The Leicester Accountant

June 2013- FAQS - Accounts & Tax

VAT on cars
Q: I am a VAT registered business and we are about to update our fleet of cars. Do I have to charge VAT on the sale of the old cars?
A: The general rule of thumb is you charge VAT on the sale where you suffered VAT on the original purchase of the car and were able to recover it.
However, most businesses are not able to recover the VAT on purchases of cars, unless the cars are:

• Stock for a motor manufacturer or dealer
• Going to be used as taxis, driving instruction vehicles or self-drive hire cars
• Will be used exclusively for business purposes (such as pool cars under certain conditions)

You may have purchased the vehicle from a private individual or non-VAT registered business, in which case you won’t have been charged any VAT on the purchase. In this scenario, you probably only need to charge VAT on any profit you make on the sale (i.e. the difference between the sales price and the original purchase price) but there are some criteria to adhere to in order to apply this. In reality, most cars are sold at a loss and if this was the case, no VAT would arise in this scenario- again, subject to certain criteria being met.
VAT and motor-related transactions are a complex area as there are specific rules that do not apply to any other instances.
Category: Value Added Tax (VAT)

Late P35
Q: I know it should have been filed by 19^th May, but I have only just filed my P35 online. What penalties can I now expect?
A: Where a P35 remains outstanding after 19^th May, HMRC will write to you advising that a penalty may already have been incurred and that the return must be with HMRC by 19th June in order to avoid further penalties.
Penalties for late P35s are calculated at £100 per 50 employees for each month or part month you delay filing your return.
If your return remains outstanding for more than four months, you'll receive a penalty notice shortly after 19^th September and again the following January and May, if necessary. These penalty notices will show the amount of penalty that's building up because you haven't filed your return on time and should tell you how you can pay it.
Please also note that there is a separate penalty regime for the late submission of P11D(b)s, which must be filed by 6^th July.
The filing requirements for this year and moving forward look very different since the introduction of Real Time Information.
Category: Payroll

Wrong tax code
Q: I noticed that the tax code my employer is using has changed and it doesn’t look right to me. I told my employer’s payroll department, but they said they were simply using the code HMRC had told them to. What should I do?
A: HMRC issues your tax code based on information they have about you and it tells your employer or pension provider how much Income Tax to deduct from your wages or pension.
If your tax code is incorrect, I’m afraid your employer cannot simply change your tax code at your request. You will need to contact HMRC on their Taxes Helpline to tell them your tax code is wrong and you will need your National Insurance number and tax reference to hand, which can be found on tax papers such as your payslip or P60.
Assuming they agree, HMRC should subsequently issue a new tax code which your employer will then use.

Category: PAYE, NIC & Benefits In Kind

Correcting a wages error under RTI
Q: I made an error on my last payroll run, which was submitted to HMRC online under their new RTI system. How should I go about correcting it?
A: Under Real Time Information (RTI), employers must submit a Full Payment Submission (FPS) when  a payroll is run and payments are made to employees. If you discovered the error before filing your next FPS you can either:

1. correct the error by using revised year to date figures on your next regular FPS - this is often the easiest way to handle the correction
2. show the adjustment by submitting an additional FPS for the pay period for the employee(s) the error relates to

Whichever option you go for, care must be taken as for instance, you may have to consider the impact on employees' record for National Insurance purposes and you may have to correct year to date information accordingly.
The changes under RTI can be daunting.
Category: Payroll

Losses and Class 2 National Insurance
Q: I have just started my own business and my business plan is projecting losses for the first year. Should I pay Class 2 National Insurance?
A: Class 2 National Insurance (NI) is payable by the self-employed at a flat-rate; regardless of profit levels. Class 2 NI counts towards your entitlement to certain benefits, like the basic State Pension, Maternity Allowance and Bereavement Benefit.
If you earn less than a certain limit (currently £5,725 for 2013/14) you can apply for a Certificate of Small Earnings Exception and not pay Class 2 NI.
However, unless you pay NI on other income such as employment income, you might decide to carry on paying them voluntarily to maintain your entitlement to the State Pension and other benefits.

Category: General Business

Private medical insurance
Q: My company now pays for private medical insurance for senior members of staff. Are there any consequences of this I need to be aware of?
A: For employees (who are not directors) earning less than a rate of £8,500 per year (including their share of the value of the policy), you have:

• no reporting requirements; and
• no tax or NICs to pay

For all company directors or employees earning at a rate of £8,500 or more per year:

• their share of the cost of the policy must be reported on form P11D
• the employer pays Class 1A NICs on the values reported
• the directors and/ or employees under the policy are subject to a tax charge on the value reported on form P11D

The total value of all employee benefits must be reported annually on form P11D(b) which must be filed (on paper or online) with HMRC by 6^th July and any Class 1A National Insurance is payable by 19^th July. Late P11D(b)s will be subject to penalties.
The good news is that the expenditure should be tax-deductible for the company though.

Category: PAYE, NIC & Benefits In Kind

Disclaimer – advice shared in this column is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.