November 2023 Tax News

In recent years many accountants have advised their director/shareholder clients that the most tax efficient method of extracting profit from their family company was to pay themselves a low salary, at or around the £12,570 personal allowance, with the balance in dividends.   This strategy may need to be revisited with the introduction of higher corporation tax rates from 1 April 2023 as company profits in excess of £50,000 are taxed at an effective 26.5% rate. Where company profits exceed £50,000 it may be more tax efficient to increase the salary or put a bonus through the company accounts.   Other things to consider would be for the company to pay more into your pension or provide you with an electric company car, both of which can be tax efficient.   There are lots of factors to take into account, including the level of profit and how much you need to draw out of the company to live on. We would suggest that we set up a meeting with you a couple of months before the company year end so that we can give you the best advice.

As mentioned above it is always a good idea to set up a planning meeting with us a couple of months before your business year end so that we can advise you on the best actions to take to reduce your taxable profits. In addition to considering paying yourself a bonus from your company you might consider:   - Bringing forward expenditure on equipment to take advantage of the 100% annual investment allowance (AIA) – up to £1 million a year on new and used equipment; - For limited companies, most new equipment qualifies for unlimited “full expensing” relief; - Where equipment is bought on hire purchase, make sure that it is brought into use by the year end to get tax relief on the full purchase price; and - Making additional pension contributions, taking advantage of the new £60,000 annual input allowance.

HMRC have recently published Spotlight 63 which alerts taxpayers to a marketed tax avoidance scheme that claims to help taxpayers reduce the tax payable on their property rental profits.   The HMRC view is that the “hybrid” structure involving an LLP with individual and corporate members does not have the tax savings that the scheme promoters claim.   The scheme claims to enable buy to let landlords to transfer properties to the structure without paying capital gains tax (CGT) or stamp duty land tax (SDLT) and, once established, obtain a bigger deduction for their mortgage interest payments than they would have obtained if the property had remained in individual ownership. It is also claimed that the “hybrid” structure saves inheritance tax when the property is passed on, which is incorrect as there is no IHT business relief for property investment businesses.   Please take care if you are tempted to use a scheme that claims to save tax; talk to us first.

HMRC have recently clarified their view of the tax treatment of the reimbursement of electricity costs where employees charge their electric company cars at home. HMRC now accepts that reimbursing part of a domestic energy bill, which is used to charge a company car or van, is exempt from income tax. Their previous view was that such reimbursements were taxable.   Note that the exemption will only apply provided it can be demonstrated that the electricity was used to charge the company car or van, which may be difficult to determine in practice. Employers will need to make sure that any reimbursement made towards the cost of electricity relates solely to the charging of their company car or van.   It should be remembered that where the employee uses workplace charging facilities there is no taxable benefit.   It should be noted that HMRC have still not revised their view on reclaiming VAT in respect of business miles driven by an employee who has changed their car at home. Regardless of whether the vehicle is a company car or the employee’s own, the employer cannot reclaim the VAT because the supply of electricity is made to the employee, not the employer.