Transcript VAT on expenses

ACFO
Midlands Region
26 September 2012
John Messore
Director
Innovation Professional Services Limited –
employee benefits and pensions specialists
Market leader in car and fuel taxation
Contact [email protected]
07884006164
Innovation
• Tax and employee benefit specialists
• All partners trained with the Big 4 Accountants
• Two partners sit on the Institute of Tax Technical
Subcommittees
• Our business grew 60% last year and 90% this year
• Recently nominated for the third year running as
the best tax consultancy team in the UK
• Mostly work on a no win no fee basis and only
charge a % of employer saving after it is secured
AGENDA
• Introduction
• 16 WAYS FOR FLEET MANAGERS TO SAVE
£500-£3,000 A CAR AND BENEFIT STAFF BY UP
TO £3,000 EACH WITHOUT ANY ADITIONAL
ADMIN
• Let’s keep it interactive – questions as we go;
show of hands to see what is most relevant
HMRC statistics on cars, fuel and vans
Numbers
(000s)
2004/5
2005/6
2006/7
2007/8
2008/9
10/11
Car
1200
1140
1160
1120
1080
950
Fuel
410
380
360
340
310
240
Vans
300
170
130
70
90
60
40
40
40
Van Fuel
Taxable value £millions
Car
4250
4130
4030
4060
3920
3630
Fuel
1140
1050
970
900
830
800
Vans
110
60
50
170
180
160
20
20
20
Van Fuel
1. Mileage tracking
•
•
•
•
•
•
•
•
We have our own mileage capture / audit system
Free to clients
Very low cost to non tax clients
Very easy to use from any computer I-phone or smart
phone
Reduces employee ‘fraud’
Full audit service is available
Whole range of very useful management information
Can be used to facilitate some of the schemes and cost
savings on the following pages
2. Cash or car?
•
•
•
•
Previous trend towards ECOS or PCP
Companies are now moving the other way
Salary sacrifices for a 2nd or 3rd family car
Why pay 40% or 50% tax on cash when you can pay 5%
or 10% tax on a car?
• Be careful however as some cars taxed now at 10% will
be taxed at 15% in 2012/13 due to realignment of the
CO2 bandings
• Innovation offers a free review of which option is best
3. Free Fuel
• Very few companies now offer this less, than
10%
• Incredibly tax inefficient
• Companies should buy it out!
• 2 ways to buy-out:
– Innovation way
– Wrong way
Free Fuel net benefit – BMW 525TDi
(1998-2011)
Year ended
Fuel BIK £
Car BIK
Tax £
Private miles
14,000
14ppm
Cost of fuel £
Effective Tax Rate
Net Benefit £
1998
1,490
6,750
596
1,402
42.51%
806
1999
1,890
6,750
756
1,445
52.31%
689
2000
2,270
6,750
908
1,490
60.94%
582
2001
3,200
6,750
1,280
1,536
83.33%
256
2002
3,600
6,750
1,440
1,584
90.93%
144
2003
4,200
5,670
1,680
1,633
102.90%
-47
2004
3,168
5,940
1,267
1,683
75.29%
416
2005
3,312
6,210
1,325
1,735
76.35%
410
2006
3,456
6,480
1,382
1,789
77.28%
406
2007
3,744
7,020
1,498
1,844
81.21%
347
2008
3,888
7,290
1,555
1,901
81.80%
346
2009
4,732
7,560
1,893
1,960
96.58%
67
2010
4,732
7,560
1,893
2,000
94.65%
107
2011
5,220
7,830
2,088
2,040
102.35%
-48
2,610
2,040
127.94%
-570 (-1,092)
For 50% (60%) Higher
Rate Taxpayer
5,220
Taxable benefit (£) for cars and fuel
1998-2011 (£14,000 Ford Focus)
Car v Fuel P11D
6000
P11D value
5000
4000
Fuel
BIK £
Car
BIK £
3000
2000
1000
0
1
2
3
4
5
6 7 8 9 10 11 12 13 14
Last 14 years
Fuel Buyout!
• With fuel being taxed on an arbitrary figure of £20,200
why not consider a buy-out?
• Innovation has developed a process to buy out free fuel
whilst still letting employees keep and use a fuel card for
both business and private journeys in exactly the same
way as now – but with an incentive to drive fewer miles
or more economically (green agenda)
• Employees are kept neutral in every single respect but
some employees could end up better off by around
£300-£600 now and £2,000 - £3,000 in 2013
• Employer saves £1,000 per employee, p.a.
Company cars - Advisory Fuel Rates from 1
September 2012
These rates apply to all journeys on or after 1 September 2012 until further notice. For one
month from the date of change, employers may use either the previous or new current rates, as
they choose. Employers may therefore make or require supplementary payments if they so
wish, but are under no obligation to do either.
Engine size
Petrol
LPG
1400cc or less
15p
10p
1401cc to 2000cc
18p
12p
Over 2000cc
26p
17p
Engine size
Diesel
1600cc or less
12p
1601cc to 2000cc
15p
Over 2000cc
18p
Petrol hybrid cars are treated as petrol cars for this purpose.
4. Total People Ltd v HMRC
• Recent case said you can treat a car allowance payment
as being made up of two elements:
– A tax free business mileage top up payment taking
you up from say 12 ppm to 45 ppm
– A balancing payment, taxable as now
• Case also said you can go back 6 years to recover
overpaid employer NIC in prior years. (NIC on the
difference between AFR and AMAPS rates x number of
business miles)
• Worth c. £1,000 NIC a head on average to the company
Cheshire Employer and Skills
Development v HMRC
• HMRC appealed and won their appeal this summer, but….
• See my articles in Taxation, Fleet-World and Fleet-News.
• Judge got it wrong. He based his judgement on a piece of
legislation that wasn’t even being argued about.
• CE&SD are appealing so Watch this space.
• You can still save money going forward by changing what
you do.
• Above case was just about the past! WORTH YOU
PUTTING IN A PROTECTIVE CLAIM IF NOT ALREADY DONE
SO.
5. Business mileage optimiser – CFO ©
• Split your car allowance going forward into two
elements
– a tax free business mileage top-up and
– a balancing taxable amount
• Typically save about £200 NIC for the employer and
about £600 Tax and NIC for the employees, p.a.
• This is the basic principle behind ECOS or PCP
schemes but you don’t need to be doing either of
those schemes to still take advantage of the same tax
savings for staff on a normal car allowance.
Business mileage optimiser – CFO ©
Before
After
£
£
Car allowance taxable
Save tax and
33 ppm
Mileage tax free
12ppm
NIC on difference
6. AMAPS and NIC
• New AMAPS rates permit 45 ppm upto 10,000
business miles p.a.
• After 10,000 business miles, you can pay tax
free up to 25ppm BUT you can still pay up to
45ppm NIC free
• By toping up current AFR or AMAPS mileage
payments combined with a salary sacrifice you
can make incremental NIC savings
• Why not squeeze every last penny?
Example
CAR FUEL OPTIMISER, CFO ©
Below 10,000 miles
Total business miles p.a.
4,000
Rate of reimbursement at ppm
Above 10,000 miles
Total
-
4,000
11
Monthly Allowance
500
Annual allowance
6,000
Number of staff
1,000
Extra tax free / NIC mileage that you could pay at
ppm
34
Extra tax free & NIC free payments you could make
1,360
Extra NIC free but taxable payment you can make at
Extra NIC free but taxable payment you can make
4,000
ppm
14
20
Equates to no. of staff
-
% who are Basic Rate
500
50
% who are Higher Rate
500
50
ppm
-
1,360
ppm
-
1,360
New Annual Car Allowance is split:
Extra mileage TAX AND NIC FREE
1,360
Extra mileage NIC FREE
-
Paid as now (negative denotes salary sacrifice)
4,640
Aggregate Annual
Savings
6,000
Employer NIC saving at 13.8%
Per head
£188
£187,680
Employee saving at 20 + 12%
Basic Rate
£435
£217,600
Employee saving at 40 + 2%
Higher Rate
£571
£285,600
Total saving
£690,880
7. Antique Buildings v HMRC
Mixed use assets
• A case was recently lost by HMRC who said they are not
appealing
• They conceded the law was flawed
• Previously they had maintained that if an asset or benefit
was part business / part private then the whole amount
should go on the P11D (on which 13.8% Class 1A NIC is
paid by the employer)
• And the employee should claim personal tax relief for
the business element on their own tax return
• This was held to be wrong
Antique Buildings v HMRC
Mixed use assets
• Consider a fuel card provided to staff with their own car
• Can one just declare the private element on the P11D?
• Indeed can one go further and top up the cost of fuel for
business motoring to 45ppm and reduce the private cost
accordingly?
• At around 25% business usage it should therefore be
possible to pay no tax at all on the fuel card even though
75% of the cost was for private motoring
• It is worth obtaining specialist advice on this
8. Gurney (H M Inspector of Taxes) v
Richards, 1989
• Case concerned a Fire Engineer driving a car with
flashing blue lights and always on call.
4 May, 1983 - 17 February, 1984
18 February, 1984 - 20 May, 1984
21 May, 1984 to May, 1986
May, 1986
Rover 2.3 litre
Morris Marina 1.7 litre
Ford Cortina Estate 2.0 litre
Ford Sierra 2.0 litre
• Question - Was the vehicle one commonly used as a
private car?
• Held that cars were not suitable for normal private use
and so NO car benefit in kind existed and not taxable as
a company car
Gurney (H M Inspector of Taxes) v
Richards, 1989 cont’d
• HMRC have now carved out cars with flashing
blue lights saying these are tax exempt
• Judge made no mention of the colour
of lights
• So what if you have a fleet of highway
maintenance cars with flashing orange lights?
• Why pay tax on a car benefit if don’t need to?
• It will all of course turn on the particular facts
9. Car Benefit In Kind
Whitby & Ball (Branall Ltd) 2009
• Company leased cars.
• On-leased to employees who paid commercial
lease cost.
• No P11D benefit reported.
• Unfortunately – but not unexpectedly they lost
• Deduction available against P11D benefit based
on what employees actually contributed / paid
the company.
10. Is car available for private use?
• If car not used privately - but still available then
a car benefit exists e.g. £25,000 list price x 20%
CO2 = £5,000 benefit.
• Only exception is where it is available for part
year or not available for 30 days or more.
• If car NOT available (and not used privately) then
there is no P11D benefit.
• We have helped a number of companies to
successfully argue that a car was not available
for private use.
11. Lorry and van drivers (mobile employees)
• In April 2009 HMRC introduced Benchmark Scale Rates
• Drivers who are away on business can claim £5 or £10
tax free subsistence per day (and also £5 for breakfast
for an early start and £15 tax free for an evening , late
finish) provided they satisfy certain conditions
– being away from home or their normal workplace for more
than 5 or 10 continuous hours respectively and
– incurring a cost on a meal
• By combining payment of such tax free allowances with
a salary sacrifice it is possible to save c. £500 per annum
per driver
Per Diems, Benchmark Scale Rates
Employee
split
Number of days
p.a. on the road
assuming 47
working weeks
Benchmark Scale Rate Salary Sacrifice Scheme
Total field based employees
% spending more than 10 hours a day away from
home
% spending more than 5 hours a day away from
home
Balance below 5 hours a day
Total staff
Basic rate
taxpayers
with
qualifying
days
5000
Higher rate
Tax free
taxpayers
amount payable
with qualifying per annum at
days
£10 or £5
Basic Rate
Tax free
amount payable
per annum at
£10 or £5
Higher Rate
10
500
223
250
250
558,125
558,125
85
5
100
4250
250
5000
223
2,125
2,375
2,125
2,375
2,372,031
2,372,031
2,930,156
2,930,156
Total
Percentage of staff who are Basic rate taxpayers
(earnings over £40k p.a.)
Percentage of staff who are Higher rate taxpayers
(earnings over £40k p.a.)
Percentage of days per annum on the road or field
based
Percentage of staff falling out under 2 year rule, i.e.
on same site for more than 24 months.
How much of employee saving kept by employee
50
50
Employer
NIC saving
Employee
savings NIC
Employee
tax saving
95
0
30
Total tax/NIC
saving
Benefit
passed to
employer
Total Employer saving p.a.
Savings kept by employees p.a.
404,362
404,362
£808,723
351,619
58,603
£410,222
586,031
1,172,063
£1,758,094
937,650
1,230,666
£2,168,316
1,342,012
1,635,027
£2,977,039
656,355
861,466
£1,517,821
1,060,717
1,265,828
£2,326,544
281,295
369,200
£650,495
Basic Rate
Employee average savings per head
(extra take home pay)
113
Higher Rate
148
12. Vans
• Van benefit in kind is now £3,000 and van fuel is £550
• Recently a company with a £35 million turnover was
fined £1.35 million back tax and NIC because they had
no controls around vans and could not prove there was
no private use
• Armed with this success HMRC have issued a 4 page –
35 question questionnaire for their Inspectors
– We can provide free copies on request
• It is however possible to still permit private use in
certain circumstances and still avoid tax altogether
13. VAT recovery through AFR
• VAT can be recovered on the fuel element of any business
mileage claim
• As AFR rates increase it is an opportunity to recover more
VAT on business mileage
• One company recently successfully submitted a back claim
for £300,000 in VAT on business mileage expenditure
• Contrary to popular belief you do not necessarily need a
full VAT invoices to support VAT recovery.
• HMRC manuals simply say you need to have ‘evidence’
• On VAT don’t forget Output VAT scale charge on free fuel
• 50% lease restriction on cars and
• 50% on vans
14. Business mileage definitions – home to
office deduction
• Are your staff deducting home to office before
making a business mileage claim?
• If so they can still obtain tax relief on that
through self assessment
• Better still pay it via a salary sacrifice and
– Employee receives tax ‘refund’ earlier
– They also get the benefit of NIC relief
– Employer saves 13.8% NIC
15. Capital V Revenue contributions
• Taking a revenue contribution rather than
capital can lead to significant savings
• We recently saved a client £50,000 in Class 1A
NIC along though chance corridor
conversation
16. VAT recovery on short term contract
hire
• VAT recoverable in full if car is meant for
business use primarily
• Not replacing a genuine company car.
Summary - £ savings
1.
2.
3.
4.
5.
User friendly on-line business mileage tracking
Cash or cars, £1,000 a head
Fuel buy out, £1,000 a head
NIC relief prior years – protective claim, £1,000 p.p.
Sweat business miles AMAPS v AFR, £1,000 total saving
going forward (employer + employee)
6. Sweat NIC on above
7. Mixed use assets – P11D Class 1A savings £00s per head
8. Specialist vehicles (orange flashing lights) £2,000 per
vehicle.
Summary - £ savings
9. Cars leased to staff
10. Is the car used privately at all? Saving £000’s
11. All staff - tax free subsistence, £500 p.a. p.p.
12. Vans – avoiding penal penalties / tax £000s
13. Maximize VAT recovery on business miles £100-£200
p.p.
14. Home to office commute deductions, a few £100 each
(employer and employee)
15. Capital v Revenue contributions (£100’s)
16. VAT on short term hires
Disclaimer
• The preceding slides form a high level view
and should not be acted on in isolation
without taking specialist advice and all tax
planning and mitigation ultimately will turn on
the facts of any particular matter