Please don’t be taken in by a scheme which claims to reduce the taxable benefit of your company cars. The taxman has specifically warned taxpayers about this scheme on the spotlights page of his website.
The scheme promoters persuade employers to buy carbon credits to off-set against the carbon dioxide (CO2) emissions of company cars. This is fine, but buying carbon credits can’t reduce the CO2 emissions rating of your company cars as recorded on the registration documents.
A vehicle’s CO2 emissions are fixed at the time of its manufacture, and can’t be changed for tax purposes. You must use the CO2 figure recorded on the vehicle’s registration document for calculating the taxable benefit of the car, and the taxable fuel benefit if fuel is provided.
If you report a reduced figure of CO2 emissions for each of your cars on the P11D forms, as persuaded to by the ‘plan green’ promoters, you will pay less class 1A NICs for each car. Also your employees will be taxed on a lower percentage of the vehicles’ list price. However, when the Taxman discovers the P11D forms used incorrect CO2 figures for each car, he will demand payment of the tax and NI avoided plus interest and penalties.
In December 2012, the government announced that small businesses will be able to adopt a simpler tax system from 1st April 2013 or the 2013/14 tax year. It is available to self-employed individuals or partnerships carrying on the smallest trading businesses. They will be able to choose to be taxed on the basis of receipts less payments. All unincorporated businesses will also be able to use simpler rules for some business expenses.
The purpose of the cash basis and simplified expenses is to make it easier for the smallest businesses to calculate their taxable income. The cash basis is a simpler tax system, designed for business which do not need or want to prepare accruals accounts for business purposes. Small businesses using the alternative basis will be taxed on their receipts less payments of allowable expenses, rather than being asked to spend their time doing accounting adjustments and other calculations designed for larger or more complex businesses. However, it will not be appropriate for every small business.
The main points of the Cash Basis are that:
- it is an optional scheme which small unincorporated businesses can elect to use
- businesses can enter the cash basis if their receipts for the year are less than the amount of the VAT registration threshold (currently £77,000) or twice that (currently £154,000) for recipients of Universal Credit. Businesses must leave the cash basis after their receipts exceed twice the amount of the VAT registration threshold (currently £154,000)
- it will work on a cash flow basis. For income, it’s what the business receives, when it is received; for outgoings, it’s what the business pays, when it pays in receipts include all amounts received in connection with the business including those from the disposal of non-durable assets and VAT refunds
- allowable payments are expenses paid wholly and exclusively for the purposes of the trade, including for non-durable assets and payments of VAT (but excluding business entertaining and purchase of property or other “investment” assets. It will no longer be necessary to calculate and claim capital allowances. Interest payments are also allowed up to a limit of £500
- business losses may be carried forward to set against the profits of future years but not carried back or set off ‘sideways’ against other sources of income
- rules on entering or leaving the cash basis are intended to ensure that income is taxed once and once only and expenses are relieved once and once only.
It’s one number (£77,000 from 1 April 2012), so why is it so easy to get it wrong with the compulsory VAT registration threshold in the UK.
If your VAT taxable turnover (sales) total for the previous 12 calendar months exceeds this compulsory registration threshold, or the sales you expect to make in next 30 days will exceed that threshold, you MUST register for VAT within the next 30 days.
You can now register for VAT online on the HMRC website; however you must be careful because many things can go wrong. If you make a mistake with the form, the Taxman may not let you correct it.
If you exceed the VAT registration threshold due to a ‘blip’ in sales, you can ask the VAT-man for permission not to register for VAT, but you must ask first and permission may not be granted.
You can reclaim VAT on services they purchased for your business in the six months before the day your VAT registration is effective from, so it is essential to time your VAT registration date with an eye on the invoice dates for those expensive services. If the service relates to an asset which was no longer held at registration, the VAT can’t be recovered as pre-registration VAT.
If you receive a large order which will push your sales over the VAT registration threshold for the next 30 days alone, pay attention to the delivery dates for that order. A staggered delivery for the order may mean you do not exceed the VAT threshold in the next 30 days, and you may register for VAT too early.