Edwin Smith - Chartered Accountants
  • Home
  • About Edwin Smith
  • Accounting Services
  • Contact Edwin Smith

Revised Advisory Fuel Rates – 1 December 2010

Posted by: edwinsmith on November 30th, 2010

H.M. Revenue and Customs (HMRC) have published the latest advisory fuel rates relating to mileage payments for business travel in company cars. These are as follows: 

Engine size Petrol Diesel LPG
1400cc or less 13p 12p 9p
1401cc to 2000cc 15p 12p 10p
Over 2000cc 21p 15p 15p

The new rates will be effective from 1 December 2010, however for the first month employers may continue to use the previously published rates if they choose to.

These rates will be reviewed again next year and any changes made will be effective from 1 June 2011.  The revised fuel rates will be published on the fuel rates page on the HMRC website when they are released.

Advisory fuel rates can be used to calculate the following:

  • Reimbursement to employees of fuel used for business travel in a company car
  • Repayment by employees of fuel used for personal travel in a company car
  • Allowable input VAT on business mileage claims

A more detailed explanation of the use of these rates is on the HMRC website.

The rates applying for earlier periods are also on the HMRC website.

If you have any questions regarding the use of advisory fuel rates or mileage payments please contact us.

Filed under: PAYE, Tax, VAT

Fee Protection Service

Posted by: edwinsmith on November 29th, 2010

The way H.M. Revenue and Customs (HMRC) operates is changing since the passing into law of the Finance Act 2008, which gives inspectors far greater powers than previously. HMRC are more determined to claw back money from taxpayers and are using more efficient methods of checking for non compliance.

The discovery of a simple, unintentional error causing an underpayment of tax may lead to penalties as well as the tax deemed owing plus interest. Disputes with HMRC can quickly spiral into time consuming and costly affairs. Even if no tax is found as owing, the professional fees incurred in handling the case will still need to be paid.

We at Edwin Smith are able to offer to all our clients a fee protection service which can significantly reduce the financial burden that you would face if you became the subject of an investigation by HMRC. For a small annual subscription, the scheme will provide you with the equivalent of up to £100,000 worth of our time in the event of a written intervention by the tax authorities and enables us to dedicate as much time as necessary to get the best result for you, without worrying about spiralling costs. For all business clients, included in the service at no extra cost, is access to a Business Support Helpline that you can call to help you through the legal minefield of today’s business environment.

If you are interested in taking up cover, please contact us.

Filed under: PAYE, Tax, VAT

VAT increase to 20% – is your business ready?

Posted by: edwinsmith on November 23rd, 2010

The standard rate of VAT increases from 17.5 per cent to 20 per cent on 4 January 2011. Sales that are zero-rated, reduced-rated or exempt are unaffected. If you currently calculate VAT on your sales using the VAT fraction of 7/47, you must use the new VAT fraction of 1/6 from 4 January 2011. If you use the VAT flat rate scheme new rates will apply from 4 January 2011.

For retail businesses making mainly cash sales to non-registered customers, apply the new rate for all takings received on or after 4 January 2011 except where the customer pays for items taken/delivered to them before 4 January 2011 in which case the old rate of 17.5% still applies.

For businesses selling mainly to other VAT-registered businesses and issuing invoices, the new 20% rate applies to all invoices issued on or after 4 January 2011 EXCEPT:

  • Where goods or services are provided before 4 January 2011 and more than 14 days before the VAT invoice is issued, e.g. if a VAT invoice is issued on 4 January 2011 for goods or services provided before 22 December 2010, OR
  • Payment is received before 4 January 2011


In these cases, the sale took place before 4 January 2011 and businesses should use the old rate of 17.5 per cent.

For sales spanning the rate change, If goods have been provided (or services completed) before 4 January 2011 businesses can choose to account for VAT at the old rate of 17.5 per cent.

For continuous supplies of services, such as ongoing professional or construction services, businesses should account for the VAT due whenever a VAT invoice is issued or payment received, whichever is the earlier. In these cases, invoices issued or payments received on or after 4 January 2011 will be subject to 20 per cent VAT.

For services started on a job before 4 January 2011 but finished afterwards businesses may account for the work done up to the end of 3 January 2011 at 17.5 per cent and the remainder at 20 per cent. If you choose to do this you will need to demonstrate that the apportionment is fair.

Businesses should claim back the VAT charged by their supplier in their usual way. If an invoice for a business purchase is received which is dated on or after 4 January 2011 which shows 17.5 per cent VAT for purchases made before the rate change, a claim back for the 17.5 per cent VAT should be made, subject to the normal rules. Businesses cannot increase the VAT claim to 20 per cent.

The fuel scale charges for VAT registered businesses that reclaim VAT on road fuel to reflect the private use of business vehicles are amended with effect from 4 January 2011 to take account of the new 20 per cent rate. If your VAT return period spans 4 January 2011, you will need to apportion VAT payable on the scale charges accordingly. The HMRC website details the new VAT fuel scale charges rates in appendix C.

What do businesses need to do now?

  • Ensure you know how to change the standard VAT rate on your software package or electronic till. If you can’t do this yourself contact your software or electronic till provider or supplier for assistance. Most software packages should have the in-built capability to deal with changes in the rate.
  • Make sure your systems identify correctly sales before and after the change.
  • On cash accounting? You will need to be able to identify payments received on or after 4 January 2011 that relate to supplies made before that date. VAT at the rate of 17.5 per cent will be due on these payments.


If your software package or till has not been amended to calculate VAT at 20 per cent (rather than 17.5 per cent) by 4 January 2011 you will need to calculate the VAT manually. You simply take the standard-rated gross takings calculated by your software package or till and multiply that sum by the new VAT fraction of 1/6 – this will give you the amount of VAT at 20 per cent.

It is important that businesses follow the special rules for sales that span the change in rate. Legislation has been introduced to prevent avoidance (forestalling) where arrangements are made to account for VAT at 17.5 per cent in advance of 4 January 2011 in respect of goods or services to be provided afterwards.

The filing and payment deadlines remain the same. HMRC have said that they will adopt a ‘light touch’ in relation to errors or mistakes made in the first VAT return after the change.  Any errors or mistakes should be corrected in the normal way by making a voluntary disclosure or correcting it on the next return (subject to the normal limit).

Further detailed guidance can be obtained from the HMRC website regarding the VAT standard rate change.

Please contact us at Edwin Smith if you have any queries.

Filed under: VAT

Tax on Christmas Gifts and Parties

Posted by: edwinsmith on November 22nd, 2010

There are various tax implications to consider on gifts and parties that you may be providing to your employees at this time of year. The points detailed below are a general overview and cover the most common situations that arise.

Cash gifts or bonuses - These are treated as normal pay and subject to PAYE and Class 1 National Insurance contributions (NIC) in the normal way. The payment should be put through the payroll. This also applies to any vouchers you give that can be exchanged for cash (see below for PSA arrangements for small cash gifts).

Gifts to employees - Gifts that can be considered trivial benefits such as a turkey, ordinary bottle of wine or box of chocolates will not need to be declared on form P11d. There is no set monetary limit below which benefits are deemed to be trivial but common sense and judgement needs to be applied in assessing these items. For the purposes of gifts then probably any amount less than £20 per employee would be considered trivial.

Any gifts of a higher value (and classed as non trivial) such as cases of wine/hampers would be subject to tax and NIC and declarable either as a benefit on form P11d or the tax/NIC could be paid on these gifts by arranging a PAYE settlement agreement (PSA).

If declared on P9d or P11d (directors and employees earning over £8,500 pa) forms then non trivial gifts are subject to tax (for the employee) and Class 1a NIC is payable by the employer on items declared on the P11d.

A PSA is voluntary arrangement that on the part of the employer made with HMRC to account for tax/NIC for minor, irregular or impractical items subject to tax/NIC.

If a PSA is arranged then the employer effectively pays the tax due and relieves the employee of any tax liability on the gift. Although there is the extra cost of the tax/NIC a PSA cuts down on the paperwork and record keeping.

Money’s worth benefits such as Store gift vouchers (exchangeable for goods) cannot be treated as trivial benefits. For practical purposes small cash and money’s worth benefits can be included in a PSA. If not dealt with on PSA then Store gift vouchers should be declared on form P9d or form P11d (if employee earns over £8,500) to account for tax. For NICs the cost of providing the vouchers should go through the payroll at the time given to employee.

Christmas parties (and summer events) - Tax and NICs are not due on any annual function if the cost to you is less than £150 per head (including employees partners). The cost per head is the total cost of putting on the function – accommodation, food, drink etc divided by the total number of guests including the non-employees.

If the cost per head is greater than £150 then the whole amount would be subject to tax and Class 1a NICs and should be declared on form P11d in section N e.g. if the cost of an event is £175 per head the employee (with a partner) is taxed on a benefit of £350.

Please contact us for any further advice.

Filed under: PAYE, Tax

Employers CD-ROM update November 2010

Posted by: edwinsmith on November 11th, 2010

HMRC have issued an important update for the 2010 Employer CD-ROM.

You should download and install the Employer CD-ROM November update by clicking the link. This should be completed even if you have previously updated the Employer CD-ROM.

You will know that your CD-ROM has successfully updated if the Home Page shows in the top right hand corner 'November Updated Edition'.

Installing the update now will ensure that you are using the correct, most up to date version and it will ensure your 2010 CD-ROM is compatible with the new PAYE tools when they become available next year. See our previous blog regarding the September update for information on the HMRC PAYE tools which will be available to download at the beginning of 2011.

It is advised to take a back up of the employer database before installing the update.  Please click this link for information on how to save a backup.

Please contact us if you have any questions.

Filed under: PAYE

Employment Status – Employed or Self Employed?

Posted by: edwinsmith on November 8th, 2010

Where there is doubt on the employed/self employed status of someone being paid by an employer then HMRC may attempt to reclassify the payee (worker) from self employed to employed.  If this were to happen, the employer must then account for tax and NIC on such payments. These situations can arise in businesses from PAYE audits being carried out by HMRC.

Remember the onus is on the employer to obtain the correct treatment of the workers engaged be they employed or self employed. An incorrect determination of a worker’s status (someone treated as self-employed when they should be employed) can lead to significant amounts of PAYE/NIC being paid by the employer going back several years. Penalties and interest could also be charged.

If employers are unsure of the status for any worker or wish to confirm the status before making any payments to a new worker then HMRC have an online tool named the Employment Indicator Status (ESI) tool which can be found at the following link HM Revenue & Customs:Employment Status Indicator (ESI). It is available for all employers to use although the tool was initially brought in to determine employment status for workers engaged in the construction industry where these issues are common.

The ESI tool will lead the employer through a series of questions in connection with the worker and although the tool does not as yet provide a legally binding result on a workers status in practice HMRC will normally accept the results provided by the tool. This will be dependent on reasonable answers being provided to the questions and the answers must be what happen in practice and not just theory.

It is important that the employer takes note of the ESI reference number and prints out the enquiry details in case a workers status is challenged by an HMRC officer. HMRC will only be bound by the ESI outcome if these copies can be produced.

Please contact us if you require any further advice in this area.

Filed under: PAYE, Tax