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What is a Pool Car? can you reclaim VAT? will it be tax free to drive?
Pool cars must meet the following conditions:
- used by more than one employee
- not ordinarily used by one employee to the exclusion of others
- not normally kept at or near employees’ homes
- used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)
Provided all these conditions are met, you have:
- no reporting requirements
- no tax or NICs to pay
To back this up it would be worth having:
- A written ‘no private use policy’
- Business Only insurance
- A mileage log to show that there’s no private mileage
When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:
- a taxi
- for driving instruction
- for self-drive hire
If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:
- exclusively for a business purpose
- a taxi, for driving instruction or self-drive hire
http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm
The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:
Masterguard Security Services Ltd VTD 18631
A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.
Peter Jackson Jewellers Ltd VTD 19474
A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.
http://www.hmrc.gov.uk/manuals/vitmanual/VIT64690.htm
What counts as private use?
Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:
- small in extent and infrequent and
- consists of either or both of:
-
- use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
- use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.
Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.
Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.
Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)
http://www.hmrc.gov.uk/manuals/eimanual/eim23460.htm
Type of Car
You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).
So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.
Change of Use
If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.
VAT Act 1994 Section 56 (9) – Fuel rules
(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.
steve@bicknells.net
Feed your innovative soul!
I am getting very excited about going to the Entrepreneurs’ convention at the Birmingham International Convention centre next week.
I am going along primarily to support a client for whom it will be excellent but I cannot help thinking I will get a terrific amount out of it too.
The programme over the two days looks exhausting and very interesting. As well as covering areas I am pretty comfortable with I am sure I will be taken well out of my comfort zone as well.
I think this is really important!
As business people we cannot afford to get stuck in a rut. We need to continue to be innovative if we want our businesses to be successful in the future – the only way to be innovative is to keep the inquisitive and inquiring sides of our brains exercised.
Meeting new and interesting people can also trigger leaps in creativity. Just talking to successful people can lead us to reach for goals we previously thought were unobtainable – because if they can do it why can’t I?
This is why I think training whether it is in the form of attending conventions and conferences such as the one above, or individual seminars and workshops; reading books or magazine articles; or just taking note of the things around us that we can emulate, is vital to any business owner.
The cost to your business could be the couple of hundred pounds it costs to do the training, or the thousands of pounds it could cost your business because you DON’T do it!
Fiona 🙂
Fiona Bevan Financial Management
How do taxi businesses account for VAT?
Generally taxi businesses use self employed taxi drivers and the taxi business provide the back office admin, radios and sometimes the cars.
There are two key types of work:
- Cash work – the passenger pays the driver when they reach their destination
- Account work – the client pays the taxi business on a periodic basis
If the taxi firm directly employs its drivers, then VAT is due on all fare income.
Where the drivers are self employed, the taxi business will often collect the income from the account work and deduct the costs for car rental, insurance, administration and radio hire (known as ‘settles’) and then pay the balance to the self employed driver.
A common mistake is that the taxi business then only accounts for VAT on the amount it retains.
HMRC will argue that the full VAT should be accounted for on the Account work and the driver should be charged VAT on the ‘settles’.
You may, depending on the terms of any written or oral contract between you and the drivers and the actual working practices of your business, be acting as an agent for the drivers for the cash work they perform, and as a principal for the work done for account customers. However, if you are to account for VAT on this basis you must be able to satisfy us that:
-
the arrangements are reflected in the terms agreed with your drivers and
-
there is a genuine difference in the operation of the cash and account sides of your business.
HMRC Reference:Notice 700/25 (May 2002)
steve@bicknells.net
Changes planned for Directors Loans
This year we had some good news for next year, the exemption threshold for employment-related loans has been increased for 2014/15 from £5,000 to £10,000, as long as the balance is below this level there is no tax charge for employees or employers.
But there could be bad news for participators (Directors/Shareholders) who have been using one of these techniques to avoid the 25% temporary Corporation Tax charge:
1. Using a Partnership or LLP where the company is a partner or member as a way to get loans
2. Making arrangements that did not qualify as loans but the where value ended up in the hands on a participator
3. Making loans repaying them within 9 months and getting a new loan, the Bed and Breakfast approach
4. Transfers of assets
5. Loans channelled through third parties
New anti avoidance rules are coming, there is a consultation paper aimed at minimising the scope for abuse and there will be new legislation in the Finance Bill 2014 and Finance Bill 2015.
Be warned!
steve@bicknells.net
The tax benefits of goodwill on incorporation?
Lets start with a typical scenario:
- Mr Smith has been running a small garage for a few years
- he decides to incorporate his business and sets up Smiths Garage Limited with himself as the sole director and shareholder
- he transfers the goodwill of the business and its other assets and liabilities to Smiths Garage Limited but does not claim incorporation tax relief under Taxation of Chargeable Gains Act (TCGA) 1992, s162, nor does he claim hold-over relief under TCGA s162
- at the time of incorporation, the goodwill of the business is valued at £100,000
- Mr Smith makes a chargeable gain on the transfer of the goodwill, which is deemed to be at market value, of £100,000 which, after deducting the annual CGT exemption (£10,900 2013-14), will be taxable at 10% due to the availability of entrepreneur’s relief
- the company will pay Mr Smith £100,000 for the acquisition of goodwill and this is done by way of a credit to Mr Smiths director’s loan account. Mr Smith is able to draw down on this account without any further tax charges.
In addition Mr Smith started his Sole Trader business after the 1st April 2002 so he can claim a corporation tax deduction for amortisation of the goodwill in the company accounts. Small Companies pay Corporation Tax at 20%, so being able to deduct Goodwill on £100,000 will save £20,000 in Corporation Tax.
However, please bear the following in mind:
- If the business started before 1st April 2002, Corporation Tax Act 2009 s895 prevents the company from claiming a deduction against corporation tax, also refer to HMRC Spotlight 1: Goodwill – companies acquiring businesses carried on prior to 1 April 2002 by a related party
- Where a trader transfers his business to a limited company of which he is a ‘substantial shareholder’, the parties are treated as ‘related parties’ and the transfer must be at market value, but you can ask HMRC to carryout a post transaction valuation check by submitting form CG34
- Goodwill relating to personal services is not normally considered to have a market value as it can not be transferred
- In general it is expected that intangibles will have a useful life of no more than 20 years
- Get professional advice to help you to prepare the valuation, disclose the capital gain and claim the tax relief
steve@bicknells.net
Should a subcontractor Zero Rate supplies to a housing main contractor?
This question comes up on a regular basis because it has cash flow implications for the main contractor.
If a contractor constructs a new building they will normally have to charge VAT at the standard rate. The contractor may, however, be able to zero-rate your supply if they are involved in constructing a qualifying building. A qualifying building can be:
- a building ‘designed as a dwelling’ ;
- a building that will be used solely for a ‘relevant residential purpose’ ; or
- a building that will be used solely for a ‘relevant charitable purpose’ (for non-business use or as a village hall).
If the building qualifies the client issues a certificate to the Main Contractor (section 17 of Notice 708)
| This certificate has the force of law. |
|---|
| Certificate for zero-rated and reduced-rated building work. |
| 1. Address of the building: |
| 2. Name and address of organisation receiving the building work: VAT Registration number (if registered): Charity registration (if registered): |
| 3. Date of completion (or estimated date of completion) of the work: Value (or estimated value) of the supply: £ Name, address and VAT registration number of building contractor: |
| 4. I have read the relevant parts of Notice 708 Buildings and construction and certify that this organisation (in conjunction with any other organisation where applicable) will use the building, or the part of the building, for which zero-rating or reduced-rating is being sought solely for (tick as appropriate ): a relevant charitable purpose, namely by a charity in either or both of the following ways: otherwise than in the course or furtherance of business or as a village hall or similarly in providing social or recreational facilities for a local community a relevant residential purpose, namely as: (a) a home or other institution providing residential accommodation for children (b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder a hospice residential accommodation for students or school pupils residential accommodation for members of any of the armed forces a monastery, nunnery or similar establishment or an institution which is the sole or main residence of at least 90 per cent of its residents and will not be used as a hospital, prison or similar institution or an hotel, inn or similar establishment. |
5 I certify that the information given is complete and accurate and acknowledge that if the building, or the part of the building, for which zero-rated supplies have been obtained, within a period of 10 years from the date of its completion:
a taxable supply will have been made, on which this organisation will have to account for VAT at the standard rate. . |
| General warning 1. HMRC reserves the right to alter the format of the certificate through the publication of a new notice. You must ensure that the certificate used is current at the time of issue. Warnings for the issuer 2. You may be liable to a penalty if you issue a false certificate. 3. You are responsible for the information provided on the completed certificate. Warnings for the contractor 4. You must take all reasonable steps to check the validity of the declaration given to you on this certificate. 5. This certificate does not automatically confer zero-rating or reduced-rating on your supplies. You must check that you meet all the conditions for zero-rating or reduced-rating your supply – see Notice 708 Buildings and construction. |
However, the main contractor can not issue certificates to its subcontractors…
16.4 Should subcontractors accept certificates?
No. If you are a contractor working to a main contractor, you should not be issued with a certificate. You must always standard-rate your supply when working on a certificated building.
This means the Main Contractor has to pay the VAT to the subcontractors and then recover the VAT on its next VAT return which for smaller Main Contractors can cause problems.
steve@bicknells.net
Buying small businesses: 7 pitfalls to avoid
For large corporates and big banks the process of buying and selling businesses, or “M&A”, is part of daily life. But for small business owners and entrepreneurs this is a major event. It’s vital to get it right. And so easy to get it wrong.
Forgetting the tax implications
A buyer needs to consider the tax position of the company or group after acquisition and its plans for the future. Is there a chance that the new business may be re-sold in the future? Are there tax losses anywhere in the group? Have you considered that having an additional company in the group will reduce the threshold at which you become a large company for corporation tax purposes?
Not considering all the options and potential outcomes fully in advance can lead to painful tax consequences further down the line.
Assumptions around cross-selling
There’s a massive bonus in putting two businesses together. Each business will suddenly have access to the other’s customer base and hence sales in both companies will show a significant boost. Right?
Wrong. Assumptions around cross-selling are often over-egged. Just because a customer buys product A from you does not mean you will be an automatic choice for service B. Products may need tailoring for different markets. Sales staff may need training in both product sets. The sales approach, sales cycle, and the customer contacts, may all be different. Sales staff from the acquired business may be reluctant to let your salespeople talk to “their” key contacts, and vice versa.
Cross-selling can be a major advantage, but it does require an obvious fit between the products and customer base, and careful planning. Don’t just assume it will happen.
Over-promising to investors
It’s an exciting time. Your business is going well and your proposed acquisition has significant potential. You’re both experiencing sales growth and there are obvious synergies from consolidating back-office functions. You need to sell the deal to investors – banks, VCs, EIS business angels. It’s easy to get carried away.
There will be unforeseen changes and unexpected delays. Not everything will go to plan. Investors will understand this, and will give you credit now for identifying these risks and building them into a cautious forecast. They won’t thank you for using them as excuses later when you don’t quite meet your optimistic plans. Even if you’re not far off the forecast.
Give yourself every opportunity to exceed your forecast and under-promise, over deliver.
Poorly conceived earn-out
Earn-outs create natural tension between the buyer and seller. Don’t let a poorly structured earn-out exaggerate this tension. Particularly if the seller is remaining part of your enlarged business going forward.
If profits in the remainder of the current year are important to you, make sure the earn-out targets reflect that. Basing the earn-out on the next full year alone creates an unnecessary conflict of interest. If the seller’s business is highly dependent on the sellers remaining in the business, make sure the earn-out keeps them locked in for as long as you need to ensure a proper transition of knowledge and relationships.
Insufficient restrictive covenants
In owner managed businesses the seller is often a vital part of the business. It is one thing to persuade them to stay on after the acquisition. What’s to stop them leaving you after a year or so and setting up in competition – or worse, taking staff and customers of the business you bought?
Under normal employment law, the ability to prevent a former employee competing with you is heavily restricted under restraint of trade rules. However restrictive covenants agreed as part of a business sale, can be far stronger. Make sure you take advantage of this.
Poor integration
80% of acquisitions fail to achieve the benefits intended and fail to create value for shareholders. Where they fall down is in the execution.
The right pace and strategy for integration is key. Impose your systems and processes from Day 1 and you lose any potential benefits of the target company systems. Staff have to learn new systems quickly, possibly unnecessarily, and goodwill can be lost. Integrate too slowly and you don’t get the synergies or control that you need, and you lose the all too short window when both your new and existing staff expect things to change.
Communication is vital. Even top performing staff can get paranoid about non-existent plans that affect their role if you don’t communicate your plans. However benevolent your plans, staff will often fear the worst. And what is the seller saying to their former employees – either in the business or down the pub?
Limiting due diligence to the financials
Of course, proper due diligence is needed. You have to assure yourself that there are no hidden liabilities, that the seller’s financials represent a true and fair view and that the projections are realistic. Good legal and financial due diligence is essential for most acquisitions.
But in smaller and medium sized companies, it can be the softer less tangible areas that cause problems for your enlarged company further down the line. How well do you know the management team? Are their values and aims truly aligned with yours? Have they bought in to your strategy or are they just paying lip service? What is the history and culture behind the business? What is the role of and relationship with any non-management shareholders?
Miss something here and your new acquisition could turn out to be an expensive mistake.
Expenses – There’s an App for that
Keeping track of income and expenses can hard when you are busy so why not try using a phone app? HMRC suggest the following:
| Software supplier | Product | Platform |
| Forbes Computer Systems Ltd (Opens new window) | Forbes Receipt Keeper | Android |
| FreeAgent Central Ltd (Opens new window) | Earnest | iPhone, iPod touch, iPad |
| Immagini Ltd (Opens new window) | ZipZipBooks | Android |
| Intuit (Opens new window) | MyBizTracker | iOS (iPhone, iPod touch) |
| Mr Tax Software Ltd (Opens new window) | Text 2 Save Tax | Android. |
| Quick File Ltd (Opens new window) | Quick File | All – free web-based application |
| Sage (Opens new window) | Sage Record Keeper | iPhone, iPad iOS |
| 123 Tax (Opens new window) | 123 Tax application | Windows Phone |
I have been trying out the Sage Record Keeper Mobile on my iPhone, its pretty good for free, here is an overview:
- Record cash in and cash out
- See your balances at a glance and track CIS deductions – Standard or Higher Rate
- You can even take photos of your receipts – no longer worry about losing them- multiple photos if needed
- Estimate the current year’s tax and refer back to previous ones (up to 6 years)
- Quick links to record income and expenses in seconds
- Enter details, specify type of payment used and add notes
- Add and customise tags for transactions to group them into categories
- Add several tags to each transaction
- Search and filter by category, supplier / customer, amounts or other details
- Backup your information using iCloud
For use outside of the app you can export all or just a selection of transactions and photos as CSV and image files. They’re automatically attached to an email for sharing with anyone.
So no excuses, use your phone and stay organised.
steve@bicknells.net
How do you define Value?
The simple answer is you don’t, its your client that decides what Value is and what it means to them.
We can give it mathematical definition its
Value = (Tangible and Intangible Benefits) less (Price plus Usage plus Disposal Cost)
There is a theory that Value is made up of 3 elements
- Revenue Gain
- Cost Reduction
- Emotional Contribution
These are the elements that determine the value to the client.
These elements became the Value Triad documented by Harry Macdivitt, Mike Wilkinson here is a link to their work on Value Based Pricing
Once you understand what value is, then you can prepare your Value Proposition.
A business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.
http://www.investopedia.com/terms/v/valueproposition.asp
The question for us is: what are the critical differences between us and the competition and how does this influence the value we offer? Our success in meeting those requirements is based on the differential value of our product or service offering.
CIMA list the following ideas about how to differentiate in their article Building Value Through Differentiation
- Consistency
- Convenience
- Customised Services
- Combinations (collaboration and package deals)
How do you determine the value of your products and services?
steve@bicknells.net
Crowdfunding – How Social Media is helping businesses to get funding
Here are some examples:
- In 1997 British rock group, Marillion, raised £38,000 from its fans to pay for its US tour. They then went on to use the same method to fund several albums
- In 2010 Hotel Chocolat offered 3 year, FSA approved ‘chocolate bonds’ to its 100,000 tasting club members. Customers were invited to invest £2,000 for a gross annual return of 6.72%, or £4,000 for a return of 7.29% which were paid in regular deliveries of chocolate. The Bonds raised an incredible £3.7m for the company.
- In 2011 Caxtonfx (foreign exchange) raised £4m from its bond issue
- In 2012 Mr & Mrs Smith (travel website) started the process of raising £4m from a 4 year bond with cash interest of 7.5%, or 9.5% if the ‘Smith loyalty money’ option is taken
- In 2012 Pebble Technology, a Palo Alto based smart watch company used Kickstarter.com to raise $10m against forward sales of its Pebble watch
According to Simon Dixon, to be successful in crowdfunding there is a simple formula £££ = R + SC + E
Where the money raised depend on the strength of the rewards your offer (R), how much social capital you have (SC) and the emotion attached to your story (E)
Its early days, but could this be the future for some businesses, using their fans and contacts to access funding. Social Media and the internet are definitely playing a part in moving this forward.
steve@bicknells.net
Business Accountant 