A UK Employee Can Claim Tax Relief Using Their Vehicle For Work
It is common practise for a UK employer to pay an employee expenses when that employee uses his own vehicle for business journeys. Often the amount paid is based upon a standard rate per mile which varies from employer to employer. There are tax issues every employee should be aware of to maximise tax free expenses and minimise income tax payments.
The nature of the business journeys must adhere to certain rules in order for these expense payments to be tax free. Not usually an issue when an employee is paid expenses but nevertheless something each employee should be aware of.
In order that the payments are free of tax are three general rules. First the payments must be made to yourself and not to a third party, for example another company receiving the money on your behalf. The use of the vehicle must be a work journey and excludes travel to work where it is considered that work place is a permanent place of work. And finally the amount paid must be within the mileage allowances fixed by the government and part of the Inland Revenue rules on the limits for mileage payments.
Any other payments relating to the use of your own vehicle which do not fall within the above rules are regarded as additional income and subject to income tax and national insurance deductions as would be other forms of payment. Also any payments made in respect of non work journeys fall outside the rules and would be taxed as additional income.
A work journey is one which you must carry out as part of doing that job including when requested by the employer to conduct a specific business journey on its behalf. Visiting suppliers, clients, delivering goods and attending meetings outside the normal workplace would all be considered work journeys.
A journey to a normal place of business would not be considered a work journey and that rule also excludes detours during the journey for example to visit a client or drop off goods. However if the detour on the way to work is significant then the excess mileage covered would be allowable and the expenses paid not subject to tax.
The approved mileage allowance for cars and vans in the UK is 40p per mile for the first 10,000 business miles and 25p per mile for each business mile over 10,000 miles in each tax year. The approved mileage allowance for motor cycles is 24p per mile for the first 10,000 business miles and 24p per mile for each business mile over 10,000 miles in each tax year. The approved mileage allowance for bicycles is 20p per mile for the first 10,000 business miles and 20p per mile for each business mile over 10,000 miles in each tax year.
These rates are the maximum levels of expenses an employee can receive tax free during a tax year, were set in the financial year 2002-03 and still fixed at that level in the financial year 2007-08. Employees are not due any tax free payments on any other vehicle running costs. For example if you break down on a journey and your employer assists with the financial cost of repairing that vehicle any amounts paid over and above the maximum mileage rates quoted above would be taxable.
The bad news is if your employer pays you more than the above mileage allowances then the excess amount paid is taxable as additional income. If for example your employer pays 45p per mile for the first 10,000 miles then it would be normal for that employer to include the different between 45p and 40p in your wage slip and deduct income tax from the 5p.
The good news is if your employer pays you less than the mileage allowances then you are entitled to claim mileage allowance relief on the shortfall. If for example your employer pays 35p per mile then less than 10,000 miles you are entitled to claim the mileage allowance relief on the number of miles at 35p multiplied by the 5p shortfall.
To claim the mileage allowance tax relief employees must maintain a record of the work journeys and the amounts paid. Those records should state the date, mileage covered, a brief note of the journey and the amount paid by the employer, records which may be required to substantiate the mileage allowance relief. To actually make the claim for relief this can be done by sending a letter with the details to the Inland Revenue at the end of the financial year or alternatively request and complete the Inland Revenue form provided for this purpose.
Using different vehicles during the tax year is not relevant. The total mileage of all vehicles used is the relevant figure. However being paid a mileage allowance by more than one employer is relevant.
If during the financial year an employee has been paid a mileage allowance by more than one employer then the total paid from all employers must be added together to produce the total amount paid. For example if one employer paid 30p per mile for 1,000 miles and a second employer paid 35p per mile for a further 2,000 miles then the total payment would be 1,000 pounds (300 + 700) and the mileage allowance would be 1,200 pounds (400 + 800). The mileage allowance tax relief in this example would be 200 pounds at the employees maximum tax rate.
If an employee has not claimed mileage allowance relief in past years then application can be made to the Inland Revenue to reclaim the relief for a period up to six years after the year the claim was not made. When making a claim for unclaimed tax relief in previous years the Inland Revenue are likely to request some evidence of the claim which your previous employer may be able to provide.
Good luck with your claim for mileage allowance relief. If you found this article useful please copy and submit the article to forums and blogs across the internet to make as many people as possible of the money out there waiting to be claimed. If posting this article then the author signature and links must also be included in the posting.
Terry Cartwright, a qualified accountant in the UK, designs Accounting Software http://www.diyaccounting.co.uk/ providing complete Small Business Accounting solutions
http://www.diyaccounting.co.uk/smallbusinessaccounting.htm for small business including automated mileage allowance software,
Save Money With Vat Schemes and the Vat Threshold Knowledge Base
Businesses become liable for vat when sales reach the vat threshold set on 1st April 2007 at 64,000 pounds p.a. regardless of whether that business has registered for vat purposes.
Businesses whose customers are vat registered should consider opting for voluntary vat registration as sales would not be affected by vat registration and registering would permit that business to also reclaim vat input tax on purchases. Businesses with mainly non vat registered customers may wish to delay vat registration until the point is reached at which liability to vat tax becomes inevitable.
Consideration should be given to maintaining sales below the vat threshold provided this does not result in a significant loss of profit. When the vat threshold of 64,000 pounds p.a. is exceeded customs & excise should be advised. It may be possible to delay vat registration if sales breached the vat threshold due to an abnormal sales period that may not necessarily be repeated in the foreseeable future. Having reached the point of vat registration consideration should be given to the various vat schemes which are available to either simplify the vat calculation or smooth the vat tax liability.
Choose the right vat scheme for your business
Unless a vat scheme is adopted then the standard inputs and outputs vat scheme would be applied. This involves charging all customers vat on sales known as output vat and paying this amount to the vat office each quarter. Vat registered businesses can also deduct from the vat liability the input vat on purchases that suppliers have charged the business. It is important to ensure all sales and purchase invoices are retained and an audit trail from the individual transactions to the vat tax liability is maintained as customs & excise do inspect vat records, the frequency of those visits, often once every three years can increase dramatically if the vat records are considered inadequate.
Accounting software can provide a solution to record keeping with automated vat calculations from the basic data entry of sales and purchases on excel spreadsheets.
Vat Schemes
Vat flat rate scheme
The vat flat rate scheme can be adopted by businesses that have an annual turnover excluding vat of under 150,000 pounds p.a. businesses that have adopted a vat flat rate scheme pay vat at a percentage of sales rather than the difference between vat on sales and vat on purchases. The exact percentage paid is in line with the average for that trade sector. Vat is not reclaimable on purchases under the flat rate scheme. The customs & excise website contains details of the vat flat rate percentages for each sector.
Customers are charged vat at the normal vat rate, 17.5% if standard rated goods. The actual vat payable is then calculated at the appropriate percentage of the total sales figure including vat. An adjustment to the accounts would then be required to adjust for the difference between the vat paid and the amount payable if an inputs and outputs basis had been used. The flat rate calculation can be automated by calculating the vat on sales at the flat rate and expensing the vat input to the purchase accounts. Businesses in their first year of vat registration also receive a 1% reduction in the vat flat rate for their trade sector which can save tax.
Annual vat accounting scheme
Not suitable if you receive repayments of vat, the annual accounting scheme is based upon an annual estimate of the vat bill which is then paid in monthly or quarterly instalments throughout the year with the balance payable or received at the end of the year when the annual vat return has been submitted. The vat threshold for this scheme is businesses with a sales turnover not expected to exceed 1.25 million pounds. The main benefit of the annual accounting scheme is to smooth the vat payments over the year.
Vat cash accounting scheme
Under the vat cash accounting scheme the vat return and liability to pay vat is based upon the date sales were received and the date purchases were paid rather than the invoice tax points. The vat threshold for the cash accounting scheme is businesses with a sales turnover excluding vat of under 1.35 million pounds that can be extended for existing users to a turnover of 1.6 million pounds and left in place for up to 6 months after the vat threshold has been breached.
Accounting for vat using the cash accounting scheme may require businesses to record sales and purchases on cash received and paid basis and adjust accounting records for accruals. Alternatively, sales and purchases can be entered into the accounting records based upon the invoice tax points and a quarterly adjustment made for debtors and creditors at the beginning and end of each quarter. Such accounting adjustments would not be suitable for everyone.
Vat retail schemes
Retailers selling to the general public may not easily be able to produce vat sales invoices to individual customers and there are various vat retail schemes available on the customs & excise website that retailers can adopt. The main benefits of the vat retail schemes are to dispense with every customer being issued a vat invoice unless requested. Vat retail schemes can be used in conjunction with both flat rate schemes and the annual vat accounting scheme.
Terry Cartwright is a qualified accountant designing accounting software at http://www.diyaccounting.co.uk/ providing complete accounting solutions for small to medium sized business in the UK with payroll software at http://www.diyaccounting.co.uk/payroll.htm for up to 20 employees
With These Tips Taxi Driver Accounts Do Not Have To Be Taxing
Taxi drivers in the UK must fill in a self assessment tax return if they have worked as a self employed taxi driver at anytime during the financial tax year. Self assessment tax returns should be filed by 30th September each year although the final deadline is the following 31st January. Failing to file the taxi accounts by 31st January attracts a 100 pounds late filing penalty with interest being charged on any tax not paid by this date.
The simplest solution to preparing the taxi driver accounts is to collect all the taxi receipts and expenses together, hand them over to an accountant who will prepare your self assessment tax return and might charge between 150 to 450 pounds for the privilege. That is taxing. Taxi driver accounts does not have to be that taxing. You can prepare your taxi driver accounts and self assessment tax return yourself but do something.
These taxi driver notes in preparing the taxi driver accounts and completing the self assessment tax return are to assist that process.
Mileage Allowances
Taxi drivers can claim as an alternative to vehicle running costs mileage allowances of 40p for the first 10,000 miles and 25p per mile thereafter. You may not claim mileage allowance and vehicle running costs. Should you choose to claim the mileage allowance then keep good records of mileage covered, purpose of journey. The DIY Accounting taxi accounting software automates this mileage allowance calculation.
Taxi Capital Allowances
If you bought a vehicle in the financial year 2007-08 and used the vehicle as a taxi you can claim a first year writing down tax allowance of 25% of the cost of the taxi, restricted to 3,000 pounds for vehicles costing over 12,000 pounds. On vehicles purchased in previous tax years you can claim 25% writing down allowance on the balance not yet claimed. If you have bought and sold a vehicle used as a taxi during the financial year the tax allowance is restricted to any loss made on resale and any profit made over the written down value is taxable as a balancing charge. First year allowance on non vehicle assets in the current tax year 2007-08 is 50% for small businesses.
Taxis bought on Hire Purchase
Claim capital allowances on the original cost of the vehicle, interest and other charges count as business expenses and go in the self assessment tax return box 3.61 Other Finance Charges
Taxi Running Costs
When completing the self assessment tax return taxi drivers should enter fuel costs in box 3.46 cost of sales not motoring expenses. Do not claim fuel expenses in the taxi accounts when you are on holiday, the revenue will check should they inquire into your self assessment tax return. Taxi running costs also include repairs, servicing and parts including tyres, road tax, taxi insurance and AA/RAC membership. Include radio hire and taxi office costs in general administrative expenses.
Household expenses
If you run your taxi business from home you can claim a proportion of household expenses as business expenses in the taxi accounts. Household expenses are likely to be disallowed unless they are either specific to the business or a specific area of your home is devoted entirely to your taxi business. Using part of a room part time would not be sufficient to include the household expenses in the taxi driver accounts.
Spouse Costs
You can claim expenses for partners who work for your taxi business and payments up to 100 pounds per week would not attract income tax or national insurance however any payments claimed in the taxi driver accounts must be real payments for real work done. The Revenue naturally adopt a strict view on taxi expenses claimed for partner work as it is an area some people might use to reduce the tax liability. Care is required to justify the partner as an expense.
Other Expenses
Enter all business expenses in a named expense box on the self assessment tax return. Avoid entries in box 3.63 Other Expenses if possible as any significant amounts in this box may give rise to an Revenue enquiry into the self assessment tax return.
The best method of ensuring the taxi drivers tax bill is as low as possible in the future is undoubtedly to meticulously maintain good records of all taxi receipts and expenses and mileage covered which offers the opportunity for taxi drivers to compare the taxi running costs against mileage allowances and choose the most tax efficient option. Generally if the taxi cab capital allowances are high vehicle running costs will be the best option and if taxi cab capital allowances are low then mileage allowances may well legally increase the costs you can claim and save you money.
The DIY Accounting taxi accounting software automates the comparison of taxi mileage allowances with taxi running costs doing the taxi accountants work for you.
Terry Cartwright, a qualified accountant in the UK, designs Taxi Driver Accounting Software at:
http://www.diyaccounting.co.uk/taxi.htm written on excel spreadsheets for Taxi Drivers wishing to save money and produce the self assessment tax return http://www.diyaccounting.co.uk/taxi.htm
Andorra Beating Monaco For Tax Haven Value 2007
While indirect taxes rise across Europe, more high earners and those selling their businesses are considering moving to a tax free environment.
And if they want to stay in Europe, there are only two true and stable tax havens left which offer an income tax free existence – Monaco and Andorra.
Of the two tax havens, Monaco is the better known.
Monaco has an image of glamour and sophistication the world over, and is famous for the Grand Prix around the streets of Monte Carlo.
Located on the French Riviera, Monaco has a warm Mediterranean climate, and some of the best known hotels in the world. In contrast Andorra, situated in the Pyrenees, is best known for her ski resorts and ten million tourists visit Andorra between December and end April for a ski holiday.
But Andorra does enjoy similar tax advantages to Monaco, with no income tax and banking privacy, affording those looking to reduce their tax burden in both jurisdictions.
Prices for property in Monaco are far higher than those for Andorra. In Monaco a million Euros will just about buy a one bedroom apartment, a good two bedroom apartment in areas like La Massana can be found for a third of the cost of a one bedroom Monaco apartment.
Buying a property in Andorra is often seen as a route to residency, which entitles people to live in Andorra and benefit from her tax haven status. Surprisingly perhaps for a tax haven, mortgages for a property are as available as many European countries, with rates around the same level. Up to eighty per cent of a property’s value is often agreed by the banks in Andorra.
To obtain residency in Andorra, applications need to be submitted in Catalan. A notarised copy of the applicants passport, birth certificate and a certificate of good conduct from the home country are submitted at the same time. According to a local travel guide residency normally takes between three and six months to be approved.
Once residency is granted, residents are supposed to spend six months a year in Andorra, but this isn’t policed.
One of the drawbacks for those looking to become a resident in a tax haven when considering Andorra has been that the country has no airport of its own, and is unlikely to have in the future given that it is located in the Pyrenees. The nearest airports are Barcelona and Toulouse.
Recent improvements in the road from Barcelona to Andorra though have cut the travelling time by some thirty minutes to two hours fifteen minutes.
Property for sale in Andorra can be found at http://www.propertyandorra.com
Andorra banking information is at http://www.yourandorra.com/banks