Taxation Practices for the Country - Assignment Example

TAXATION ASSIGNMENT 13 You are acting as tax adviser to Mills Ltd, which has a year end 31st March, and have been asked, by the Personnel Manager, to write a report relating to the benefits package offered to certain grades of staff. In particular he requires information on the following items. 1.Cars 1 The Personnel Manager is reviewing the company’s position regarding the provision of company cars and needs to know the general changes that are proposed to the taxation of company cars, both for the company and for the employees, for the next few tax years. 2 From 6th April 2012, certain mangers are to be offered a petrol driven 5 door hatchback, with CO2 emissions of 139g/km. The list price of the car is £18,000, including VAT, but the company has negotiated a 15% discount off this list price. The company will pay for car tax of £120, insurance and servicing of the cars. The insurance for each car, on the company’s group insurance policy, will be £400, and the other running costs (excluding fuel for business mileage) are estimated to be £300 per year. In addition, a manager can opt for a £500 annual reduction in their salary, and in return receive petrol for private motoring. You have been asked to calculate the total cost to the company of purchasing and running one of these cars (excluding petrol), and the Capital Allowances available for the year ending 31st March 2013. In addition, you are required to calculate the benefit in kind for each manager, and hence the cost of the car to a manager whose marginal rate of income tax is 40%. Also, set out the facts that each manager needs to take into account when deciding whether to accept the petrol for private motoring. 1.3 The Marketing Director’s son (aged 18) has recently passed his driving test, and he is keen to provide the son with a car. An acquaintance has told him that it would be cheaper for the company to provide the car, especially if it were a low-emission car. The Director has identified such a car, and it has list price of £9,600, including VAT. It has CO2 emissions of 99g/km, and it is petrol driven. The cost to add the son to the group insurance policy would be £500, the servicing costs are estimated at £300, and the car tax would be £0. The Managing Director’s marginal rate of tax is 50%, and there is no discount available to the company for purchasing this car. The Personnel Manager has asked you to explain why it may be cheaper for the company (rather than the Director to provide a car privately) to provide a car for the son, and if the company does so provide the car, to investigate the costs (both for the company and the Managing Director) and Capital Allowances available for providing the car for his son. 2. Vans The company has 2 vans of less than 3,500kg. The drivers commute from home to work in these vans each day, as they are allowed to keep them overnight at home. All fuel for the vans is paid for by the company. The drivers have both signed a declaration to state that they do not use the vans for private use apart from driving to and from work. However, one of the drivers has asked if he can use the van to move house, and it has been discovered that the other driver regularly uses “his” van to take items to the dump at weekends. You have been asked to explain the consequences of this private usage. No benefit in kind has been assessed on these drivers at present. 3. Provision of Staff Lunches. There is a cafeteria available for staff, with a separate dining area for directors and senior staff. Meals have been provided for many years to all staff at cost price, but the company is now investigating offering the meals in the senior dining room (only available to senior managers and directors) free of charge. Explain the tax consequences of this course of action. Ignore VAT This assignment is subject to ratification by the external examiner Assignment guidance notes The report should be between 1,300 and 1,800 words in total. You are required to reference this Report as if it were an academic article by using the Harvard method. Your sources must be correctly referenced, and if you use a direct quote (ie copying sentences or paragraphs from existing material) these must be placed in quotation marks. Failure to reference is plagiarism and subject to the sanctions set out in the University’s policy on plagiarism. Reports must be word-processed. Completed assignments must be handed in to TC375 by noon on 2012 (end of week ). In addition, an electronic copy must be submitted via Blackboard for plagiarism checking. Paper copies will not be marked unless an electronic copy is also submitted by the due date and time. Please note that the University’s software checks against published sources as well as other assignments, submitted both to this University and to other Education Establishments. You will be able to submit draft copies of your assignment from 2 weeks before the due date and view the “originality report” which will indicate the similarity your assignment has with other sources. If the report indicates that your draft is not sufficiently original you will have the opportunity to re-draft it and view the revised report. You can do this as often as you like up to the due date. You will not, however, be able to submit through Blackboard after the due date. You must in any case submit your paper copy to TC375 no later than the due date. The paper copy that you submit to TC375 must be identical to your final version submitted electronically. If you submit via Blackboard at the last minute, and your originality report indicates a high degree of similarity with other sources, you will have no opportunity to revise it and must therefore submit a paper version as it is. Obtaining a last minute originality report which indicates your assignment may be too similar to other sources will not be accepted as a reason for an extension or late submission. Where an electronic draft has been submitted on or shortly before the due date and no final paper version has been submitted on time the last electronic version may be taken as your final submission and where appropriate put through the University’s plagiarism procedures. If, exceptionally, you have agreed an extension in advance for valid medical or other reasons and are submitting after the due date you must submit through TC375 and also ensure that an identical electronic copy reaches the module leader, Josie Adams. This assignment contributes 40% towards your total module mark. Calculations should be enclosed as appendices to the report. A bibliography must be included with the assignment All the Learning Outcomes, as set out in the Module Study Guide, are covered by this assignment. Marks will be allocated as follows: General advice relating to Company Cars 20 marks Managers cars 20 marks Car for Marketing Director’s son 15 marks Company Vans 15 marks Lunches 10 marks 80 marks Presentation 10 marks Bibliography 10 marks Total 100 marks Suggested readings: Deloitte. Changes to the cost of providing company cars and private fuel. http://www.ukbudget.com/ukbudget2012/business/ukbudget2012-business-changes-to-the-cost-of-providing-company-cars-and-private-fuel.cfm hmrc. Company Cars http://www.hmrc.gov.uk/cars/index.htm hmrc. Company Vans http://www.hmrc.gov.uk/vans SOLUTION Taxation practices for the country is very crucial to integrate with the decision making process. This factor can smooth the business operation with more cost effective strategy, so that budget activities can be 100% optimum for the company. With the progression of year end the company manager’s have to think of changing the existing vehicles operating for the companies for good number of years. In rush, manager can think of buying, but it is wise to check the tax obligation relating to the car and fuel usage made by the government. Some option relating to the car may reward tax redemption. The point of ponder arises, regarding the decision making whether to trade in the old or existing cars or better to sell off in exchange of cash. Therefore, if car is used for business executive’s transportation, important tax factors also may need to consider for decision making process. Purchasing cost – {18,000-(18,000x.15)}= 15,300 Tax 120 Insurance 400 Running cost 300 ……………………………………………………….. Total cost for one car 16,120 As per given estimation if the company decides to purchase car for the genral use of the stuff can be taken as a consideration while pay cut also will be included. To be cautious about the quality and safety environment in the working environment it is to be admitted that purchasing car would be suitable decision for the general purposes where many can board and attend at workplace at due time. Again for the manager’s car it will not be wise to purchase car where the tax amount is 50%, it is best to accept petrol for motoring. Due to competitive global market, cost of production has to be cheap with the competitive cheap labor forces. In such extent, taxation option to be harnessed in precise extent so that the cost effectively business operation can give proper sustainability. There are tax charge , for the employment, a car is made available to and is available for private use of a director or an employee earning 8,500 pound a year or more, to a member or family household. In this case we can actually observe the high tax rate which can keep the company’s decision not optimized. On the other hand, there is a further tax charge if free or subsidized fuel is provided for private use in a company car. In this rule we can understand that the personal mileage has t be reduced for the company car if the executive’s are taking for the use. In case of son of managing director this law can interferer where we can see the additional tax will be imposed if the son’s inclusion in the company cars allotment. This provision will cost the company extra than average tax rate for the stuff top use the car’s can charge high for the company to incur cost eventually in the competitive business operation. There is also a tax to be imposed in case of Company van, because of their employment analysis. Since 2007/08, there is a further tax provision if free or subsidized fuel is provided for private use in a company van.   There is a tax charge where, because of their employment, a van is made available to a director or an employee earning £8,500 a year or more, or to a member of their family or household, and the van is actually used privately (a ‘company van’; until 2004/05, a van which is available for private use, whether or not any actual use is made of it. This provision will restrict the usage of company van and the asset utilization can be precisely maintained for the company. The cost of van which will be incurred by the company, must serve the purpose of the company in full extent than any other source of assignment for the usage. It is also mentioned that if the company van mate available for the employer but still used for the private than commuting. Employees will be liable pay tax for the benefit of it, if they are facilitate for journeys. This approach can clarify and shape the usage of van for the company and how it should be precisely utilized for loan. This is very important to understand this rule so that we can understand all the provision requires to explain the benefit and rule by the taxation. The considerate rates that presents for zero range to and ultra low carbon cars until 2014-15 will be replaced with 13% in 2015-16 and 15% in 2016-17. The 3% supplement for diesel cars will be removed from April 2016. The Government also declared that certain security enhancements will be excluded from being treated as accessories for the purpose of calculating the cash equivalent of the benefit on company cars made available for private use. The yardstick have a spread out effect, with private fuel having an immediate impact from April 2012 and capital allowance and lease rental restriction consequences from the effective date of April 2013. Very efficiently the multiplier effect also traced by the taxation system which placed strictly held to calculate the cash equivalent of the benefit of free fuel provided to employees will increase from £18,800 to £20,200 from April 2012. The Government has also stated that there will be a further increase to this multiplier for 2013-14 by 2% above the rate of inflation, this will obviously hedge all the inflationary rise of public budget to contribute in public expenditure. Most Influenced person are the employers who buy or lease cars that are made available to their employees for business and private use. Also employers who provide fuel for private use to company car drivers as a benefit of their compensation and additional services will be effected by this taxation. Eventually, employees in receipt of a company car and private fuel are the last group of influenced. The period through which 100% first year capital allowances are available on expenditure on cars will be extended until April 2015. However, from April 2013 the emissions threshold will decrease from 110g/km to 95g/km. From April 2013, the threshold for expenditure on cars to fall into the main pool (annual rate at 18%), rather than the special rate pool (annual rate at 8%) decreases from 160g/km to 130g/km. In alignment with this, tax exemption available to employers is restricted (at 15%) on the lease rentals for cars with emissions over 130g/km. This will benefit the company to utilize the capital allowance to motivate the employees as well as keep with optimum utilized stage of asset utilization. Alsoi the rule included that VED rates will rise along with the Retail Prices Index (RPI) from April 2012. The Government will observe the interest of motoring groups and consider whether to reform the calculation of VED over the medium term can assist or benefit the company as well as the government policy with public interest. There are a number of amendment to the taxation of company cars, all aimed at increasing the tax charge suffered on cars with higher beneficial. This change is to present the right treatment of the vehicles between the employer and employee. The Government has estimated that the additional cumulative tax revenue to be collected from changes that come into effect from April 2012 will be c£3bn over five years. This means that businesses should review their current fleet arrangements and particularly the carbon footprint in order to manage costs and other area of environmental stability with economic speed. In 2012 , they have mentioned about the tax regulation became strict, this expense can be non allowable expense, which government has assumed to be possible to be fraught. This cost of lunch, cannot be place for the allowable expenses under the tax assessment. As a result, the treatment of the company would be much tough than the average time treatment. From the overall assessment we have understood the taxation change and their influence to the particular group and the asset like cars, van and their usage in greater extent. How the employer will be taxed and how would be employee to pay tax for their benefit is the clear guidance in this paper. It has also clearly mentioned how the capital allowance and carbon emission sensitivity included in this taxation. For the lunch which considered not allowable expenses for tax anymore can affect corporate hospitality in the long run. References: ‘Company car or car allowance?’ Moneywise Magazine, accessed 4th December 2012 from http://newpf.iii.co.uk/articles/articledisplay.jsp?article_id=6947547§ion=Planning&catEnforce=Budgeting E. B. White, ‘“Everything in life is somewhere else, and you get there in a car.” Company car taxation accessed 4th December 2012 from http://www.harbinson-mulholland.com/pages/view/company-car-taxation Read More