TaxMatters with James Milne – May 2024

TaxMatters with James Milne – May 2024

Welcome to our latest monthly tax newsletter. We hope you find these newsletters informative and if you have any questions on any of these tax matters please contact us for further advice. This month, we discuss HMRC’s update on work travel, and investing in an unquoted trading company.

HMRC PUBLISHES UPDATED GUIDANCE ON WORK TRAVEL


Travelling from home to an employee’s normal workplace does not qualify for tax relief. This is referred to as “ordinary commuting” and, furthermore, if the costs of the journey are reimbursed by the employer, those costs are taxable. There are exceptions to this rule; for instance, when the employer pays for the employee to travel home in a taxi safely late at night.

Travelling to a “temporary workplace” is a qualifying business journey and, where the costs are reimbursed by the employer, there is no taxable benefit. Note also that any associated subsistence costs such as overnight hotel accommodation costs are also a tax-free benefit. HMRC Booklet 490 provides detailed guidance on employee travel, together with comprehensive examples (this is an online document these days).

With more and more employees working from home these days, for at least one day a week, attention should be paid to the latest HMRC guidance on such arrangements.

Working from home

Whether or not an employee’s home is a workplace does not affect the availability of tax relief for travel expenses. Travel expenses from home to a permanent workplace will only qualify for tax relief if the journey qualifies as travel in the performance of the duties of the employment.

Even though it may have been accepted that the employee’s home is a workplace, it does not necessarily follow that they’ll be entitled to tax relief for the cost of travel between their home and a permanent workplace.

This is because the place where an employee lives will ordinarily be down to their personal choice. The expense of travelling from their home to any other place is a consequence of that personal choice, not an objective requirement of the job.

  1. HMRC guidance states that where an employee performs substantive duties of their employment at home as an objective requirement of the job, they may accept their home as a workplace for the purposes of the ‘travelling in the performance of the duties’ rule. Where this is the case, the employee will be entitled to tax relief for the expenses of travelling from home to other workplaces, as their travel is in the performance of their duties.
  2. HMRC will usually only accept that working at home is an objective requirement of the job if the employee needs certain facilities to perform those duties, and those facilities are only practically available to the employee at their home.
  3. HMRC states that they will not accept that working at home is an objective requirement of the job if the employer provides appropriate facilities in another location that could be practically used by the employee, or the employee works from home as a matter of choice.

Even where the employee works at home as an objective requirement of their employment, tax relief for the cost of travel between their home and their permanent workplace will only be due for travel made on days where the employee’s home is a workplace. Only on those days is the employee travelling between two workplaces. On other days the employee is travelling between their home and a permanent workplace, which is ordinary commuting.

Late night taxis paid by employers

Payments by the employer for taxis to take employees home late or at night are exempt from tax if:

  • the failure of car sharing arrangements conditions are satisfied (see below), or
  • all 4 late night working conditions are satisfied; and
  • the number of such journeys for which a taxi has been provided for that employee in the tax year is no more than 60.

There are 4 late working conditions, all of which must be satisfied.

  1. The employee is required to work later than usual and until at least 9pm
  2. This occurs irregularly
  3. By the time the employee ceases work, either public transport has ceased, or it would not be reasonable to expect the employee to use public transport
  4. The transport is by taxi or similar road transport – this condition is not contentious and is not referred to again in this guidance.

The 60 journeys are a single limit that applies to late night journeys and failure of car sharing arrangements together. This means that journeys under both headings must be added together when working out whether the 60 journeys limit has been reached.

OFFICIAL RATE OF INTEREST FOR 2024/25 REMAINS AT 2.25%

HMRC has confirmed that the official rate of interest for employee and directors’ beneficial loans remains at 2.25% for 2024/25, despite a Bank of England base interest rate of 5.25%.

This means that where the employer lends an employee more than £10,000, the taxable benefit would be the difference between 2.25% and the amount paid on the outstanding loan.

INVESTING IN AN UNQUOTED TRADING COMPANY


If you are considering lending money to, or subscribing for shares in, an unquoted trading company, then, like many investments, there is always a risk that you may lose your money.

However, there is potentially tax relief for the lender if the loan meets certain conditions, in particular the money lent is used by the borrower wholly for the purposes of its trade, and the trade does not consist of or include the lending of money.

The tax relief is by way of a capital loss that can be set against gains in the same or future tax years. In order to make a claim for capital loss relief, any outstanding amount of the principal of the loan must have become irrecoverable, the claimant must not have assigned their right to recover that amount, and the claimant and the borrower were not each other’s spouses or civil partners, or companies in the same group, when the loan was made or at any subsequent time.

Capital loss on shares in an unquoted trading company

Where an individual subscribes for a new issue of shares in an unquoted trading company, there is an even more generous form of loss relief where those shares are disposed of at a loss, including the situation where the shares have become worthless. In that situation, it is possible to make a negligible value claim which creates a deemed disposal and reacquisition of the shares at that low value, thereby creating a capital loss. A further claim can then be made to set that capital loss against the subscriber’s income in the year of the loss and/or the previous year. The attraction is the income tax relief could save tax at 40% for higher rate taxpayers and 45% for additional rate taxpayers, as opposed to a capital gains tax saving at a maximum 24% (on residential property gains).

Converting loans into shares

As mentioned above, where a loss is made on a loan to an unquoted trading company, relief for that loss may claimed against capital gains, whereas the loss on subscriber shares can be set against income, saving tax at higher rates. It is possible for the lender to be issued with shares in the company in satisfaction of the loan, which potentially would allow the investor to claim relief for any subsequent loss against their income. Note that where the company is already insolvent at the time that the shares are issued, no capital loss will arise and HMRC is likely to challenge the loss claim, as they have done successfully in two recent tax cases.

Tax relief under the enterprise investment scheme

Where the company qualifies under the Enterprise Investment Scheme (EIS) or Seed EIS, subscribers potentially qualify for even more generous tax reliefs. Where the investor is not connected with the company, they are entitled to tax relief based on 30% of the amount invested (EIS) or 50% in the case of Seed EIS. This relief is deducted from the investor’s income tax liability for the year, or the previous year in the case of EIS investment. The shares need to be held for at least 3 years to retain the income tax relief and the shares would also be exempt from CGT when disposed of.

Should the EIS or Seed EIS shares be disposed of at a loss, then the capital loss arising (net of income tax relief given) can be set against the investor’s income as set out above.

DIARY OF MAIN TAX EVENTS – MAY/JUNE 2024

Date What’s Due
01/05 Corporation tax payment for year to 31/7/23 (unless quarterly instalments apply)
19/05 PAYE & NIC deductions, and CIS return and tax, for month to 5/05/24 (due 22/05 if you pay electronically)
01/06 Corporation tax payment for year to 31/8/23 (unless quarterly instalments apply)
19/06 PAYE & NIC deductions, and CIS return and tax, for month to 5/06/24 (due 22/06 if you pay electronically)

 

The content included on this page is accurate as of 26.04.24

TaxMatters with James Milne – April 2024

TaxMatters with James Milne – April 2024

There’s a lot going on in the world of tax and we’ve compiled a useful summary to give you an insight into what’s making the news. Scan the headings below and if something catches your attention that you need advice on, we’re here to discuss these issues.

HAPPY NEW TAX YEAR

In this April issue we highlight some of the key tax changes that will take effect from the start of the new tax year. Unfortunately, most of the income tax and national insurance thresholds continue to be frozen, resulting in an increasing number of higher rate taxpayers. The major exception is the welcome increase in the threshold for the High-Income Child Benefit Charge (HICBC). The further reduction in the rates of national insurance contributions for employees and the self-employed will take effect from 6 April and is a move towards a possible future abolition.

The self-employed will see important changes to how they compute their profits from 2024/25 with “cash accounting” being the default method unless they opt for the accruals basis. The mechanism for assessing those profits also changes from 6 April 2024 when the business results arising between 6 April and the following 5 April will be taxed, which will mean apportioning results where the business year end does not correspond with the tax year.

As far as limited companies are concerned, there is no change in the rates of corporation tax from April 2024. There are however further changes to R&D tax relief which will apply to accounting periods commencing on or after 1 April 2024.

Remember also that the capital gains tax annual exemption reduces to just £3,000 for each taxpayer for gains made in 2024/25, but the higher rate on residential property gains reduces from 28% to 24% as announced in the Spring Budget.

MANY COUPLES MAY NEED TO RESTART CHILD BENEFIT CLAIMS


The changes to the High-Income Child Benefit Charge (HICBC) announced in the Spring Budget have now been incorporated into the latest Finance Bill and are scheduled to take effect from 6 April 2024. The increase in the threshold for the tax charge was good news, although many were lobbying for the charge to be removed completely. HICBC is intended to claw back child benefit where the higher earner in a relationship has adjusted income in excess of £60,000 (£50,000 up to 2023/24). The claw back rate will then be 1% for every £200 of net income in excess of £60,000 with full recovery of child benefit where net income is £80,000 or more.

Rather than pay the tax charge, many couples have chosen not to claim child benefit in recent years. It is estimated that some 180,000 couples eligible for child benefit will no longer be caught by the HICBC and should restart their claims from 6 April 2024. This can be done by using an online claim form.

Example

Fred and Wilma have 2 children for whom they are eligible for child benefit. Fred is the higher earner, and his income was £68,000 in 2023/24, which is scheduled to increase to £70,000 in 2024/25. In 2023/24 the HICBC would have been 100% of the child benefit received. Their child benefit for 2024/25 is £25.60 for the first child, then £16.95 for each additional child = £42.55 x 52 = £2,212.60 p.a.

Based on Fred’s £70,000 net income there would be a 50% HICBC for 2024/25 of £1,106.30.

Planning

An individual’s pension contributions and payments to charity under Gift Aid have the effect of reducing net income for the purposes of HICBC. Salary sacrifice arrangements agreed with the employer can also be effective in reducing net income for HICBC purposes.

SHOULD YOU USE CASH ACCOUNTING?

Cash accounting was introduced as a measure to make it simpler for small businesses to prepare their accounts for tax purposes. It previously only applied to businesses with turnover up to £300,000 but, from 2024, will be the default method for sole traders and partnerships. It will not apply to partnerships with corporate members or limited liability partnerships.

Businesses affected will be able to opt out of cash accounting and prepare their accounts in accordance with Generally Accepted Accounting Practice (GAAP), which means making adjustments for accruals, prepayments and other differences. It will also be possible to subsequently opt back into cash accounting. There are transitional rules to ensure that income and expenses are not included twice or omitted.

Please contact us to discuss the impact that this change may have on your taxable profits.

CHANGES TO THE BASIS OF ASSESSMENT


The method of taxing the profits of unincorporated businesses changed significantly in 2023/24 and will also change from 2024/25 onwards. This was originally intended to align with the introduction of Making Tax Digital for Income Tax Self-Assessment (MTDITSA), which will now start to be phased in from 2026/27.

Under the old basis of taxing profits, a sole trader or member of a partnership was taxed on their share of profits of the business’s accounting period ending in the tax year. For 2022/23, the last tax year when that basis applied, profits of year ended 31 December 2022 would have been taxed that tax year. Unless that business changes its accounting date, the profits assessed in 2024/25 would be the profits arising between 6 April 2024 and 5 April 2025 i.e. 9 months of the profits from year ended 31 December 2024 plus 3 months of the profits for year ended 31 December 2025. As the 2024/25 self-assessment tax return needs to be filed by 31 January 2026, it is highly likely that the profits for the later period would need to be estimated and subsequently revised. As a result of this complication, many businesses decided to change their accounting year end to 31 March or 5 April so that it corresponds with the tax year.

The Transitional Year 2023/24

A further complication with the change in the basis of assessment is the calculation of profits in 2023/24, the “transitional year”, which seeks to transition from the old ‘current year’ basis to the new tax year basis. The rules in 2023/24, where the business has a year-end that doesn’t correspond with the tax year, seek to tax the profits from the day after the end of the period taxed in 2022/23 until 5 April 2024. A business preparing accounts to 31 December each year would have a 15-month period from 1 January 2023 to 5 April 2024 potentially taxable in 2023/24. However, the 3 months’ profits in the period 1 January 2024 to 5 April 2024, less any overlap relief, is not all taxed in 2023/24 but spread over 5 years, unless the taxpayer elects to be taxed on a higher amount.

If, in the above example, the sole trader makes profits of £120,000 in year ended 31 December 2024 then £30,000 less any overlap relief (typically from the early years when some profits were taxed twice) would be spread over 5 years. Assuming no overlap relief, an extra £6,000 profits would be added to the profits assessable from 2023/24 to 2027/28 unless the individual elects to be assessed on a higher amount, in which case, the balance of the £30,000 would then be spread over the remaining years to 2027/28. This is not straightforward, and we can work with you to calculate the transitional profits and advise you of your tax liabilities going forward.

HMRC PUBLISHES MORE DETAILS ON MTD FOR INCOME TAX REPORTS

Making Tax Digital for income tax self-assessment is scheduled to commence in 2026/27 for sole traders and property landlords with gross income of £50,000 or more, and the threshold then reduces to £30,000 from 2027/28.

The government has confirmed that the four quarterly returns that need to be submitted will report cumulative income and expenses and that there will no longer be an end of period statement. HMRC has published the detailed income and expenditure headings that need to be reported and has also confirmed those businesses with turnover below the VAT registration threshold will be able to submit three-line accounts, i.e. total sales, total expenses and profit or loss for the period.

Several issues remain to be resolved before the new reporting obligation commences, and we will work with you to ensure that your accounting system is compliant.

CHANGES TO FURNISHED HOLIDAY LETTINGS FROM 6 APRIL 2025

As announced in the Spring Budget, the beneficial tax treatment of furnished holiday lettings (FHLs) will be abolished from 6 April 2025, when businesses will start being taxed in the same way as other residential property businesses.

Owners of properties that currently qualify as FHL might wish to consider increasing their expenditure on equipment such as furniture and televisions whilst the 100% annual investment allowance (AIA) continues to be available. The current capital gains tax reliefs, particularly business asset disposal relief (BADR) will also cease from 6 April 2025, so owners might consider selling their holiday letting property whilst the 10% CGT rate continues to apply to the disposal.

Note that where several FHL properties are owned, they would all need to be disposed of before 6 April 2025 for BADR to apply. BADR would generally not apply where a single asset is disposed of out of a larger business.

CAMPING PODS MAY QUALIFY FOR CAPITAL ALLOWANCES


A recent case before the First Tier Tribunal will be of interest to businesses operating campsites and farmers who have diversified into “glamping” by installing camping pods on their land. The capital allowances legislation states that caravans provided mainly for holiday lettings and buildings intended to be moved for the purposes of the qualifying activity, such as building site portacabins, qualify as plant and machinery.

In the recent case, the Tribunal determined that certain camping pods which were not connected to mains drainage qualified as plant as they were potentially moveable buildings. This means that where a limited company incurs expenditure on new pods, the 100% AIA and “full expensing” relief would be available, and 100% AIA would be available in the case of an unincorporated business.

HMRC may be appealing the decision of the Tribunal, but in the meantime, it would be beneficial to make a claim for tax relief. We can review your circumstances to see if they are similar to this recent case.

GET READY FOR MORE R&D CHANGES

On top of the major changes to research and development (R&D) tax relief that took effect from 1 April 2023 there are further changes that take effect from 1 April 2024.

For accounting periods commencing on or after 1 April 2024, companies carrying out qualifying R&D will be entitled to a 20% expenditure credit. The 20% is calculated on the amount of qualifying expenditure. Qualifying expenditure is extended to include subsidised expenditure from 1 April 2024, although R&D carried out overseas will no longer qualify unless the work cannot be undertaken in the UK.

“R&D intensive” companies that make trading losses will continue to be entitled to a tax refund instead of the expenditure credit. The definition of “R&D intensive” is reduced from 40% to 30% from 1 April 2024 which means a company that spends at least 30% of total expenditure on qualifying R&D will now be entitled to the more generous tax refund.

R&D tax relief continues to be a complex area and we can work with you to help you prepare a valid claim as HMRC is now scrutinising and rejecting an increasing number of claims.

DIARY OF MAIN TAX EVENTS

APRIL/ MAY 2024

Date What’s Due
1/04 Corporation tax payment for year to 30/6/23 (unless quarterly instalments apply)
5/04

End of 2023/24 tax year.

2024/25 tax year starts on 6 April

19/04 PAYE & NIC deductions, and CIS return and tax, for month to 5/04/24 (due 22/04 if you pay electronically)

 

1/05

Corporation tax payment for year to 31/7/23 (unless quarterly instalments apply)

 

19/05

PAYE & NIC deductions, and CIS return and tax, for month to 5/05/24 (due 22/05 if you pay electronically)

 

James Milne sponsors cycle team to raise funds to tackle MND

James Milne sponsors cycle team to raise funds to tackle MND

James Milne is delighted to sponsor a fantastic cycling team about to embark on an epic 1800-mile cycle run from Edinburgh to Rome to raise funds for My Name’5 Doddie Foundation.

The team of eight includes our very own partner Michael Fotheringham who has been in intensive training, braving the wild winter months to get into shape (although most of his training was indoors!).

It’s all in aid of raising funds for the My Name’5 Doddie Foundation, a charity set up to tackle Motor Neurone Disease, which sadly took the life of the Scottish and British Lions’ legend, Doddie Weir.

The funds raised by the team will go towards investing in research to find groundbreaking treatments and ultimately a cure for MND.

‘DoddieAid has become a regular fixture in the calendar, kicking off on 1 January through to the Scotland v Wales rugby match in the 6 Nations Rugby Tournament. The main driving force behind this initiative has been Scotland and British Lions rugby stalwart, former captain, Rob Wainwright, who is also participating in the ‘All Roads Lead to Rome’ challenge.

Michael and his colleagues’ extraordinary fundraising cycle begins in Dundee on 2 March and all going well, ends in Rome on the Friday before Scotland take on Italy in the penultimate weekend of the 6 Nations.

If you would like to sponsor Michael or any member of the team you can do so at www.justgiving.com/team/specsavers-dundee-doddie5

HMRC reverses tax decision on double cab pickups

HMRC reverses tax decision on double cab pickups

A week after HMRC proposed changes to the tax rules for double cab pickups, stating they would be treated as cars rather than vans for employment tax and capital allowances from July 2024, the government has reversed this decision due to strong opposition from the agricultural, automotive sectors, and professional bodies like ICAS.

This change would have significantly affected the tax liabilities for users and businesses owning these vehicles, as cars incur higher taxes and fewer allowances than vans.

As a reminder, taxation on company cars is based on a percentage of the car’s original list price set by the manufacturer, whereas the van benefit is a fixed rate of £3600. The rules for personal use also differ; for cars, this includes travel to and from work. Additionally, there’s a difference in how the provision of fuel for private use is taxed.

However, on 19 February, the government announced that HMRC’s guidance would be retracted, ensuring double cab pickups remain classified in a manner that avoids negative tax consequences for various stakeholders, including those in farming and transportation.

The move, confirmed by Financial Secretary to the Treasury Nigel Huddleston, aims to prevent unintended harm to the UK economy, with adjustments to be made in the next Finance Bill.

Despite this U-turn, the VAT treatment of double cab pickups, which allows for certain VAT recoveries if the vehicle has a payload of one tonne or more, remains unchanged.

This classification under VAT notice 700/57 ensures continued favourable treatment for these vehicles regarding benefit in kind and capital allowances.

TaxMatters with James Milne – February 2024

TaxMatters with James Milne – February 2024

Welcome to our latest monthly tax newswire. We hope you enjoy reading this newsletter and find it useful. Contact us if you wish to discuss any issues further.

YEAR END TAX PLANNING

It’s not too late to undertake some end of year tax planning. If you have some spare cash, an obvious tax planning point would be to maximise your ISA allowances for the 2023/24 tax year (currently £20,000 each). You might also want to consider increasing your pension savings before 5 April 2024.

USE A LIFETIME ISA (LISA) TO SAVE FOR YOUR FIRST HOME


Those aged between 18 and 40 can set up a Lifetime ISA (Individual Savings Account) to buy their first home or save for later life. You can put in up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.  Note that the Lifetime ISA limit of £4,000 counts towards your £20,000 annual ISA limit.

You can withdraw money from your ISA if you’re:

  • buying your first home,
  • aged 60 or over, or
  • terminally ill, with less than 12 months to live.

However, you’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (an unauthorised withdrawal). This recovers the government bonus you received on your original savings.

PENSION PLANNING


Under the current rules, the government adds to your pension contributions at the 20% basic rate. For instance, if you save £4,000 in a personal pension, the government tops this up to £5,000. If you are a higher rate taxpayer there is a further £1,000 tax relief when your tax liability is calculated, reducing the net cost to £3,000.

Additional pension contributions can be even more effective if your income is between £100,000 and £125,140 as the gross pension contribution reduces net income for the purposes of the reduction in the personal allowance. Note that for every £2 of income in excess of £100,000, the £12,570 personal allowance is reduced by £1, with a reduction to nil where net income is £125,140 or more. This is effectively a 60% tax saving.

CAPITAL GAINS TAX PLANNING

You might wish to consider bringing forward capital gains to before 6 April 2024 where you haven’t used your £6,000 CGT annual exemption. This exempt amount reduces to just £3,000 for gains made in 2024/25.

CAPITAL EXPENDITURE PLANNING


Unless the business year end is 31 March or 5 April, the end of the tax year is not a significant date as far as capital allowances are concerned. In order for new equipment to attract capital allowances, the expenditure must be incurred on or before the end of the accounting period. Limited companies buying new (not second hand) equipment are entitled to fully expense the cost of most acquisitions against business profits. There is no financial limit on expenditure qualifying for this “full expensing” relief.

Unincorporated businesses are entitled to 100% write off for the first £1 million spent on new and used equipment in a 12-month period. This “annual investment allowance” (AIA) is also available to limited companies buying secondhand equipment. The AIA does not apply to motor cars but there is a special 100% tax relief if you buy a new zero-emissions motor car.

Where equipment is bought under a hire purchase contract, the capital allowances outlined above are available on the full cost of the asset provided it has been brought into use by the end of the accounting period. This is despite the fact that the payments may be spread over a number of months.

GET READY FOR MORE R&D CHANGES

On top of the major changes to research and development (R&D) tax relief that took effect from 1 April 2023, there are yet more changes that take effect from 1 April 2024.

The main change from 1 April 2024 is that most companies carrying out qualifying R&D will be entitled to a 20% expenditure credit. The 20% is calculated on the amount of qualifying expenditure. Qualifying expenditure is extended to include subsidised expenditure from 1 April 2024, although R&D carried out overseas will no longer qualify unless the work cannot be undertaken in the UK.

“R&D intensive” companies that make trading losses will continue to be entitled to a tax refund instead of the expenditure credit. The definition of “R&D intensive” is reduced from 40% to 30% from 1 April 2024, which means a company that spends at least 30% of total expenditure on qualifying R&D.

R&D tax relief continues to be a complex area and we can work with you to help you prepare a valid claim.

ADVISORY FUEL RATE FOR COMPANY CARS


The table below sets out the HMRC advisory fuel rates from 1 March 2024. These are the suggested reimbursement rates for employees’ private mileage using their company car.

Where the employer does not pay for any fuel for the company car, these are the amounts that can be reimbursed in respect of business journeys without the amount being taxable on the employee.

 

Engine Size Petrol Diesel LPG
1400cc or less

14p

(14p)

10p

(10p)

1600cc or less

13p

(13p)

1401cc to 2000cc

16p

(16p)

12p

(12p)

1601 to 2000cc

15p

(15p)

Over 2000cc

26p

(26p)

20p

(20p)

18p

(18p)

 

Where there has been a change the previous rate is shown in brackets.

You can also continue to use the previous rates for up to 1 month from the date the new rates apply.

Note that for hybrid cars you must use the petrol or diesel rate.

For fully electric vehicles the rate is 9p per mile.

DON’T BE LATE IN PAYING YOUR PERSONAL TAX BILL

2022/23 income tax, CGT, class 2 and 4 NIC liabilities should have been paid by 31 January 2024 unless you have agreed a payment plan with HMRC. Note that if the balance is still unpaid at the end of February 2024, a 5% surcharge penalty is added in addition to the normal interest charge unless a payment plan has been agreed.

DIARY OF MAIN TAX EVENTS

FEBRUARY/MARCH 2024

Date What’s Due
1 February Corporation tax for year to 30/4/2023 unless quarterly instalments apply.
19 February PAYE & NIC deductions, and CIS return and tax, for month to 5/2/24 (due 22/2 if you pay electronically).
29 February 5% penalty imposed on 2022/23 income tax, CGT, class 2 and 4 NIC still unpaid at this date unless a payment plan has been agreed with HMRC
1 March Corporation tax payment for year to 31/5/23 (unless quarterly instalments apply)
19 March PAYE & NIC deductions, and CIS return and tax, for month to 5/03/24 (due 22/03 if you pay electronically)

 

Cycle to Work is Good for Business.

Cycle to Work is Good for Business.

As a chartered accountant, I spend a lot of time thinking about ways to boost the financial health of my clients. I’m also a keen cyclist, and about to embark on the cycle of my life as part of a team cycling from Edinburgh to Rome in early March, some 1800 miles, to raise funds for My Name’5 Doddie Foundation*.

I’ve always enjoyed cycling. Freedom and fresh air, marvellous scenery, the sheer joy of keeping fit and healthy. As I stepped up my training through the annual January DoddieAid fitness challenge, I was reminded of the government’s cycle to work initiative and thought how my clients could financially benefit from the scheme.

A recap for those who may not be aware of it. Cycle to Work was introduced in 1999 to encourage employees to give up the car and take the bike on short trips to work or at least for part of longer commutes.

Cycling offers substantial benefits: cheaper travel, better health, increased productivity, lower congestion, improved air quality, not to mention the significant indirect benefits it brings to the NHS and society.

According to the Cycle to Work Alliance, by 2019, the scheme involved over 40,000 employers and helped more than 1.6 million commuters cycle to work.

Who qualifies?

Employers of any size and from any sector can run a Cycle to Work scheme. However, tax and National Insurance (NI) benefits apply only to staff treated as employees for tax purposes.

The scheme doesn’t include the self-employed, but specialist tax advice is available for those who wish to use cycles for business purposes.

Under the scheme, employees hire cycles and/or safety equipment from their employer or a third party in return for a salary sacrifice, leading to financial benefits for both parties if the scheme meets relevant criteria.

How does it work?

An employee who opts for a salary sacrifice for a brand-new shiny bike will see their gross salary go down. However, they save on income tax and National Insurance, while employers reduce their NI bill. It’s a win-win situation.

For example, an employee earning £30,000 per year sacrifices £1,000 for a bike, reducing their gross salary to £29,000. However, the first £12,570 (personal allowance) of their income is tax-free, so they only pay income tax on £16,430 (£29,000 less £12,570), instead of on £17,430 (£30,000 less £12,570) before salary sacrifice. 

Employee Example

Gross Salary £30,000
Salary Sacrifice £1,000
New Gross Salary £29,000
Less Personal Allowance (£12,570)
Income Tax on £16,430

 

These tax reductions can lead to significant savings, especially for higher rate taxpayers. Exact savings depend on income tax bands and the value of the bike and equipment.

Staying with the above example, an employer’s NIC is also calculated on the reduced gross salary of £29,000, which would lead to substantial savings if multiple employees participated in the scheme.

An employer who typically pays 13.8 percent in NICs saves about £138 while VAT can also be reclaimed on the purchase of bikes and equipment. And although difficult to quantify, a healthier workforce reduces absenteeism and increases productivity which is good for the bottom line.

Implementing the scheme

Setting up a Cycle to Work scheme is easier than you might think. You can either manage it in-house or partner with a scheme provider. The key is to communicate the benefits to your employees and make the process as smooth as possible. Remember, the more employees who participate, the greater the savings for your business.

Implementing Cycle to Work benefits both employers and employees. In addition to the financial benefits, it promotes a healthier lifestyle and is good for the environment.

As a chartered accountant, my advice is always grounded in numbers, and the numbers here tell a compelling story. For further information and advice, employers can check the government website for detailed guidance on salary sacrifice and other aspects of the scheme.

For me, it’s time I was back on my bike preparing for the journey ahead – where all roads lead to Rome.

Footnote:

* If you are interested in supporting the My Name’5 Doddie Foundation to raise funds and awareness of the tragic disease that is Motor Neurone Disease, which sadly took the life of Scottish rugby legend Doddie Weir, then please follow the link: www.justgiving.com/team/specsavers-dundee-doddie5

In recent years, the Foundation has organised ‘DoddieAid’, an activity based fundraising campaign led by another Scotland rugby stalwart, Rob Wainwright, beginning each year on 1st January and running to the start of the 6 Nations Rugby tournament. I have always joined in with a mix of cycling, running and walking over and above what I would normally do at that time of year, clocking up the miles and raising money for the Foundation.

This year I have been persuaded to go one step further. The Foundation is organising an extraordinary fundraising event, beginning in Edinburgh around the 3rd of March 2024 and ending in Rome on 8th March 2024. We have formed a team of 8 cyclists to complete the route over five or six days, ending at the Stadio Olympico on the Friday before the Italy v Scotland 6 Nations rugby match. Through various channels, we have already raised sufficient sponsorship to cover the logical costs of this challenge, so all our efforts can now concentrate on fundraising for the charity.

In addition to our general fundraising (modern day bucket shaking) efforts, we are holding a Dinner Dance on 2nd February in Coupar Angus, where we will have both a raffle and auction.  A list of auction items can be found on our Facebook page

Michael Fotheringham, Partner
James Milne Chartered Accountants