Pointon Young Blog

Most benefits in kind are taxable and the employee is taxed on the cash equivalent of the value of that benefit. Where the employee is required to make a payment to the employer in return for the provision of the benefit and actually does so, the cash equivalent of the benefit is reduced by the amount `made good’ by the employee. Making good allows the employee to reduce or eliminate the tax charge. Example Harry’s employer provides private medical insurance for Harry and his family. The cost to the employer is £500 a year. Harry is required to make a contribution of £200, which he does. By `making good’ £200 of the cost, the cash equivalent of the benefit on which tax is charged is reduced from £500 to £300. Where the benefit in question is fuel for a company car, the amount made good by the employee can be computed using the advisory fuel rates. Example Helen has a company car. The car is a petrol car, which for 2016/17 has an appropriate percentage of 22%. ...

Company cars are a popular benefit and are often something of a status symbol. But, they have also been an easy target for the taxman. Where a company car is available for private use, the employee is taxed on the associated benefit that this provides. The amount that is charged to tax – the cash equivalent value – depends on the list price of the car and the appropriate percentage. The list price is essentially the manufacturer’s price when new. This remains the reference point by which the tax charge is calculated – it does not matter how much was actually paid for the car, whether it was bought second-hand or that cars tend to depreciate rapidly. The appropriate percentage – the percentage of the list price charged to tax – depends on the car’s CO2 emissions. Adjustments are made when calculating the cash equivalent to reflect the periods when the car was unavailable, capital contributions and contributions to private use. Appropriate percentage Linking the...

The cash basis is a simpler way for smaller businesses to work out their taxable profit. Under the cash basis, profit is calculated by reference to cash in and cash out, rather than by reference to income earned in the period and expenditure incurred, as is the case under the traditional accruals basis. Prior to 6 April 2017, the cash basis was only open to sole traders and unincorporated businesses with a turnover below the VAT registration threshold (which was set at £83,000 from 1 April 2016 and increased to £85,000 from 1 April 2017). However, in preparation for the introduction of Making Tax Digital, under which businesses will be required to maintain records digitally and to provide digital updates to HMRC quarterly, the cash basis threshold has been increased. Availability of the cash basis is also extended to unincorporated landlords from 2017/18 onwards. New look cash basis From 6 April 2017, the entry threshold for the cash basis is increased to £150,000. Once...