Newsletter March 2018
Our newsletter this month includes: the tax consequences of making loans to employees; news of a wide-ranging review of inheritance tax; an announcement that tax-free childcare scheme has been expanded; and how to claim for business use of your own transport using approved mileage rates.
Tax and making loans to employees
A reminder that making loans to your employees or their relatives can create tax problems for employees and employers. For example, the employer will have an obligation to report a beneficial loan to HMRC and the deemed benefit would be a taxable benefit in kind for the relevant employee. A beneficial loan is one that is interest free or the rate charged is below the “official rate” and the benefit is the difference between these interest rate charges. Further, the benefit would increase the employer’s Class 1A NIC bill at the end of the tax year.
Fortunately, certain loans are exempt from this reporting obligation. These may include loans employers provide:
- in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),
- with a combined outstanding balance due from an employee of less than £10,000 throughout the whole tax year,
- to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out - the official rate for 2017-18 is 2.5%,
- under identical terms and conditions as those provided to the public (this mostly applies to commercial lenders),
- that are ‘qualifying loans’, meaning all the interest qualifies for tax relief.
Loans written off also create a National Insurance Class 1 charge for the employee. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC from the employee’s salary, on the amount written off for tax purposes.
Calculating the taxable benefits for chargeable loans can be somewhat complex and readers are advised to take advice if they are unsure of their tax and NIC responsibilities. Don’t forget “employees” includes directors and loans to family members may be caught.
Inheritance tax in for an overhaul?
The Office for Tax Simplification (OTS) has been tasked by government to review key aspects of the inheritance tax (IHT) legislation.
According to information posted to the government’s website recently, the review would appear to be wide ranging. Issues to be examined include:
- The process around submitting IHT returns and paying any tax, including cases where it is clear from the outset that there will be no tax to pay;
- The various gifts rules including the annual threshold for gifts, small gifts and normal expenditure out of income as well as their interaction with each other and the wider IHT framework;
- Other administrative and practical issues around routine estate planning, compliance and disclosure, including relevant aspects of probate procedure, in relation to situations which commonly arise;
- Complexities arising from the reliefs and their interaction with the wider tax framework;
- The scale and impact of any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules, relevant aspects of the taxation of trusts, or interactions with other taxes such as capital gains tax; and
- The perception of the complexity of the IHT rules amongst taxpayers, practitioners and industry bodies.
We will be keeping a keen eye on the outcome of these deliberations as they could turn even the most basic IHT planning on its head. We will keep readers informed when the OTS publishes its report although it may be some time before any changes are enacted and have a direct impact on estate planning. The OTS doesn’t envisage publishing its initial report until the Autumn of this year.
Tax-free childcare support expanded
From 14 February 2018, tax-free childcare is available to all remaining eligible families: parents whose youngest child is under 12. The new scheme aims to help working parents with the cost of childcare.
According to government, it is quick and easy to apply, and parents could save thousands of pounds each year. For every £8 parents pay into their childcare account, the government will add an extra £2, up to £2,000 per child per year. HMRC has been gradually rolling out tax-free childcare since April 2017.
Parents must each expect to earn (on average) at least £120 per week (equal to 16 hours at the National Minimum or Living Wage). If either parent is on maternity, paternity or adoption leave, or you're unable to work because you are disabled or have caring responsibilities, you could still be eligible.
However, if either you, or your partner, expect to earn £100,000 or more, you can’t get tax-free childcare. Also, you can’t use tax-free childcare at the same time as childcare vouchers, Universal Credit or tax credits. You can use it with the 15 hours and 30 hours schemes.
You can use tax-free childcare to help pay:
- Registered childminders, nurseries and nannies
- Registered after-school clubs and playschemes
- Registered schools
- Home careworkers working for a registered home care agency
Claiming expenses by the mile
A reminder that employees can make a claim for the business use of their own cars, motorcycles or cycles by logging their business mileage and applying an approved mileage rate.
Mileage allowance payments (MAPs) are the HMRC approved rates used by most employers to reimburse employees when they use their own transport for business purposes. The current rates have remained unchanged for some time. They are:
- Cars and vans - 45p per mile for the first 10,000 miles in a tax year and 25p thereafter.
- Motorcycles - 24p per mile
- Bikes - 20p per mile
If employers pay at these rates, and no more, any expenses paid are tax free in the hands of the employee.
If the employer is registered for VAT, they can also claim back as input tax the deemed VAT included in the mileage rate. To do this, employers should use the advisory fuel rates. These are published on the gov.uk website at https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016
If employers pay at rates higher than MAPs, any excess will be treated as remuneration, added to employees’ salary, and taxed accordingly.
If employers pay their employees at less than the MAP rates, employees can make a claim to HMRC to compensate them for any shortfall. In effect, the difference in the MAP rate paid times the business mileage for the tax year can be claimed as an allowable expense.
Tax Diary March/April 2018
1 March 2018 - Due date for corporation tax due for the year ended 31 May 2017.
2 March 2018 - Self assessment tax for 2016/17 paid after this date will incur a 5% surcharge.
19 March 2018 - PAYE and NIC deductions due for month ended 5 March 2018. (If you pay your tax electronically the due date is 22 March 2018)
19 March 2018 - Filing deadline for the CIS300 monthly return for the month ended 5 March 2018.
19 March 2018 - CIS tax deducted for the month ended 5 March 2018 is payable by today.
1 April 2018 - Due date for corporation tax due for the year ended 30 June 2017.
19 April 2018 - PAYE and NIC deductions due for month ended 5 April 2018. (If you pay your tax electronically the due date is 22 April 2018)
19 April 2018 - Filing deadline for the CIS300 monthly return for the month ended 5 April 2018.
19 April 2018 - CIS tax deducted for the month ended 5 April 2018 is payable by today.
30 April 2018 - 2016-17 tax returns filed after this date will be subject to an additional £10 per day late filing penalty.