is:

• Dormant
• A passive holding company
• Not substantially dependent on another company.

A potential pitfall

This change affects how companies make CT payments, which could affect cash flow.

If a group company is within the associated company rules, then it can continue to make quarterly instalment payments in the 7th, 10th 13th and 16th months of the accounting period.

Whereas, if this change deems them “non-large” and takes them out of the instalment regime, CT will be due nine months and one day after the end of the accounting period.

The overall impact of this is that the first tax instalment payment for the next accounting period will be due before the tax has been paid in respect of the previous year, creating an unexpected charge.

With this being the case, careful advanced planning is required to make sure cash flow is not adversely affected by this complex change.

Link: Corporation Tax Rise