It’s long overdue but, finally, the HMRC allowable mileage rate has been increased from 45p per mile to 55p per mile (for the first 10,000 miles per tax year). This change has been backdated to April.
All other mileage rates are unchanged.
Tax efficient salary
For many years it used to be more tax efficient for director shareholders to take low salary and high dividends but things have changed.
Over the last 3 years the optimal salary/dividend policy has changed because:
- Higher corporation tax rate of 25% introduced with a marginal rate of 26.5% 1 April 2023
- Dividend tax free band reduced to £500 2024/25
- Employer NI starting point reduced to £5000 2025/26
- Employment allowance increased to £10500 2026/27
- Dividend tax rates increased to 10.75%-39.35% 2026/27
It keeps us accountants on our toes revamping all our models each year!
Keep your bookkeeping up to date!
This is the single biggest thing that you can do to minimise tax and penalties. If your records are up to date you will:
- know when you need to VAT register so no late registration penalties
- know how much tax you are likely to need to pay so you can squirrel it away long before the due date so no late payment penalties
- know how much profit after tax is available to take as dividends so no penalty tax on overdrawn directors’ loan accounts (DLA)
- have up to date information to ask your accountant for advice before you make any major business (or life) decisions
Frankly, I’m sick of being asked to help directors out of a hole long after the time has passed for action. Whilst I might sympathise, I can do much more if provided with basic information and consulted early rather than having to refer clients to HMRC for a Time to Pay arrangement after the event when we are finally given information to START preparing the accounts.
Free bookkeeping sessions!
I’m delighted to announce that Zoho Books are sponsoring me to run quarterly bookkeeping advice sessions for them. With the introduction of MTD more small businesses are doing their own bookkeeping. Each session will start with a webinar and advice on what you can claim and there will be plenty of time for you to ask questions.
➡️ Find out more here.
You can’t claim fuel for your own car!
Instead, as an employee of a limited company, you can claim mileage of 45p per mile which covers not just fuel but the annual costs and wear and tear.
In order to do this you need to document your business mileage. Date, start and finish point, and business reason for the journey eg customer name, supplier name, or perhaps a course you attended.
VAT on mileage
Don’t forget to claim the VAT on business mileage.
You can’t claim VAT on the full 45p but you can claim on the fuel element. You can find out the current fuel element Advisory fuel rates – GOV.UK (www.gov.uk)
For instance, if my car has a fuel rate of 14p. This means that, for every mile, I can claim 14p *20/120 = 2.33p in VAT. There is no VAT on the remaining 31p as that is deemed to be for insurance, maintenance, wear and tear etc.
fuel around the date of the journey ie when you you fill up before or after the trip.
*If you’re interested then it’s because the 45p is an allowance and EU/UK law states that you can’t claim VAT on allowances. The EU did one of their usual accommodating moves and agreed that, as long as there was a valid VAT invoice for fuel around the same date (eg filling up before or after the mileage) then the company could claim VAT on the fuel element of the 45p.
All you need to do is to keep a VAT invoice* (not a credit card receipt please!) for filling up just before or after your trip
Eating out (just you, not entertaining)
The rules are different for sole traders and for companies.
Generally sole traders can NOT claim for eating out. Eating is not ‘wholly, exclusively and necessarily for the purposes of business’ because it fulfils the dual purpose of keeping you alive!
Employees of limited companies can claim if the meal is wholly and exclusively for business purposes. If business reasons require them to be away from home/office around meal times (so that they are unable to make their usual arrangements) then it is a reasonable business expense.
The amount they can claim for a meal will be agreed with their employer but should not be overly lavish and I would suggest limiting alcohol to one drink with the meal.
Entertaining is generally not allowed (see other Tax Tips on staff entertaining) for tax or VAT purposes.
MTD is really happening!
If you’re a sole trader or landlord with income (not profit!) over £20,000pa then you will be affected.
But don’t panic! I’m running a webinar on this on 4 March to explain what you need to do and when. You’ll also have the opportunity to ask questions if I haven’t covered your particular circumstances. The webinar is free for Minerva clients (£120 for others) with details below. Just reply to this email to register.
Signing into HMRC is changing. Again.
The GOV.UK One login is gradually replacing your Government Gateway. It will be much simpler to access everything in one place but the transition period will be a bit, well, bitty.
Company Cars
Company cars can seem like a good buy for your business but the individual is heavily taxed if they are available for personal use. You don’t even need to drive them, they just need to be available.
Company cars are not really tax efficient and we often advise clients to buy the car privately and just charge the company for mileage. For one client with expensive taste in cars we even recommended staying as a sole trader rather than a limited company. (I know your mate at the pub probably told you that you could save a shedload of tax by being a limited company but this isn’t always true! Ask us to do the detailed calculations for your chosen car)
This is because cars are treated as benefits in kind and taxed as if you have additional salary. The value of this benefit is based on a percentage of list price (including accessories) even if you buy them second hand. The employee pays tax and national insurance and the employer also pays national insurance.
The percentage used for electric vehicles is much lower than for others although this is increasing each year.
As well as the vehicle any fuel for personal use is taxed at a flat rate for the year so work out how much you use to see if it is tax efficient.
If you’re still considering a company car then you may be able to reduce your overall tax burden by many different means:
- If you lease a car (operating lease, not a finance lease) you may be able to reclaim half the VAT on the lease payments
- Consider electric vehicles or at least lower emission cars
- Consider a van if that would be suitable for your work as this is taxed differently
- If you don’t use the car personally then make sure that it is not insured for personal use and is not kept at your home overnight (difficult if you work from home)
- If you have a taste for expensive cars it may even be worth you running your business as a sole trader or partnership rather than a limited company