The Court of Appeal has made its final ruling on Payne, Garbett and Coca-Cola European Partners Great Britain Ltd v HMRC –  a case that forms the peak of a protracted debate over the difference between cars and vans.

The Court has concluded that the three types of modified crew-cab vehicles in question are cars rather than vans for tax benefit purposes, closing the book on the case in question, but not on the long-term repercussions of the ruling.

For employers in the UK the outcome of this case could have wide-ranging impact, as there are thousands of these multi-purpose vehicles currently being used by employees in the UK.

The Case

In the case of Coca-Cola v HMRC, it was brought into question whether three commercial vehicles owned by Coca-Cola should be classified as vans or cars for benefit-in-kind purposes.

The vehicles – a series 1 VW Kombi, a series 2 VW Kombi and a Vauxhall Vivaro – are based on a panel van design and are marketed for commercial use, and had been used by Coca-Cola as such. However, as these vehicles also feature additional seating and windows throughout, and each had been modified during manufacture, HMRC argued that they were cars.

In August 2017, the First Tier Tribunal (FTT) ruled that the two Volkswagen Combis, although originally classed as vans for tax purposes, were actually cars. The Vivaro was ruled to be a van, however, as it was “primarily suited to the conveyance of goods”.

After this ruling, appeals were lodged with the Upper Tribunal (UT) by both the plaintiff and respondent, with Coca-Cola disputing the Kombi decision, and HMRC the decision on the Vivaro.

The UT upheld the original decisions made at the FTT, wherein both parties appealed again.

In this final ruling, the Court of Appeal (CA) has ruled in favour of HMRC, and decreed that all three vehicles are multi-purpose vehicles, meaning that they should be taxed as cars.

Reactions

Many finance experts are disappointed with the decision, noting that HMRC has still not revised its outdated legislation in order to take into account the advent of ‘combi’ vehicles.

Speaking to Fleet News, company car tax expert Alastair Kendrick said: “This finding demonstrates that the legislation is out of date and not fit for purpose.

“It is disappointing that despite it being sometime since this case first appeared at the First Tier Tribunal that we have seen no guidance given to employers how they should treat these vehicles for P11D purposes.

“We now need to see how HMRC will react to this decision and whether they believe this gives them the right to challenge the tax treatment of all combi vehicles supplied to employees and more importantly whether they will decide to update their guidance in respect of double-cab vans – a far greater population of drivers.”

In looking at the Court of Appeal decision, it is important to be cognizant of HMRC’s guidance at EIM23110, which clearly states that for a vehicle to be classified as a van it must be primarily suited to the conveyance of goods.

Furthermore, the guidance stipulates that vehicles with side windows, and those that can be fitted with additional seating, are unlikely to meet the definition of a van. This in mind, the CA ruling is very much in line with existing legislation.

What Does This Mean For Employers?

The Court of Appeal decision is binding, as it is unlikely that this case will be deemed important enough for appeal to the Supreme Court. This means that employers are in a position where they must take stock of the vehicles that they own for company purposes and ensure that they take these changes into account when preparing P11D forms for 2020/21.

Some employers may wish to amend their procedures for choosing new multi-purpose vehicles for commercial use, to avoid confusion or difficulty in the future.

Tax Rates For Vans

HMRC offers a number of different tax options for vehicles, depending on how it is used by the business.

Vans used solely for work purposes do not have any P11D implications, and this applies to vehicles used for ‘insignificant private use’, such as one-off trips such as a doctor appointment on the way to work or picking up lunch between jobs.

HMRC views this kind of use as having no apparent ‘Benefit-in-Kind’, unlike company cars which are often used for substantially more than just commuting and work purposes.

Company car tax rates are much more complicated, as they depend on four main criteria. These include:

• Carbon dioxide (CO2) emissions

• P11D value

• Whether you pay Basic, Higher or Additional Rate tax

• How much the car is used and whether the employee makes a contribution or not.

Gov.uk has extensive information on working out company car tax here.

Company Van Tax Rates

For the 2020/21 tax year, the BiK tax rate for light commercial vehicles is £3,430. This includes vans, pick-ups and any other commercial vehicle that qualifies as a van for tax reasons.

Businesses may be able to get lower tax rates in a few special circumstances, including:

• If an employee is unable to use the van for more than 30 days consecutively

• If an employee pays you so that they can use the van privately

• If more than one employee is using the van (businesses may be able to divide the BiK rate between the number of employees using the van, or if the vehicle is a company vehicle with no specified guardian then there is no tax to be levied)

To work out the amount of company van tax you are likely to pay, you need to multiply your personal rate of tax, times the fixed BiK value. For a taxpayer that pays the 20% tax rate, this would work out as 20% x £3,430, which works out to £686 annually, or £57.17 per month.

Need More Help?

HMRC has created a list of car derived vans and vans with additional seating that shows whether they are classes as a commercial vehicle or a car for VAT purposes. If you have any doubt about your own company vehicles, this can help.

The friendly team at An Accounting Gem are also here to help with any questions you may have on this matter. You can get in touch on 01473 744 700 or email us at contactus@aag-accountants.co.uk to find out more. We are here to help you every step of the way.

In a welcome announcement yesterday, Rishi Sunak revealed new changes to the Local Restriction Support Grants (LRSG). The changes will re-establish more practical support for businesses adversely affected by COVID-19.

Cash Grants for businesses severely disrupted by Tier Two restrictions in England

Additional government funding is being provided to local authorities to support businesses in Tier Two lockdown. These will be businesses that are not legally closed but which are severely impacted by restrictions on socialising. The changes will be welcomed by affected concerns in the hospitality sector, which will now receive 70% of the grants paid to businesses legally closed.

Benefits for Tier Two businesses 

Grants available will be based on the rateable value of business premises:

• The rateable value of £15,000 or under, grant of £934 per month
• The rateable value between £15,000 and £51,000, grant of £1,400 per month
• The rateable value above £51,000, grant of £2,100 per month.

Claims can be back-dated to the point at which these restrictions began.

Affected businesses should contact their Local Authority to determine the amount and date that they should start to receive this additional support.

Possible support for businesses not in the business rates system

Local Authorities in England are also being funded – a 5% top-up – to help businesses affected by partial lockdown who may not be registered with rated business premises. Affected companies should contact their local authority to see if funding will be made available.

If you have any questions regarding this article and the points raised then please get in touch with An Accounting Gem on 01473 744 700 or email us at contactus@accountinggem.co.uk.

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Each year, HMRC randomly select a number of tax returns to investigate, to ensure compliance in taxpayers reporting their tax. This has long been the case and is something that every business should be aware of, but this year the chances of being subject to an investigation are bigger than ever.

As a result of the coronavirus pandemic, the UK economy has been badly overstretched. The public purse in nearing empty resulting in the Government and HMRC declaring that they are  going to look very closely at those companies that have taking advantage of the tax breaks and Government subsidies that have been paid out in their tens of billions to help keep the economy afloat.

HMRC has responded to these targets with a proactive approach designed to home in on those that they believe may not be declaring their tax accurately.

Whilst there is nothing for you to worry about if you are targeted by HMRC, as long as you are declaring your tax correctly to the best of your knowledge, it does takes time to respond to the questions posed in an investigation, so be prepared to set aside a significant amount of time to deal with it.

In the unfortunate event that HMRC do impose fines, then it is vital that you stay calm and not accept as true everything that they say. HMRC frequently make mistakes in their calculations, as well as in their interpretation of tax law, so before you agree to anything it is vital you consult your accountant to see what your options are.

Fee protection is a form of insurance that you can take out to secure yourself against an HMRC compliance check. The insurance will pay for your accountant and any work time you miss because of dealing with the enquiry, and most insurers will also provide you with dedicated professional help, dealing with HMRC on your behalf so that you don’t need to worry or be distracted with it.

This blog will discuss how HMRC investigations work, and why fee protection is important for any business.

HMRC Investigations

HMRC has the power of investigation over a wide range of taxes and sectors. You may be called to respond to an enquiry for a whole host of reasons, including:

• A full HMRC enquiry into your accounts or tax return. This could be a random enquiry, or one triggered by something, such as figures that don’t add up on your tax return

• A dispute from a VAT or PAYE inspection

• An IR35 investigation

• Enquiries raised by one of the HMRC task forces

• ‘Interventions’, a new form of enquiry that allows HMRC to inspect businesses and their records

• Cross tax enquiries – where VAT, Income Tax, Corporation Tax and PAYE are investigated and cross-referenced

• Information provided by HMRC intelligence – specifically HMRC Connect

  

HMRC Connect

The HMRC Connect system, dubbed the ‘snooper computer’ by some, was first launched in 2017 as a high-tech way to analyse tax returns.

The technology is designed to quickly and efficiently identify those whose spending habits do not match the information that they report in their tax return. Instead of just relying on the information that people readily provide, the Connect system is able to take information from other sources including government and corporate sources, as well as people’s personal social media profiles, to get a true picture of an individual’s annual expenditure.

If there appears to be a disconnect between the amount of money a person claims to earn and the amount that they are spending, they may be flagged and become subject to an investigation.

What Information Can HMRC Access?

HMRC has been allowed access by a wide range of sources, including banks and lenders and the Land Registry (in order to see property purchases and records). Other sources include:

• Visa and MasterCard transactions

• UK and overseas bank records, from banks in more than 60 countries

• Internal tax records such as council tax and VAT

• DVLA for information about any vehicles owned and purchased

• Online platforms including Airbnb, eBay, Gumtree etc

• Web browsing and emails: HMRC were given powers to look at digital activity in the Investigatory Powers Bill, passed into legislation in 2016

• Social media: Public Facebook, Twitter and Instagram posts may be used

HMRC Connect offers investigators a huge advantage, allowing them to gather information in moments that would have taken them months to collect in person.

  

What Happens During A Compliance Check?

If you are targeted for a compliance check, they usually conform to the following procedure:

1. You will receive a letter from HMRC requesting further information as evidence to support the tax return that you last submitted.

2. You (or your accountant) compile this information and then send it back to HMRC in the timescale requested.

3. HMRC review the evidence that you have provided, and then either close the investigation, if they feel that the evidence backs up your original return, or ask for further information

4. If you have been asked for more information then you or your accountant will repeat the process until HMRC concludes that compliance has been achieved, or there has been an error that needs to be rectified.

HMRC will also ask you a number of questions regarding your work, your income and your trading activities. These will all need to be answered in full and to the best of your knowledge until HMRC is satisfied.

If HMRC find what they believe is an error, whether it has been accidental or deliberate, they will take steps to recover whatever taxation they feel is owed, plus penalties (in some cases) and interest.

How Does Fee Protection Work?

To understand why fee protection is important for you, and how it will help you in the event of an investigation, here is an example scenario:

You receive a letter from HMRC saying that your business owes £5,000 in unpaid tax, and requests information to prove that you do not owe this money, or payment in full for the tax owed. You will need to instruct your accountant to look into your accounts and pull any information that you can use as evidence that you do not owe this money.

Your accountant spends £2,000 worth of their time on doing this.

If you are unable to prove that you don’t owe this tax you will then owe £7,000 overall, including your accountant’s fee. If you are successful and HMRC concludes the investigation, you may have nothing to pay to them, but will owe £2,000 to your accountant that you otherwise would not have.

Fee protection insurance ensures that you are able to pay any extra fees without having to go out of pocket. In the worst case scenario you will owe £5000 in total but in the best case scenario you can come out of the investigation without having had to spend any money at all.

Not only does fee protection help you financially, but you will also get:

• Full representation in case of a tax enquiry from a professional team that will be better able to fight your corner

• A service that deals with tax authorities for you, leaving you to carry on with the day-to-day running of your business.

• The ability to negotiate the best possible deal with HMRC, saving you money

 

More Information

HMRC investigations are a fact of life, and the likelihood is there will be many more of them in the coming years due to factors resulting out of the current crisis.

As an example, The Coronavirus Job Retention Scheme is suspected to have been widely abused and there is no doubt that HMRC will thoroughly pursue this and launch large numbers of additional investigations to recoup the payments.

If you have any questions regarding this article and the points raised then please get in touch with An Accounting Gem on 01473 744 700 or email us at contactus@aag-accountants.co.uk.

We are here to help you every step of the way.

Over the past few months, many people have gotten a taste of working from home. For some, this will have sparked an interest in working for themselves, and taking their current set up and knowledge and turning it into an enterprise of their own.

There are many benefits to working for yourself. When describing why they love what they do, contractors and business owners often cite things like:

• Choosing their own hours

• Doing something that they enjoy doing and feel passionate about

• Being able to control their income and the work that they do

• Flexibility to work around children and other interests

It is often these ideas that make people decide to take the plunge and become self employed or set up their own limited company.

However, it is important to remember that there are downsides to starting a business, including:

• Working long hours and weekends, particularly at the beginning

• Having an unstable income for some time

• Limited access to employment benefits (such as paid holiday, medical insurance and so on)

• Having to stay on top of accounts and filing tax returns

Knowing the downsides shouldn’t put you off of exploring the world of working for yourself, but it is important that you know what barriers you might come up against, so that you can plan your business carefully and avoid problems down the line.

Making The Decision

There are many questions you should ask yourself before committing to starting a business of your own. These questions are designed to help you to understand the position that you are in, and better plan your business.

1. What is your core reason for wanting to start a business? This will affect the type of business you set up and how you go about it. If you are looking for more flexibility, for example, you might decide to work as a contractor for other companies.

2. What are your skills? Not only do you want to do something you can do well, but also something you enjoy and can imagine sinking many hours of your own time into happily.

3. Do you want to provide a product or service? This will drastically change the type of business you decide to do. Selling products brings you firmly into the world of ecommerce, whereas for services such as plumbing or hairdressing you can work as a consultant, contractor or freelancer.

4. How much money of your own do you have to put towards this venture? The scope of your intended business will depend very much on how much money you have to get started.

 

Research Your Sector 

Deciding which industry you want to work in is only the beginning of your journey. The next stage is to investigate your industry, looking for gaps in the market and deciding on a unique selling point (USP) that will help you to find work and beat your competitors.

A simple online search for your target industry is a good place to start, especially if you pay attention to local results to note your competitors and how they are operating. You could also try reading industry specific books and speaking with others in the sector.

 

Set Your Budget

A budget is crucial to getting any business started, even if you are just working as a freelancer/contractor. If you are starting from scratch with a business then you will probably find that you don’t require physical premises straight away, so leave these costs out of your budget until later on when you do wish to scale up.

Think of everything you can so that you aren’t taken by surprise down the line by an unexpected bill.

Almost every business or contractor will need to think about setting up a website or putting some money into marketing themselves, and there may be materials, tools and other necessary costs to get set up.

You also need to take into account your personal costs, such as rent, utilities and transport. If you aren’t making money in the first few months, how will you pay for these things? All of this should be included in your budget so you can work out how much investment or the size of the business loan that you require.

 

Set Up Your Business

All of the preliminaries out of the way, you should finally be in the right position to set up your business. There are several options for those looking to register themselves as a business entity, and different options are more suitable for different types of business.

The three main types of business are:

1. Sole trader. This is a self employed person working alone as the sole owner of their business, and is the simplest and thus most common type of business structure.

2. Partnership. A partnership works in the same way as a sole trader except two or more people form the business together and become jointly responsible for the business.

3. Limited company. This is a business that serves as a legal entity of its own, meaning that it is separate from its shareholders and directors.

It may be useful to work with an accountant on deciding which type of business to form, and actually setting it up, as there are various business licenses and requirements that it is important to get right.

You will also want to decide on a business name, and then use the Companies House tool to make sure that your business name isn’t taken.

 

Create A Business Plan

A business plan is important for two main reasons:

1. To help you to plan for the future of your business and set small achievable goals that allow you to develop the business over time

2. To present to lenders and potential investors to convince them that you have a realistic and achievable plan for making money and thus paying back their money.

A business plan needs to look professional and include all of the information that outside parties expect to see, in order to take you seriously. The Government website has a useful business plans section which includes examples and templates to help you to write a polished and persuasive strategy.

 

Obtain Funding

If you are working as a contractor or funding your business yourself then you won’t need to think about this immediately, but it is always helpful to know what options are available with regards to financing a business.

There are plenty of different options for small business financing, including:

• Loans from friends and family

• Business credit cards and overdrafts

• Bank loans

• Venture capital

• Angel investors

The best way to obtain any form of funding is to have a great business plan, and a credible pitch.

To formulate the bare bones of a pitch that investors are likely to go for, ask yourself:

• Who is your target market? Be as specific as possible.

• What demand is there for whatever you are offering? Who is already doing it? How can you offer something that is different to or better than what is already available?

• How much capital will you need to begin? A contractor can get started straight away with very minimal outlay (just a workstation and computer/tools/materials etc), whereas an ecommerce enterprise will require significant upfront investment before they can begin. What is the investment paying for, and what will be the return for the investor?

• How long do you foresee it taking to have your business up and running, and how long will it stay relevant for? Whilst it is a savvy move for an existing accessories brand to bring in a line of face masks at the current time, setting up a face mask business right now doesn’t have much scope for future growth.

 

Get Started with An Accounting Gem! 

Once you have your business plan and finances in order you are ready to go. Set a launch date and be ready for all the highs and lows of being your own boss entails. Remember it is a marathon not a sprint and success will take persistence and patience, but if you have the desire and determination there is no reason you cannot achieve your dreams.

An Accounting Gem can help you to secure funding for your business, write up a business plan and understand the accounting process involved with setting up a business. Just call us on 01473 744 700 or email us at contactus@aag-accountants.co.uk to discuss your options and we can help you every step of the way!