Author Archive: Muhammad Zia

Watt’s up with HMRC? Understanding the new electric car charging rules

The recent update to HM Revenue & Customs’ (HMRC) Employment Income Manual is a significant development for businesses and employees utilising company cars, particularly electric vehicles (EVs).

The revised guidance now aligns with existing legislation, specifically, Section 239 of the Income Tax (Earnings and Pensions) Act 2003, which states that reimbursements for expenses incurred in connection with a taxable car or van are not subject to Income Tax.

The impact of Section 239 

Previously, the manual incorrectly advised that if an employer reimbursed an employee for the cost of charging an electric car at home, it would be considered a taxable benefit in kind (BIK). This has now been rectified.

The exemption under Section 239 does apply to the cost of domestic electricity used for charging a company car at home.

Therefore, if the electricity reimbursed is solely used for this purpose, there will be no tax liability.

A point of contention in the updated guidance

However, it’s crucial to note a new, somewhat contentious, point in the updated guidance.

It suggests that if a car is used solely for private purposes, the reimbursement for home charging should be taxed as earnings.

This is in direct contradiction with the legislation, which makes no such distinction based on the usage of the car – be it wholly private, mixed business and private, or wholly business.

This could potentially lead to complications and it’s advisable to keep an eye on any further clarifications from HMRC on this matter and discuss these issues with your accountant.

Opportunity for overpayment refunds

For those who have been following the old guidance, there’s good news! You may be entitled to claim tax overpayment refunds, which could be substantial in some cases.

For instance, a director spending approximately £20 per week on charging an EV at home could claim just over a thousand pounds a year in reimbursed electricity costs.

What to do next

The updated HMRC guidance brings much-needed clarity but also introduces a point of contention that contradicts existing legislation.

It’s essential to review your current reimbursement policies for electric vehicle charging to ensure they are in line with the new guidance, while also being prepared for potential future amendments.

This is an opportune moment to consult with your tax adviser to assess the impact of these changes on your tax position and take any necessary corrective actions.

Your tax adviser could help you streamline your tax efficiency and strengthen your reimbursement policies. Get in touch today to see how we can help you and your business.

Brexit’s next chapter: EU announces new Green Tax and VAT rules

The recent survey by the British Chambers of Commerce (BCC) reveals a concerning lack of preparedness among UK small and medium-sized enterprises (SMEs) for ongoing EU regulations and tax changes.

A staggering 80 per cent of SMEs surveyed are unaware of the reporting requirements for the EU’s new Green Tax, which took effect on 1 October 2023.

Known as the carbon border adjustment mechanism, this tax requires companies to report on carbon emissions related to certain imported goods, such as steel, aluminium, and fertilisers.

From 2026, businesses will need to purchase certificates to offset the pollution embedded in these products.

Navigating the complexities of VAT changes

Another notable change is in the EU’s value-added tax (VAT) regime, which will come into force in January 2025.

Changes to EU VAT rules will require businesses to pay VAT in the customer’s residing country, even for electronically provided services.

For example, if you offer online cooking classes to EU customers, you will be required to pay VAT in the customer’s country starting from January 2025.

The importance of product quality marks

The survey also found that 43 per cent of UK manufacturers are unaware of the UK’s development of an alternative product quality mark to replace the EU’s.

This lack of awareness could lead to additional bureaucratic hurdles for UK exporters.

Given these impending changes, businesses must review their EU import footprint and assess the compliance and organisational impact on their trade.

The divergence in regulations and taxes between the UK and the EU post-Brexit undoubtedly creates additional complexities for UK businesses looking to trade with the Continent.

Therefore, it’s imperative to stay informed and prepare for changes in advance to mitigate their impact on your operations.

Government’s role in supporting businesses

The Department for Business and Trade has stated that it is working on tailoring regulations to benefit UK businesses post-Brexit.

However, businesses need to take proactive steps to understand and adapt to these new regulatory landscapes.

This includes discussing potential import/export/overseas trading issues with your accountant who can help you develop a firm strategy going forward.

Speak to your accountant today and develop a path to import/export profitability.

How can the Marriage Allowance save you money?

There are many financial and legal benefits to being married or in a civil partnership, but one of the most overlooked reasons is the potential for tax relief.

This is because, thanks to the Marriage Allowance, where one partner earns below the tax threshold, they can transfer a portion of their personal allowance to the other partner, reducing the amount of tax they need to pay.

Am I eligible?

The Marriage Allowance relies on one spouse earning below their Personal Allowance of £12,570 per year. This can be through not working, having a low-paying or part-time job, or being retired.

The other partner must be paying the basic tax rate to receive the allowance, meaning their annual income must be between £12,571 and £50,270 per annum.

If this is the case, the lower-earning partner can transfer up to £1,260 of their personal allowance to their higher-earning partner.

How does it work?

By transferring part of your personal allowance to your partner, you increase their personal allowance up to £13,830. This reduces the portion of their income that they are liable to be taxed on, saving them up to £252 per year.

It is important to bear in mind that this transfer reduces the personal allowance of the lower-earning partner by the same amount, meaning that if they earn over £11,310, they are liable to pay tax.

Despite this, it is often still worth the transfer, as the lower-earning partner will still be paying a lower amount of tax, and it will contribute to an overall saving for both partners.

How do I get it?

You can apply for Marriage Allowance on the Government website if you fit all the criteria mentioned above.

If you or your partner were born before 6 April 1965, you may benefit more by applying for Married Couple’s Allowance instead.

It is also possible to backdate the claim to include any tax year from 5 April 2019, meaning that you and your partner can get further reductions to your tax bill.

If you are unsure whether the Marriage Allowance will benefit you and your partner, get in touch with our experts today for help and advice.

Mitigating Inheritance Tax: The four most common mistakes

Inheritance Tax (IHT) planning is essential to ensure that your beneficiaries receive the maximum benefit from your estate.

However, many individuals make critical errors in this process. Here, we pinpoint the four most common mistakes people make when trying to mitigate IHT in the UK.

Failure to understand the IHT thresholds

The UK has specific thresholds, known as nil-rate bands, which determine how much IHT is due. The current nil-rate band is £325,000 per person. Assets exceeding this amount are taxed at 40 per cent.

However, property owners also benefit from the residence nil-rate band, which provides an additional £175,000 where a person’s main property is passed to a direct descendant.

Any unused allowance for either the nil-rate band or residence nil-rate band can be passed on to your spouse and civil partner. This means that a couple has the potential to pass up to £1 million tax-free to eligible beneficiaries.

Many people fail to optimise their estate to align with these thresholds, which can result in a substantial tax bill.

Regularly update yourself on the current thresholds and utilise gifts, trusts, and other mechanisms to maximise the nil-rate bands available.

Overlooking the seven-year gift rule

In the UK, gifts given seven years before the donor’s death are not subject to IHT, while gifts given three to seven years prior to death are taxed on a sliding scale.

While few of us can plan our own demise, with the right approach to tax planning it is possible to start making gifts well ahead of your passing to reduce a potential tax bill. However, many overlook this rule and do not plan early enough to take full advantage of it.

Start your estate planning early and consider how you can utilise the seven-year gift rule to reduce the potential IHT liability.

Not making use of trusts

Trusts can be an incredibly useful tool in IHT planning. They allow you to control how your assets are used, even after your death and can even put measures in place to ensure dependents are cared for financially throughout their lives.

Despite this, trusts are often overlooked, possibly because of their perceived complexity and the need to manage them over time through the appointment of trusees.

Consider setting up trusts to hold assets, which can help in efficiently distributing your wealth and potentially reducing the IHT liability.

Failing to seek professional advice

IHT laws are complex and continually evolving. Despite this, many individuals try to navigate this area without seeking professional advice, which can often lead to mistakes and missed opportunities for tax-saving.

Consult with a tax advisor experienced in IHT planning to guide you in making informed decisions and optimising your strategy to reduce IHT liability.

Mitigating IHT in the UK requires a sound understanding of the tax regulations and the various allowances and reliefs available.

By avoiding the common mistakes highlighted above, individuals can craft a more effective IHT strategy, safeguarding their assets and ensuring a better financial future for their beneficiaries.

If you are concerned about Inheritance Tax, please contact us.

This is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 13/10/23.