Welcome to the second edition of the Square Circular.
Being a Square Circular perhaps it is inevitable that at some stage our round up of news and ideas would talk about wheels.
Wheels as in cars, that is. “Should I have a company car or should I run my own car and claim expenses from the company?” That is by no means a new question. Probably it is an issue you have visited in the past. However, the rules are changing as from 6 April 2002. If you bear in mind that company cars tend to be made available for periods of typically three or four years before being replaced, those now being replaced will fall within the new regime. We make no apologies for revisiting this question. Fuel costs, vehicle duties and “green” policies are now particularly topical. Perhaps it’s time for us to do our “service” on your company car policy.
Finally, as you know, we like to keep you not just up with the game but just a little bit ahead of it. This issue of the Square Circular contains a useful tip for property landlords for next year.
DON’T LET THE TAXMAN TAKE YOU FOR A RIDE
The present system of measuring the benefit of an employer provided car by means of a scale charge has been with us for a number of years. You take the list price of the car when new, multiply it by a series of percentages depending upon the level of business mileage and reduce the scale charge by a quarter if the car is four years old or more at the end of the tax year.
The alternative to having an employer provided car is owning and running your own car and charging the employer for business use of the car using agreed mileage rates. There are published Inland Revenue rates for charging such mileage known as the Fixed Profit Car Scheme (FPCS). In some cases, this alternative can be more tax advantageous than having an employer provided car.
Even if you have an employer provided car it may be beneficial to pay your own fuel costs and recover expenses using the FPCS rather than having the employer pay all the petrol costs and suffering a tax charge on the provision of private petrol (fuel benefit in addition to car benefit).
The result will vary depending upon level of motor expenses, the size of car, the mileage covered and the tax rates applying to the employer and employee.
A new twist is introduced by the last Finance Act. With effect from 2002/03 a new system is to be implemented based on the carbon dioxide emissions levels of the car. The benefit will be 15% of list price if they emit no more than 165 g/km of CO2, 35% if they emit more than 265 g/km or more, and a sliding scale between these limits. Newer cars will have CO2 emission figures recorded on their registration documents. If figures for older cars are not available there will be a scale charge based on engine size.
If you are currently choosing an employer provided car you will have to consider the implications of these changes and start attuning your mind to a new concept. Two employees could have employer provided cars with the same list price but would be assessed to different benefits by reference to CO2 emissions rather than extent of business use.
So, what’s the bottom line? If you are a director of an owner managed company and you are thinking of changing your car should you buy a new car through the company or should you provide yourself with a higher salary to buy your own car? Even if you are not changing cars should you now buy your existing company car out of the company? If the employer provides employees with cars should it continue to do so or should it pay higher salaries to enable them to provide their own cars? Sorry, but there’s no simple “universal” answer. It depends upon lots of different factors – type of car, insurance and maintenance costs, mileage and method of financing the purchase. Each case depends on its facts. If you think your company cars need an overhaul – we mean fiscally not mechanically – let us know. Like a mechanical service a fiscal service could save you money in the long run.
NOW HERE’S A BIT OF NEWS
This one is for landlords who have to make repairs to their rented properties.
A perennial problem is the distinction between repairs and renewals on which you get immediate tax relief against the rental income and capital improvements on which you don’t get tax relief until the day comes when the property is sold.
There exists an Inland Revenue extra statutory concession which states that where maintenance and repairs of property are obviated by improvements, additions and alterations, so much of the outlay as is equal to the estimated cost of the maintenance and repairs is allowed as a deduction against the rental income. Put another way, you get immediate tax relief for the notional cost of the repairs.
This concession is soon to be withdrawn. If the concession is possibly of use to you please contact us as regards what you should do whilst it is still in force.
Incidentally, property owners, Gordon Brown’s Statement earlier this month mentioned VAT cuts on residential conversions and tax relief to bring empty flats over shops back into use. Future food for thought, perhaps?