Is green really the colour of money? – company cars

Is green really the colour of money? – company cars

What tax is charged for the use of a company car?

This article looks at the taxable value of the car and the new percentage charges, taxes for private fuel and importantly, how going green could save you money.

The provision of a company car is one of the many benefits that can be offered to employees. As an employer, if you provide a company car or fuel for your employees’ private use, you’ll need to work out the taxable value. It is important to note that you are not only taxed on the list price of the car, but also on its CO2 emissions.

Broadly speaking, the intention here is to:

  • Encourage manufacturers to produce cars which are more environmentally friendly and
  • To give both employee drivers and their employer a tax incentive to choose more environmentally friendly cars

Taxable value of the car

Company cars are taxed according to the list price of the car, but are graded according to the level of its carbon dioxide (CO2) emissions. The fuel type of the car is also taken into consideration, with diesel cars currently paying an additional 3% supplement.

The percentage charge for most cars has generally been between 10% and 35%. However, changes have been announced to emissions tables, which may see those percentages rise. The new emissions percentage charges will extend to the 2019/20 tax year.

The emissions table for the current 2014/15 tax year is as follows:

2014/15 Percentage of list price charged as a benefit
No CO2 emissions 0%
75g/km or less 5%
76 – 94g/km 11%
95g/km 12%
Then every 5g/km to 210 or more +1% to 35%

The emissions table for the 2015/16 tax year is as follows:

2015/16 Percentage of list price charged as a benefit
Up to 50g/km 5%
51 – 75g/km 9%
76 – 94g/km or less 13%
Then every 5g/km to 210 or more +2% to 37%

Please note that diesel cars currently have a 3% supplement added to these percentages.
The maximum still cannot exceed 35% and 37% respectively.
The diesel supplement will no longer apply from 2016/17.

Reimbursement to reduce the benefit

Generally, where the employee is required to pay an amount of money for the private use of the car, the amount can be deducted from the car benefit. However, new HMRC legislation in the Finance Act 2014 will see this change. The new legislation states that a deduction is only given if the payment is made within the same tax year. This applies for 2014/15 and subsequent years; meaning that private use contributions must be paid before the end of the tax year to have effect. This applies to both cars and vans.

Private fuel

There is a further tax charge where a company car user is supplied with private fuel or is allowed to claim reimbursement of the cost of fuel used for private journeys. The fuel scale charge is based upon the same percentage used to calculate the car benefit and is applied to a set figure. The set figure is currently £21, 700 and is increased year on year.

The rules on reimbursement do not apply in the same way to the provision of private fuel. Only full reimbursement of any private fuel element is taken into consideration, thus removing the benefit. Partial deductions are not effective.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]

Care home performance benchmarking Autumn 2014

Care home performance benchmarking Autumn 2014

Care home performance benchmarking Autumn 2014

All care home managers and owners ought to know how their business is performing against its competitors.

We realise that each home is different but an analysis of margins, costs etc. against the competition can help highlight areas of concern and, of course, highlight where your business is performing well.

Financial benchmarking

The financial performance of any business is a key focus for any owner and manager. The financial results will almost certainly impact on fundamental operational decisions, CQC recognise this and legislation is in place that requires operators to consider the financial viability and position of their homes to ensure that care standards are not impacted due to financial constraints.

Average weekly fees continue to be a challenge for many operators, with price freezes in both nursing and personal care by many local authorities. Many of our clients have benefitted from increases in specialist care income streams, but this is highly dependent on the needs of residents and the demand on providers in the local area.

Average weekly fees

Payroll costs for nursing care continue remain largely unchanged, with a marginal decrease to 56% from 56.3%. Going forward we expect the increase in the National Minimum Wage (effective from 1 October 2014) to impact on a high number of operators, together with additional pension costs following the implementation of AutoEnrolment.

Non-payroll costs have risen in all care variants, with continued increases in utility and food costs being key factors in the reported rises.

Profit margins (EBITDAR) continue to be a challenge for operators as a result of funding pressures and rising costs. Nursing care margins remain consistent at 28.7%, however personal and specialist care have fallen to 31.1% (31.7%) and 31.5% (32.7%) respectively.

Non-financial benchmarking

Non-financial benchmarking is equally important to any care home; whether it be occupancy levels, local reputation or the findings of a CQC inspection, all will have a significant impact on your business.

Occupancy rates continue to rise, with both nursing and personal care achieving over 90% occupancy for the first time since 2011. Specialist care continues to lead the way, achieving 91.1% occupancy in the first half of 2014.

Occupancy rates

More from our care sector experts

You can also find all of our latest care sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]

Tax Relief on Investments – SEIS, EIS, VCT & SIR

Tax Relief on Investments – SEIS, EIS, VCT & SIR

Tax Relief on Investment – SEIS, EIS, VCT & SIR

Save tax with the new Government investment schemes! You can reap a range of tax relief opportunities, ranging from income tax relief of up to 50% to reinvestment relief with 50% exemption on capital gains.

A number of Government approved schemes are available to encourage private individuals to invest in smaller, high-risk unquoted trading companies and with effect from 2014/15, in social enterprises.

In order to encourage investment there are a number of tax relief opportunities available. These differ depending on which scheme you have invested in.

The schemes are as follows:

  • Seed Enterprise Investment Scheme (SEIS)
  • Enterprise Investment Scheme (EIS)
  • Venture Capital Trust Scheme (VCT)
  • Social Investment Relief (SIR)

This article will provide a brief overview to the tax relief incentives available through EIS, VCT, SEIS and SIR. It is important to note that as each of these schemes have complex and detailed rules concerning qualifying investors, the investment vehicle and type of investment further advice should be taken from us to ensure these conditions are complied with before making the investment.

Income tax relief

A qualifying investment ranges from £100,000 to £1m, depending on the scheme and can reduce an investor’s tax liability for the tax year. In some cases a claim can be made to carry back the tax relief to the previous year which can be useful where there is insufficient income tax liability in the current year. The income tax relief available is 30% of the qualifying investment with the exception of SEIS, which is 50%. In order to retain this relief the investments generally have to be held for three years. This is extended to five years in the case of VCT investments.

Capital gains and losses

Where the qualifying investments are held for three years, upon disposal, any capital gain will generally be exempt. If the investments are disposed of at a loss, the loss will be allowable, but this is reduced by any income tax relief claimed. There is no minimum ownership requirement for VCT shares to qualify for CGT exemption but losses are not allowable.

Capital gains deferral relief

A gain on the disposal of any asset can be deferred where the gain is invested in a qualifying investment for EIS and SIR. This relief is not available for VCT or SEIS investments. The deferred gain generally becomes chargeable when the qualifying investment is disposed of (although certain other situations can also trigger the gain).

However, for SEIS a reinvestment relief exists. This exempts 50% of gains up to a maximum investment limit of £100,000 (i.e. £100,000 x 50%) when a qualifying investment is made.

Investment income

Dividend (or other) income from the investment schemes are taxable with the exception of dividends on ordinary VCT shares which are exempt. For more information on business acquisitions, raising finance business disposals or any other aspect of corporate finance, please click here.

We can help!

If you have any queries on the investment tax relief or would like advice on what the new Government investment schemes may mean for you, please get in touch.

It is strongly advised that you seek further counsel if you are considering taking advantage of one of these schemes.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]

Pension freedom 2015 – a flexible future?

Pension freedom 2015 – a flexible future?

Pension freedom 2015 – a flexible future?

 
In the 2014 Budget, George Osborne announced ‘pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want’. Some of the changes have already taken effect but the big changes will come into effect on 6 April 2015.

This briefing details the proposals ahead for those with money purchase schemes. The emphasis is on the tax treatment and some tax planning points that arise from the proposals. There will be consequential implications for defined benefit pensions and the Government will be consulting on these.

Money purchase scheme options – the current system

Under the current system, there is some flexibility in accessing a pension fund from the age of 55:

  • tax free lump sum of 25% of fund value
  • purchase of an annuity with the remaining fund, or
  • income drawdown.

The ability to take a tax free lump sum will be retained after 6 April 2015.

Currently around three quarters of those retiring each year purchase a lifetime annuity and many will continue to do so.

For income drawdown there are limits on how much people can draw each year, which are calculated by reference to annuity rates calculated by the Government Actuary’s Department. There are some sub options.

  • For those who have a ‘guaranteed income’ of £12,000 there is no limit on the amount that is taken from the pension fund (but no further tax relievable pension contributions can be made to any pension scheme).
  • A short-term annuity policy can be purchased by passing some of the pension fund to an insurance company in exchange for an income stream for up to five years. The income drawdown limit rules continue to apply where relevant. After the fixed term the policy typically offers a guaranteed maturity value which can be invested to provide the most suitable income requirement from that point.

For those who are 60, immediate access is available to some small pension funds (for example if a person has a small pension fund of £10,000 or less).

An annuity provides a secure known income as the pension is used to purchase an income stream from an insurance company. The insurance company therefore takes on the risk of paying an income over a person’s lifetime.

Under income drawdown a pension fund remains invested. The person decides how much income to take and how much capital will be eaten into as a consequence.

What are the tax effects of the current system?

The tax free lump sum is, of course, tax free.

An annuity is taxable income in the year of receipt. Similarly any monies received from the income drawdown fund are taxable income in the year of receipt.

If immediate access is made of a small pension fund, 25% is tax free and 75% is taxed as income.

These tax principles are carried forward into the new system.

Proposed changes to the system

From 6 April 2015, the ability to take a tax free lump sum and a lifetime annuity remain but some of the current restrictions on a lifetime annuity will be removed to allow more choice on the type of annuity taken out.

The rules involving drawdown will change.

There will be total freedom to access a pension fund from the age of 55.

Whether that is a sensible thing to do depends on the financial position of the person. A significant factor in making that decision may be the tax effects of accessing the fund.

It is proposed that access to the fund will be achieved in one of two ways:

  • allocation of a pension fund (or part of a pension fund) into a ‘flexi-access drawdown account’ from which any amount can be taken over whatever period the person decides
  • taking a single or series of lump sums from a pension fund (known as an ‘uncrystallised funds pension lump sum’).

In addition immediate access to some small pension funds will remain and these can be accessed from the age of 55 and not 60 as currently.

The flexi-access drawdown account

When an allocation of funds into a flexi-access account is made the member typically will take the opportunity of taking a tax free lump sum from the fund (as under current rules).

The person will then decide how much or how little to take from the flexi-access account. Any amounts that are taken will count as taxable income in the year of receipt. So, as a tax planning point, a person should decide when to access funds depending upon their other income in each tax year.

The ability to invest some (or all) of the amount in a short-term annuity will remain.

Example

In September 2015 Rita has £300,000 in her pension fund. She decides she would like to access sufficient of her fund so that she can obtain £25,000 as a tax free lump sum.  She allocates £100,000 of the funds to a flexi-access account. She receives £25,000 tax free. The remaining £75,000 is therefore in her flexi-access account. She decides to take no further amounts in the 2015/16 tax year but takes £5,000 in the 2016/17 tax year. She will be subject to income tax on the £5,000 in 2016/17.

Taking an uncrystallised funds pension lump sum

Access to some or all of a pension fund without first allocating to a flexi-access account can be achieved by taking an uncrystallised funds pension lump sum.

The tax effect will be:

  • 25% is tax free
  • the remainder is taxable as income.
Example

Derek has several pension funds. One of the funds is worth £40,000. He decides to take the whole fund as an uncrystallised funds pension lump sum. £10,000 will be tax free but the remainder is taxable as income.

Other tax consequences?

The Government is alive to the possibility of people taking advantage of the new flexibilities by ‘recycling’ their earned income into pensions and then immediately taking out amounts from pensions. To appreciate the potential opportunities we need to consider the current and prospective rules for obtaining tax relief on pension contributions.

An individual is entitled to make contributions and receive tax relief on the higher of £3,600 or 100% of earnings in any given tax year. A person’s employer can contribute into the scheme on behalf of an employee and can contribute in excess of a person’s earnings.

However an ‘annual allowance’ sets the maximum amount of tax efficient contributions. The annual allowance applies to the combined contributions of an employee and employer. Amounts in excess of this allowance trigger a charge which has the effect of eliminating the tax relief available on the excess contributions. The annual allowance is £40,000 (but there may be more allowance available if the maximum allowance has not been utilised in the previous years).

Under the proposed rules from 6 April 2015, the annual allowance for contributions to money purchase schemes will be reduced to £10,000 in certain scenarios (and there will be no carry forward of any of the £10,000 to a later year if it is not used in the year).

Example of the effect of the reduced annual allowance

Arthur is 56. He is employed and his annual salary is £100,000. He decides to contribute £40,000 into a pension fund and then takes all the amount out as an uncrystallised funds pension lump sum. Both events take place in 2015/16.

His taxable income if there were no reduction in the annual allowance would be:

  £
Income 100,000
Less pension contribution (40,000)
75% of lump sum 30,000
Taxable income 90,000

His gross income is the same as before the pension contribution (£100,000) but £10,000 of this is tax free.

This strategy will not work because he will only get effective tax relief on £10,000 due to the money purchase annual allowance rule.

What does not trigger a reduced allowance?

The £10,000 rule will not apply if a person receives: only a tax free lump sum

  • a lump sum from a small pension fund
  • a lifetime annuity
  • no more than the permitted maximum from a pre 6 April 2015 income drawdown fund.

The ability to take a tax free lump sum and no income will be a useful tax efficient strategy for people aged 55 who have earned income.

Example

In the previous example Arthur decided to contribute £40,000 into a pension fund and then took the entire amount out as an uncrystallised funds pension lump sum. What if he instead transfers the funds to a flexi-access account but only takes the tax free lump sum?

His taxable income will be:

  £
Income 100,000
Less pension contribution (40,000)
Taxable income 60,000

He maximises his tax relief and gets £10,000 tax free. Another way of looking at the tax efficiency of this planning is to consider the net cost to him of having £30,000 of investments in his fund.

  £
Contribution to fund 40,000
Less tax relief at 40% (16,000)
Cost after tax relief 24,000
Less tax free lump sum (10,000)
Net cost 14,000

It has cost him £14,000 to obtain £30,000 of pension fund investments.

Access to impartial advice

Given the extra freedoms, it is proposed that everyone should have access to free impartial guidance to help them make sense of the options. The Government has now announced that this will be from the Citizens Advice Bureau for face to face guidance and the Pensions Advisory Service by telephone. An online service is also planned.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]