HC Monthly News Bulletin: June 2022 | HaesCooper – Chartered Accountants & Chartered Tax Advisers
Latest UK tax news affecting UK SMEs: MTD | New HMRC Financial Penalties | Cost of Fuel | Business Mileage | Working from Home | UK Cost of Living
Making Tax Digital (MTD)
The discussions continue between professional bodies, including the Chartered Institute of Taxation and HMRC, as to how best to introduce the proposed MTD for Income Tax which is due to start from April 2024. In the meantime, the existing MTD for VAT that started in earnest as from April this year, now has a recently published HMRC Factsheet clarifying the penalties regime. It also covers how VAT registered businesses can avoid them plus advice as to how businesses can sign up to MTD for VAT.
Essentially, businesses registered for VAT must keep their records digitally, using the electronic accounts and using digital links to exchange/transfer data. The use of ‘copy and paste’ is not accepted by HMRC as a digital link.
In view of the HMRC requirements for MTD for VAT, the digital VAT returns should be completed using appropriate software compatible to MTD for VAT.
As you would expect, HMRC have a financial penalty system for businesses registered for VAT that do not adhere to the MTD for VAT rules outlined above. This includes financial penalties of up to £400 for every VAT Return filed via software not compatible to MTD for VAT and between £5 to £15 for every day a business fails to meet the digital records and/or the digital exchange of data requirements.
VAT and the new HMRC financial penalties
HMRC have updated their guidance notes for the new VAT penalties which are to be applied from 1 January 2023 (it was to be 1 April 2022). The new HMRC financial penalties for VAT are part of HMRC’s overall alignment of the penalty system for all the main UK taxes. The new VAT financial penalty system is based on a points system, with one point awarded to each VAT Return filed late. So in this case ‘points do not mean prizes’ with the financial penalty percentage rate, as applied to the VAT liability returned late and increasing in line with the number of points charged.
The new VAT financial penalty system will apply to VAT Returns with accounting periods starting on or after 1 January 2023. However, HMRC have announced that a ‘period of familiarisation’ will apply. For the first year through to 31 December 2023, HMRC will not charge a ‘first late penalty’ provided the relevant VAT liability has been paid in full within 30 days of the VAT payment date.
Cost of fuel reimbursed to employees using company cars for recorded business mileage
With prices at the pumps on the ‘up and up’ HMRC published the latest advisory fuel rates effective from 1 June 2022.
The latest advisory rates for a petrol company car, from 1 June 2022:
- Engine size (cc) of 1401 to 2000
- 17p / mile
- Based on the average fuel price of 165.1p / litre
HMRC’s latest advisory fuel rates also covers diesel, LPG, hybrid and electric company owned vehicles.
As we all know, the cost of petrol at the pumps can vary quite widely depending on where you live. For example, the RAC reported that on 8 June 2022 the average petrol pump price had increased to 182.31p / litre, somewhat higher than the current advised rate of 165.1p / litre for company owned petrol cars!
So what can be done? Well, the emphasis is on the word ‘advisory’ for the published HMRC fuel rates. If employers have evidence that their employees who use company cars are spending more on fuel than the appropriate HMRC advisory rate, then the employer can reimburse the employee the full cost of the fuel tax free. Such evidence will include a record of the business mileage and receipts for the cost of the fuel, relevant to the completion of those recorded business miles.
In short, the recorded actual cost of company car fuel for business mileage can be reimbursed tax free by the employer to their company car user employee. Some good news given the recent hike in the fuel pump prices.
Using own car for business mileage
To date, HMRC have not announced any change to the approved tax-deductible mileage rate for the total cost (not just fuel) of using your own car for business purposes (as an employee or self-employed). The published HMRC approved mileage rate remains at:
- 45p / recorded business mile up to 10,000 recorded business miles in the tax year
- 25 pence / mile for a recorded business mile over 10,000 recorded business miles for the tax year
Watch this space to see if the recent massive increases to the fuel pump prices will cause HMRC to reassess and publish higher ‘approved business mileage rates’ when using your own car for business purposes.
Employees working from home
Another seemingly hot topic, particularly for some of our government ministers, is should employees be returning to working at their pre Covid-19 pandemic places of work, continue working from home or operatea flexible way of working somewhere between the two? There is no one answer that fits all circumstances. Perhaps we should be considering not so much where we work, but why we work at a particular place – is it because it creates the best environment for producing quality work?
Some types of work must be completed at a particular workplace with no choice. However, a recent survey has shown that the Covid-19 pandemic enforced changes to working practices for a lot of UK employees and is now seen as a positive working condition. Many people are reluctant to give up newfound flexibilities, leading to some employees leaving their job if forced to return to their pre Covid-19 place of work on a full-time basis. Such employees point to the benefits including not having to complete the daily commute to work and the flexibility with childcare arrangements. Also, from the employer’s viewpoint, research shows that home working has seen improvement to staff productivity, in both quality of work and hours worked, and staff morale.
Given these inflationary and adverse economic times employers, SMEs should look into considering their business model and assessing the cost and value of all their employees working in the same space. Test the waters and ask for your staff’s opinion on a hybrid scheme, rather than just enforcing them to return to the workplace full-time.
Working from home – your tax position
Having referred to the optimum workplace, and working from home, you also need to consider your homeworking tax position now that we no longer have the government’s Covid-19 financial support schemes in place.
The main current tax rules for both employees and the self-employed working from home are outlined below:
- Employees from the current tax year 2022/2023 onwards have returned to the old tax rules for claiming the costs of working from home.
- For an employee to be classed as a home worker by HRMC, they must have a home working arrangement in place with their employer.
- The agreement should outline that they are required to perform their employment duties at home on a regular basis and following a pattern e.g. working at home for a set two days of every working week. In this example, the number of homeworking days per week can vary and still qualify as regular.
- As a home worker you can claim the cost of reasonable ‘additional’ expenses incurred at home due to homeworking. Note the word ‘additional’ expenses as they do not include home costs already in place such as: rent, mortgage, insurance, council tax, water rates. There can also be issues with HMRC and claiming telephone and broadband costs as it will only be the cost of business telephone calls and any required upgrading of broadband for business use that can be claimed.
- The employer can reimburse the employee for these reasonable additional home costs tax free. This can be done by using the ‘tax free’ allowance rates. These are currently £6 / week for weekly paid employees and £26 / month for monthly paid employees. HMRC require no evidence of home costs if these scale rates are claimed and they can be paid, in full, to part-time or hybrid homeworkers. Alternatively, if higher amounts of additional homeworking costs are claimed then HMRC can request evidence that such additional homeworking costs exist before agreeing to the claim.
If the employer does not agree to the homeworking arrangement and is reimbursing to the employee the additional home costs, then the homeworker must show to HMRC that his work duties are performed at home exclusively and necessarily for the purposes of their employment. This will be a difficult task. Hence the homeworking arrangement between the employer and employee is strongly recommended as the way to go for both employer and the homeworking employee.
Cost of living crisis. What can be done by UK SMEs to help their employees?
The UK is currently suffering the largest cost of living rise not seen for decades. So, what can employers do to assist their employees?
The first answer to this question is most likely – “an at, or above inflation pay rise please!”. Given the UK economy’s current poor performing position and the prospect of this continuing into the foreseeable future (due to Brexit, Covid-19 and the war in Ukraine), pay rises will be difficult for most UK SME businesses to grant.
Employers should continue to meet with their employees on a one-to-one basis to assess what their current concerns might be. These could be money or stress related to the ever-worsening cost of living. By assessing each employee’s worries, the employer will be better placed to see what, if anything, can be done to help. This doesn’t have to be more pay, although a review of the employees’ pay structures and pay gaps is always a good idea and any anomalies dealt with.
The above-mentioned meetings with individual employees will be two-way and so it gives the employer the opportunity to make sure the employee is aware of the employer’s expectations of them within their employment duties.
Some employees will benefit from homeworking, as discussed above. If so, make sure that you have a formal homeworking arrangement in place so that HMRC are kept happy. Homeworking does not fit all types of employment, but if it does, it will bring satisfaction to the employee to know that the employer is flexible as well as providing possible financial savings to the employee (e.g. reduced transport to work and childcare costs). A satisfied employee will be more inclined to produce good quality work, but the employer also needs to be satisfied that the employee’s working ability and quality can be maintained when homeworking.
There may be some employees that are under mental stress from the current cost of living crisis and therefore the employer may be willing to arrange an Employment Assistance Programme (EAP). This provides advice to employees on such things as debt management, financial planning / management, stress / mental health etc… Other schemes can also be considered to help employees such as the ‘cycle to work’ scheme – particularly useful given the current high fuel pump prices, childcare vouchers, season ticket loan, local product discount platforms etc…
There will be a cost to the employer for providing professional help to their under-stress employees, but it should be a relatively small cost when weighed against the benefit of improving their employees’ wellbeing. This in turn hopefully leading to a satisfied and well-motivated workforce.
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