Q: I understand that I can claim tax relief for using my own vehicle for work. My employer currently only reimburses me 20p per mile whilst on business travel. Can I claim  more and how do I do it?

Michael, London

A: If you use your own vehicle for business travel as an employee, you are entitled to receive tax free payments of up to 40p per mile for the first 10,000 miles in the tax year and 25p thereafter.  These rates have been agreed under the HMRC Approved Mileage Allowance Payments (AMAPs) scheme.

In order to qualify, the journeys you undertake must be made in the course of doing your job, for example delivering goods or visiting customers. Any private journeys unrelated to work, including most travel from home to work, cannot be paid tax free.

If your employer reimburses you at a rate less than the tax free amount, you are entitled to claim Mileage Allowance Relief (MAR) on the difference. You will therefore be entitled to claim an additional 20p per mile for the first 10,000 miles you travel for business in the tax year, and a further 5p per mile thereafter. If you pay tax at the higher rate of 40p, this equates to a tax reduction of 8p per mile for the first 10,000 miles and 2p per mile thereafter.  A basic rate tax payer would see reductions per mile of 4p and 1p per mile accordingly.

To claim tax relief, you can include details on the employment pages of your self assessment tax return. If you are not required to fill out a tax return, you can write to HMRC to make a claim, or complete and file a form P87. Your local TaxAssist Accountant can help with its preparation.

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Tax Savings Help & Advice from TaxAssist Accountants

Q: Despite the recession, my company has grown this year and for the first time I am looking to provide a Christmas party for the staff.  One them has said they would like to bring their partner, can you explain the tax treatment for this?

Edward, Glasgow

A: Staff are normally taxed on benefits provided by their employer, but there are rules to allow employers to provide some benefits free of tax.  Staff parties to the value of £150 including VAT per head can be provided over the course of the tax year without there being a taxable benefit for the employee providing that certain criteria are satisfied.  

Firstly the party must be open to all staff, even if they choose not to attend.  Secondly the £150 per head covers the costs of the venue, food, entertainment, transport and VAT.

An additional £150 can be spent on each guest, providing that all staff are allowed to bring a guest.  Care should be taken not to exceed the £150 limit on one single event, as this will trigger the whole of the amount spent being taxed not just the excess.

On top of this tax deduction, the input VAT you incur on providing the Christmas party can be recovered, a saving of almost 15%.

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Limited Company tax planning advice from TaxAssist Accountants

Q: I recently attended a charity auction and purchased a number of items. As a higher rate tax payer, if I had made a cash donation I would be entitled to tax relief at 40%, so am I able to claim tax relief on these purchases in the same way?

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Tax Tips & Advice from TaxAssist Accountants

Q: With Christmas fast approaching, I want to reward my employees for their hard work throughout the year. I know if I pay them a bonus I will need to account for income tax and national insurance through the PAYE scheme, but I actually want to purchase my staff presents rather than give cash. Do I still need to account for tax and national insurance on this and if so, could I settle the liability on their behalf?

Anna, London

A: If you make a voluntary agreement with the Inspector of Taxes, you can arrange to settle the tax and National Insurance on gifts purchased for your staff on their behalf.  Known as a PAYE Settlement Agreement (PSA), this is often a much cheaper and simpler way of giving employees gifts.  Once you have a signed agreement in place for a tax year, you do not have to provide details of the gifts, but instead pay Class 1B National Insurance on the value of those gifts and meet the tax liability on the total amount.

Without a PSA, your employees will be taxed on their gifts.  Tax will be charged based on the value of the gift as it is classed as a P11D benefit in kind. If you give staff vouchers that can be exchanged for goods or services, you will have to pay both employees' and employers' Class 1 National Insurance (11% and 12.8% respectively) through the monthly payroll.  If you provide goods such as a Christmas hamper, you pay Class 1A National Insurance (12.8%) in April next year on the market value of the gifts made.

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PAYE Advice from TaxAssist Accountants

Q: In addition to our annual staff Christmas party, I would like to treat my employees to a Christmas lunch as a thank you for their hard work and commitment this year.  Can I claim the costs for the lunch as a business expense and what are the implications on the employee?

Amy, Ipswich

A: The cost of providing the Christmas lunch for staff will be a tax deductible expense for your business. However you will need to consider the benefit in kind rules for the employees.

If the employer provides employees with one annual function, no charge to tax arises if the cost of the event per head does not exceed £150. It is important that you must provide this event to all employees, and cannot just provide it to a select few, as this will not be covered by the exemption.

As you will be providing two functions, then you must aggregate the cost for each employee, and if this does not exceed the limit no benefit in kind will be assessed. The figure of £150 is not an allowance, and if the employee chooses not to attend the meal or party, they cannot receive the allowance in cash tax free.

You should be aware that if the combined costs, including VAT, exceed £150 per head, then a benefit in kind is assessed on full cost of the event which exceeds the limit, as it is not just the excess over the exemption which is chargeable.

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Taxation Help and Advice from TaxAssist Accountants

Q: I am a director of a small limited company and want to make a donation to a local children's hospice this Christmas. Can you advise on the best way to do this?

Ellie, Norwich

A: Assuming that the children’s hospice is a registered charity your company will get corporation tax relief on the donation.  For small companies (profits below £300,000) the rate is 21% for the tax year to 31 March 2010. To get the tax relief, the company simply makes the payment to the charity and deducts the amount as a 'charge' when working out its profit for corporation tax purposes.

Unlike the gift aid scheme for individuals, your company will make the full payment to the charity. You do not need to deduct any tax from the payment and the charity does not claim back any tax on the donation it receives.

You are no longer required to provide a Gift Aid certificate to the charity or provide a new form of declaration, however it is recommended that you retain evidence of all the charitable donations made in the year.

If your company does not have a corporation tax liability in an accounting period where donations are made, there are special rules that determine how any loss created by the donation can be used. Your local TaxAssist Accountant can provide further details on this treatment.

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Limited Company Tax Advice from TaxAssist Accountants

Poor payers can seriously impact on your company's cash flow

Keeping cash flow going in our current economy is key, so small businesses that are afraid to play hard ball with late paying clients run the risk of becoming victims of the recession.

The threat of incurring monetary penalties on unpaid bills is often the best incentive to persuade business clients to pay.  Businesses have a legal right to claim interest from late-paying business customers, but not individuals. Until the end of the year, businesses have a statutory right to charge an additional 8.5% in interest on top of unpaid bills.

The statutory right to charge late-paying business customers interest applies to contracts which do not already include their own arrangements for 'substantial' interest. If there is no agreed credit period in the terms of business, the law sets a default period of 30 days. Interest can be charged 30 days after goods are delivered, the service is provided, or after the purchaser is notified of the amount of the debt - whichever happened latest.

Although you do have a legal right to enforce your debt and add interest, this can have a negative effect on the relationship with your client.  For one off jobs this may not be such a big issue, but for clients you want to keep, this can have a detrimental effect in the long term.  Often late-payment is a direct result of unclear payment guidelines, or not understanding the way a client’s accounts department works (normally they are a very different beast to your day–to-day contact).

Charging interest should be considered as a last resort- by following the guidelines below, the instances of getting into this situation can be significantly reduced:

• Agree all the fees upfront before starting any work
• Encourage customers to pay a deposit in advance of any work being completed
• Ensure your terms and conditions- especially the payment terms- are understood by the customer before work is started
• If credit is given, before deciding on the amount of credit, checks should be made on the credit history of the client using a credit reference agency
• Consider using a credit insurer to insure any potential bad debt, credit insurers will also help in deciding the level of credit given
• Issue clear invoices promptly after the work has been completed and statements at the end of each month.  Many customers pay when they receive a statement rather than an invoice
• Consider using discounts and incentives to encourage prompt payment
• Keep in touch with the customer and use a credit control system so that you can instantly see who owes you money - and don’t be afraid to follow up any promises of payment that are not fulfilled
• And finally, chasing payment can be very time consuming - if you aren’t having any success then you can always enlist the help of a professional in this field so that you can get on with running your business.

This advice has been prepared by Jo-Ann Westlake, the TaxAssist accountant for Exeter. For more information on how to effectively chase payment from your customers, speak to your local TaxAssist accountant.

Q: I am currently looking to take on a new member of staff. I understand the national minimum wage rules may mean I have to pay him a certain hourly rate. Is this true?

Sally, London

A: Most employees are entitled to be paid the national minimum wage and the rate at which they are paid varies depending on their age.

From 1st October 2009, the national minimum wage for adults aged 22 and over increases to £5.80 per hour. The development rate increases for 16-17 year olds to £3.57 per hour and for those aged 18-22 to £4.83 per hour. The government has also promised to reduce the qualifying age for the adult minimum wage rate from 22 to 21 with effect from October 2010.

There are a few exceptions which apply to the above rates for a small minority of workers.  Currently, apprentices under the age of 19 are not entitled to the national minimum wage and apprentices between the ages of 19 and 25 are not entitled to the minimum wage in the first year of their contract.

For this purpose, apprentices are either workers who have contracts of apprenticeship, or workers who are taking part in specific training programmes which are funded by a local development agency. You must ensure you have a written agreement between you and your new worker which confirms they are employed on an apprentice contract.

For more information on whether or not your employee counts as an apprentice you should visit www.businesslink.gov.uk or speak to your local TaxAssist accountant.

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Payroll Accounting Advice from TaxAssist Accountants