Capital Allowances and Lease Rental Restriction - Assignment Example

?QUESTION ONE The general changes that are proposed to the taxation of company cars, both for the company and for the employees, for the next few taxyears. For all the cars emitting over75b/km of carbon dioxide, the Government has increased a one percentage point on top of what was to be charged in 2013 and before, which will be in force from 2010 to 2015 and whose maximum is 35 percent. In addition, a two percentage point will be charged up to a maximum of 37 per cent for the periods 2015-2016 and 2016-2017. The special rate that is charged in respect to very low and the zero emission carbon cars lasting up to 2014-2015 will be substituted with 13 percent in 2015-2016 and 15 percent in 2016-2017. Starting April 2016, the 3% supplement for diesel cars will be scrapped (Deloitte, 2012). The other important adjustments that have been made include exclusion of certain security enhancement, which will not be considered henceforth, as accessories when estimating the benefit’s corresponding to the cash value in respect to company cars used for private purpose. These adjustments will be put into force from 6 April 2011 and will be applied retrospectively. Private fuel benefit The benefit’s cash equivalent in respect to free fuel offered to employees will increase because the multiplier used to estimate them will be increased from ?18,800 to ?20,200, a change that took effect from April 2012. Furthermore, this multiplier will further increase by 2 percent above the inflation rate, taking effect from 2013 up to 2014. Capital allowances and lease rental restriction There shall be an extension (up to April 2015) of the time through which 100 percent of capital allowances for the initial year are allowed on car expenses. Nonetheless, starting April 2013, the emissions measurement will drop off from 110g/km to 95g/km; in addition, this measurement will be incorporated into the main pool and charged 18 percent per annum instead of 8 percent special rate pool, which will drop off from 160g/km to 130g/km. In this regards, tax relief extended to employers will be pegged on the lease rentals for cars whose emission exceeds 130 g/km (limited at 15%) (Deloitte, 2012). Vehicle Excise Duty (VED) The VED increase was aligned with the Retail Prices Index (RPI) as of April 2012. However, the Government expressed interest in repealing the calculation of VED over the medium term based on the views gathered from motoring groups (Deloitte, 2012). QUESTION TWO Petrol driven 5 door hatchback, with CO2 emissions of 139g/km Employee benefit from car = ?18,000* 85/100*40/100*18/100 = ?1,101.60 Since the employee is provided with fuel for private use of the company car, this benefit will be taxed. The value to be taxed is pegged on the engine’s fuel efficiency. The percentage charge for this benefit is the same as for the car benefit and, therefore, it will be calculated as follows: . ?20,200*40/100*18/100 = ?1,454.4 The total cost to the manager is ?1,101.60 +?1,454.4 = ?2,556 Although the fuel benefits have attracted some tax, I would urge the manager accept petrol for private motoring, which is provided by his employer because this will lead to some other benefits. These benefits, which are not additionally taxed include insurance, repairs, maintenance and servicing, Membership of a motoring organization, and road tax. Ideally, the cash value of these benefits is more than the car tax paid due to the fuel used for private purpose. As such, the employee will get at least ?600 per annum depending on the reliability of the vehicle. However, if the manager is sure that refusing to take the fueling benefit will not lead to insurance increases, then they can as well opt to do away with the benefit. Cost to the employer Capital allowances Twenty per cent is claimed on the written-down cost every year; therefore, the following capital allowances will be claimed for the year ending 31st March 2013: The car does not fall under low-emission category since it exceeds 110g/km of CO2 and, therefore, the 110 per cent deduction for the first one year does not apply. The cost of the car less discount = ?18,000-(0.15*18,000) = ?15,300 Other costs (120+400+300 = ?820) Total costs = ?16,120 each car/year Capital allowance = 20/100* 15,300 = ?3,060 QUESTION THREE The Marketing Director’s son (aged 18) Since the car has been made available to the Managing Director for use by one of his family members, it will be assumed to have been acquired for the purpose of employment and, therefore, this will be cheaper because it will attract some tax allowances. Furthermore, if it were to be acquired by the Managing Director, it could have been very expensive because it would have been taxed on his tax bracket, which is relatively high (Director’s Briefing, 2011). Costs for managing Director Taxable benefit = 50/100*10/100*?9,600 = ?480 Other costs = (?500+?300) = ?800 Cost to the company List price =?9, 600 Capital allowance (For the first year) = 100% * ?9,600 = ?9,600 (TAX DATA, 2012/13) QUESTION FOUR - VAN If a company provides a van for the employees and then they use it for ordinary commuting, then it is not considered as a benefit in kind and, therefore, it is not taxed. However, if the employee decides to use the van for private purposes, it is considered as a benefit in kind and should be assessed for tax purpose. Notably, if the private use is insignificant, then it is not assessed for tax purposes. Whether the private use of the two employees should be assessed, therefore, will depend on whether their use is significant or insignificant. Apparently, the driver who is asking for the van to move house should understand that this is a significant use of a company van for private purpose and hence should be treated as a benefit in kind. The other driver who has been using the van regularly to dump items at weekends should also understand that this is a significant use of a company van for private purpose and hence, should this be known by the company, it should be assessed for tax purpose because it will be treated as a benefit in kind. The fact that dumping is done on a regular basis; that is, every weekend makes it significant, otherwise if it was done once it could have been exempted. The first driver should also understand that moving a house is an expensive affair and hence very unlikely to be treated as ‘insignificant’. Ideally, the two drivers should realize that the ‘insignificant’ use is whereby the personal use of a company van, which is not included in the normal personal usage, lasts for a while and it is done on an irregular basis. A good example to illustrate this exemption is whereby a driver makes a small trip to purchase a newspaper as they head to work. In view of this, and provided that the drivers earn more than ?8,500 per year, they will be required to report on form P11D and to pay the value of the benefit equivalent to the pay Class 1A NIC. QUESTION FIVE- Provision of Staff Lunches. Before the changes, all the employees were required to pay for their meals at the canteen. In this case, this could not have considered as a benefit in kind because the meals were offered at a cost. Supposing the meal was provided for free to all employees without discrimination, then this could have been treated a tax free benefit in kind. However, since this offer was only extended to the directors, it does not fall under the category of tax free benefits in kind. For this reason, the directors will be assessed for this benefit for tax purposes. In this regards, if the directors are earning above ?8,500 or more, then they will be required to report on section M of form P11D and henceforth disburse Class 1A NIC s benefit value (HM Revenue & Customs, 2012). References Deloitte, 2012. Changes to the cost of providing company cars and private fuel [Online] Available at [Accessed 5 December 2012]. Director’s Briefing, 2011. Company Cars and Tax. [Online] Available at: < http://www.businessandpatents.org/content/files/TA4CART%284%29.pdf> [Accessed 5 December 2012]. HM Revenue & Customs, 2012. Meals for employees and directors. [Online] Available at: http://www.hmrc.gov.uk/paye/exb/a-z/m/meals.htm [Accessed 5 December 2012]. TAX DATA, 2012/13. Capital allowances. [Online] Available at :< http://www.sayersb.co.uk/tax%20rates/allow.html> [Accessed 5 December 2012]. Read More