HMRC Free Filing Scrapped – What you need to know

From April 2026, both HMRC and Companies House will close their free filing portals for Corporation Tax and accounts. Prepare now to get ahead of the change.

When will the Free Filing Services Close?

The closure of both platforms was announced earlier this month and will take effect from midnight on Tuesday 31st March 2026.

Why are the Free Filing Services Closing?

HMRC have stated the current service they provide does not meet current digital standards. They believe the modernisation of Corporation Tax and accounts filing could improve the accuracy of the returns submitted.

By closing their filing platforms, HMRC and Companies House are encouraging businesses to make the switch to using accounting software. This aligns with the government’s Making Tax Digital (MTD) plans.

How will the Free Filing Closure Affect Me?

If you use either filing platform, you will need to find another method of submission. Submitting the figures using accounting software will bypass the portal and submit the figures directly to HMRC and Companies House. The downside, particularly for smaller businesses, is that most software will charge a subscription fee, adding an additional cost to already increasing overheads.

If you believe this will affect you, please get in touch.

What do I Need to do Before the Services Close?

Before the closure, you must log in to the HMRC online service and save copies of at least the last 3 years of submissions. This must be done before 31st March 2026 as you will be unable to access this information once the platform has closed.

I Need Help with the Switch – What Should I Do?

At WKM Accountancy Services, we are experienced with a variety of accounting software and are happy to help to find the right package for you and your business. If you need advice regarding the upcoming submission changes, or any aspect of your accounts, please do not hesitate to contact us.

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Making Tax Digital for Self-Assessment (MTD ITSA)

The way Self-Assessments are submitted is changing from April 2026. Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will see a shift to digital record keeping for the self-employed and landlords.

What is MTD ITSA?

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is the next phase of the digitalization of the UK tax system. The change in the law will see self-employed individuals and landlords keeping records and submitting tax returns digitally.

The new rules will require the use of compliant software to submit a self-assessment, and quarterly submissions known as “Digital Quarterly Updates”.

Why is MTD ITSA Being Introduced?

MTD is being introduced to modernise the UK tax system. It was first announced in the 2015 Budget, with plans to update several aspects of the tax system in phases. This first change was MTD for VAT, which was implemented in 2019.

The change to digital self-assessments is expected to reduce the risk of human error, which accounts for much of the corrections needed for self-assessments each year. The reduction in errors is expected to reduce the self-assessment tax gap. This is an estimate of the tax that has not been collected by HMRC. It was 24.3% in the 2022-23 tax year. This is around £5.9bn that is estimated to have not been paid.

Using software is also expected to save time and be more productive for individuals as the information will be ready by the year end due to the quarterly updates, and records will be kept digitally, removing the need to sort through physical paperwork.

When Will MTD ITSA be Introduced?

MTD ITSA will be introduced in phases depending on an individual’s qualifying earnings. Using the table below, you can see when your self-employment or rental income will be subject to the New MTD ITSA rules:

Yearly Qualifying Income MTD Start Date
Over £50,000 6th April 2026
Between £30,000 and £50,000 6th April 2027
Below £30,000 To Be Announced

The government is currently reviewing whether MTD ITSA should apply to those with a turnover of less than £30,000. If the decision is made to implement MTD ITSA for this group, it should not start until after the other bands have submitted returns, but an exact date is not known.

MTD for partnerships had previously been scheduled for April 2025, however this has been postponed. A new start date has not yet been announced.

Digital Quarterly Updates

One of the largest changes that will be implemented with MTD ITSA is the introduction of Digital Quarterly Updates. Previously, self-assessments have required a single submission by 31st January. But under the new MTD ITSA rules, information must be submitted every quarter, as well as a final submission by 31st January.

Each update will include the income and expenditure for that quarter and must be submitted using MTD-compatible software. These submissions will be cumulative, meaning that you can make amendments to previous submissions within the next quarter, rather than submitting a separate return for corrections. This method is like a VAT return.

It is important to note that this change in submissions is not expected to affect payment methods, such as payments on account, as the final submission deadline will still be 31st January.

MTD-Compatible Software

MTD-ITSA requires the use of compatible software. For software to be classed as MTD compatible, it must meet the following requirements:

  • It must allow digital record keeping. Examples include features for bank connections or transaction imports, and allow invoices, bills, and receipts to be posted. Records must be kept for at least 5 years as per government requirements.
  • It must be able to submit the quarterly updates and final declaration directly to HMRC.
  • It must generate the information for the final declaration and provide a calculation of the tax owed.
  • It must be easy to use.
  • It must update figures such as tax rates and allowances in line with government announcements.
  • It must be secure and offer 2-factor authentication to help keep information safe.

A list of MTD-compatible software is available on the GOV.UK website.

Voluntary Sign-Up to MTD ITSA

If you would like to start submitting your self-assessment in line with MTD ITSA regulations before your earning band’s start date, you can sign up voluntarily if you meet the following criteria:

  • Your details on HMRC are correct
  • You live in the UK
  • You have a National Insurance (NI) number
  • You have submitted a Self-Assessment previously
  • Your accounting period is from 6th April to 5th April
  • You have no outstanding tax

Signing up will mean that you are abiding by MTD ITSA rules during the testing phase. Please note that, during the testing, you cannot claim any losses from previous years or change your accounting period. There is also criteria will prevent you from signing up, such as having a payment plan in place with HMRC.

Is Anyone Exempt from MTD ITSA?

Some individuals may be exempt from MTD ITSA, these include:

  • Those who do not have a National Insurance (NI) number
  • Anyone with a physical or mental condition which would prevent digital access
  • Anyone who has difficulty using digital technology due to their age or a lack of accessibility in their area

 

If you would like further advice on how to prepare for MTD ITSA, or require any further help with your self-assessment, please do not hesitate to contact us.

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Self-Assessment Deadline 2024

The self-assessment deadline for 2023/24 tax returns will soon be upon us. It is important to know when your information needs to be submitted.

When is the Self-Assessment Deadline?

The deadline for the online submission of self-assessments is 31st January following the tax year. For 2023/24 returns, the deadline is 31st January 2025. This is also the payment deadline. You must ensure the tax return is submitted and paid before midnight to avoid penalties.

How Do I Know to Complete a Self-Assessment?

If you have previously completed a self-assessment, HMRC will notify you if a return is needed for that tax year. If you have met the criteria to complete a self-assessment for the first time, you will need to notify HMRC.

How do I Submit a Self-Assessment?

You can submit self-assessments through the HMRC portal. You will need our Unique Taxpayer Reference (UTR), which you will have received after registering for self-assessment.

If you are working with an accountant, they can submit the return on your behalf. We offer self-assessment services to clients across the UK. You can visit our page to learn more.

How Do I Pay my Self-Assessment Tax?

You can pay your self-assessment tax in a variety of ways. HMRC provide a breakdown of the available methods here.

Some additional methods include paying via your tax code if you are on a payroll, or setting up a payment plan with HMRC.

Most individuals will make two payments a year, known as payments on account.

Is there a Fine for Missing the Deadline?

If you miss the deadline HMRC will issue penalties. Penalties are split into two types: late filing & late payment.

These penalties will increase over time.  Submit and pay before the deadline to avoid additional charges.

I Need Help Preparing my Self-Assessment – Who Can I Talk to?

We understand that self-assessments are an additional task on top of your workload, and that it can be difficult to know what you can claim. If you need assistance to complete your self-assessment tax return, please contact us.

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Autumn Budget 2024 – How Will it Affect Me?

On Wednesday 30th October, Rachel Reeves delivered her first budget as Chancellor of the Exchequer, and Labour’s first budget in 14 years. But what changes have been announced in the Autumn Budget? And how will those changes affect you?

National Minimum Wage Increase

The National Minimum Wage (NMW) will increase from April 2025. The hourly rate will rise by 6.7% for those aged 21 and over. The current NMW hourly rate is £11.44, this will rise to £12.21 next year.

Under 18s and apprentices will see their rate increase to £7.55 from £6.40.

The rate for 18–20-year-olds will increase by 16.3% to £10 per hour. This has been implemented as part of a long-term goal to consolidate NMW rates. This plan will see everyone over the age of 18 having the same minimum rate in the future, much like how the 21-22 age bracket was scrapped in April 2024.

Employer National Insurance Increase

From April 2025, the Employer National Insurance (NI) rate will increase from 13.8% to 15%.

Employer NI is the tax contribution made by employers on their employees’ earnings. These contributions are due on earnings which exceed the employer NI threshold. The budget announced that this threshold is now set to reduce from £9,100 to £5,000; employers will be paying a higher rate of tax on more earnings.

Employment Allowance Increase

To combat the impact of the changes to Employer NI, the Autumn Budget did announce an increase in Employment Allowance from £5,000 to £10,500.

Employment Allowance is a government scheme which allows eligible employers to reduce their National Insurance costs by the allotted amount each year. This means that an employer who claims the allowance in April 2025 can reduce their total ER NI contributions for the year by £10,500.

Capital Gains Tax Increases

The autumn budget also announces increases to Capital Gains Tax (CGT) rates in the next financial year. The lower rate will increase from 10% to 18%, whilst the higher rate will increase from 20% to 24%. The new rates match the tax rates for capital gains on property sales.

These rates are in effect from 30th October 2024. Remember that the rate used is dependent on when the sale occurred; sales made before the budget will not be taxed at the new rates. You can find more information on capital gains here.

Inheritance Tax

Currently, the tax-free threshold for inheritance tax (ITH) is £325,000. This increases to £500,000 if the estate is left to children or grandchildren. It was announced in the budget that these thresholds would remain frozen until 2030.

The largest change to IHT is that, from April 2027, inherited pensions will be included within the estate; they will be taxed.

Exemptions on IHT that previously applied to agricultural property have been reviewed. Previously, no IHT applied to agricultural land. The reformed relief will see the first £1m in combined assets be tax-free, but tax on value exceeding this will see a relief of 50%. This means that the IHT rate will be 20%, rather than the usual 40%.

If you need support or resources regarding inheritance tax, you can learn more here.

Carer’s Allowance

Carer’s allowance is a form of government support given to unpaid carers who provide care for a minimum of 35 hours per week. The allowance is currently £81.90 per week. However, you can only claim the allowance if you are earning below the weekly earnings limit. Once this limit is surpassed, you cannot claim the allowance and must repay any allowance claimed that year.

In the autumn budget, it was announced that the weekly earnings limit would be increasing from £151 per week to £181 per week. This will allow carers to work more hours a week without needing to forfeit their benefits.

Additional Announcements

  • Employee National Insurance, VAT, and income tax will not increase. The personal tax thresholds, which are used for income tax and Employee NI, are currently frozen until the 2027/28 tax year, but it will increase in line with inflation after this.
  • The corporation tax main rate (for companies with profits over £250,000) will remain at 25% for the duration of this Labour government.
  • Plans have been made for HMRC to hire additional compliance officers, update their IT systems, and enhance their app services.
  • Businesses in the retail, leisure and hospitality sectors will receive 40% relief on business rates from the 2026/27 tax year, up to a £110,000 cap.
  • “Non-Dom” status will be abolished from April. A new residence-based scheme will be introduced in its place.
  • Benefits will rise by 1.7%, in line with inflation, in April.
  • Stamp duty on purchases of second homes and residential property purchases by companies will increase to 5%
  • Fuel duty will remain frozen for the next tax year. The 5p cut will also continue.
  • Air passenger duty will see small increases, apart from on private jets, which will see a 50% increase.
  • A vaping liquid levy will be introduced, and tax on tobacco will continue to rise.
  • VAT will be applied to private school fees from 1st January 2024.
  • The bus fare cap will remain for another year, but it will be increasing to £3.

 

If you require any advice regarding changes announced in the budget, or you require help with accounting, tax preparation, or payroll, please do not hesitate to contact us.

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Do I Need to Complete a Self-Assessment?

The deadline to notify HMRC that you must complete a self-assessment tax return is quickly approaching, but it can be tough to know if you need to complete one. HMRC have criteria for who needs to submit a return. This varies depending on the income that you receive.

What is a Self-Assessment?

A self-assessment reports income to HMRC which has not yet been taxed. Unlike employment income, where Income Tax and National Insurance are deducted from a person’s wages, the tax on other types of income is not deducted when it is received. This means that the tax must be collected through a self-assessment.

Self-assessments are currently submitted per tax year. Each tax year covers the period 6th April to 5th April. This means that the current tax year is 6th April 2023 to 5th April 2024. A shift towards quarterly returns will be introduced when Making Tax Digital (MTD) comes into effect.

Who Needs to Complete a Self-Assessment?

HMRC have set criteria which determine who should submit a self-assessment. As there are many ways to earn an income, eligibility is based on the type of income you have received during the tax year. You can find the information which applies to you by clicking the bullet points below:

Sole Traders and Self-Employed Individuals

If you are self-employed or a sole trader, you must submit a self-assessment tax return if you earn over £1,000 in the tax year.

Please note that you must notify HMRC that you have become self-employed within 3 months. Failure to do so will result in a £100 fine.

Income from Property Rental

If you receive income from a renting out a property that you own, you must complete a self-assessment. This will include your rental income and allowable expenses for the tax year.

Allowable expenses are costs relating to the property that you have paid. These include repair costs, water rates, cleaner’s fees, and rental costs if you are sub-letting. Please be aware that any costs paid by the occupants cannot be included on your return

If you are earning between £1,000 and £2,500 a year, contact HMRC. They will advise you whether a tax return is needed.

Dividend Income

If you are a company director or shareholder who receives dividends, you must complete a tax return.

Dividend tax thresholds follow the same bands as Income Tax, with the rate increasing as your taxable income increases. Dividend tax calculations can be affected by the personal and dividend allowances.

Business Partnership Income

If you are part of a business partnership, you must include the share of income you have received on a self-assessment. This is separate from your partnership tax return, but both must be submitted. On your self-assessment this income will be declared on an additional page called SA104.

High Taxable Income

You must complete a tax return if your adjusted taxable income is more than £150,000.

Adjusted net income is your total taxable income before any personal allowances have been applied, less certain tax reliefs (such as Gift-Aid donations and trading losses).

Capital Gains

If you have sold an item at a profit, which can be classed as an asset, you may have to pay capital gains tax. This must be included on your self-assessment.

You will have to pay capital gains tax on personal possessions worth £6,000 or more (excluding cars), business assets, and certain types of shares.

Sale of property will class as a capital gain if is not your main home, if you have let out your main home, or if you have used part of your home exclusively for business. Property gains must be reported to HMRC, and the tax must be paid, within 60 days of the sale. The figures submitted must still be included on your self-assessment, but you will not be taxed further if you have paid the capital gains tax.

High Income Child Benefit Charge

You will need to submit a self-assessment if either you or your partner receive Child Benefit, but one of your adjusted net incomes is more than £50,000. This is because you will receive a tax charge known as the High Income Child Benefit Charge. If you both have incomes greater than £50,000, whoever earns more will pay the charge.

The threshold for this charge will increase from the 2024/25 tax year.

Income Received from Abroad

If you are a UK resident and receive foreign income this must be included on a self-assessment.

If this income has already been taxed in another country, you may be eligible for Foreign Tax Credit. This is dependent on the double-taxation agreement that the UK has with the other country.

UK-Based Income for Non-UK Residents

If you are not a UK resident, you will still need to submit a self-assessment if:

  • you receive rent from a UK property
  • you sell goods or services/run a business in the UK
  • you have a pension outside the UK but you were UK resident in one of the 5 previous tax years
  • you have other untaxed UK income

Your tax will be calculated automatically on the days you work in the UK if you are employed in this country but live elsewhere.

I Am Eligible for Self-Assessment – How Do I Notify HMRC?

If you meet the criteria to submit a self-assessment, but have not received a notification, you must notify HMRC before 5th October by registering for self-assessment online.

If you have received a notification letter, or a self-assessment form, from HMRC you must complete and submit a tax return. You will receive this if HMRC are aware that you need to submit a return.

I Want Help to Complete My Self-Assessment – Who Can I Ask?

Accountants can register you for self-assessment and submit tax returns on your behalf. Once you have engaged with an accountant, they can request the relevant information from you and prepare your self-assessment for submission. If you are interested in our services, please do not hesitate to contact us.

If you need further information on how to pay your self-assessment tax please use our blog resources.

 

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Companies House Fees Increasing – What to be Aware of

As of 1st May 2024, Companies House have implemented significant price increases for there services. These changes will impact anyone who submits information to Companies House, so it’s important to assess how the increases will affect your business.

Why have Companies House Fees Increased?

The changes to Companies House fees have been introduced to reduce fraud. The UK’s company registration structure is often linked to fraud and money laundering.

The Economic Crime and Corporate Transparency Act 2023 (ECCT Act) puts forward a long-term plan to reduce fraud. The most recently implemented part of this plan is increasing the price of Companies House services. The changes aim to deter criminals from forming and registering multiple companies to commit fraud offences.

How Will These Changes Affect Me?

For these changes to reduce fraud, the costs of Companies House services must be increased significantly. Unfortunately, this means those lawfully trading will also be greatly affected.

Some of the higher costs relate to overseas entities. This is because they are commonly used to commit fraud. However, the fees with the highest percentage increases tend to be the more commonly incurred costs, such as incorporating new companies which is now more than 300% more.

As the cost of these services increase, costs for agents (such as accountants) to submit information on your behalf will also be increasing. If you are unsure whether this will impact your business, contact your agent to discuss the changes.

The most common fee changes are as follows:

Companies House Fees for Limited Companies

Service Old Cost Cost from 1st May 2024 Percentage Increase
Incorporating a New Company £12 £50 317%
Incorporating a New Company – Same Day £30 £78 160%
Submitting a Confirmation Statement – Digital £13 £34 162%
Changing a Company’s Name £8 £33 313%
Striking Off a Company £8 £33 313%

Companies House Fees for Limited Liability Partnerships (LLPs)

Service Old Cost Cost from 1st May 2024 Percentage Increase
Registering an LLP £40 £50 25%
Filing a Confirmation Statement £13 £34 162%
Administrative Restoration £100 £468 368%

Companies House Fees for Limited Liability Partnerships (LLPs)

Service Old Cost Cost from 1st May 2024 Percentage Increase
Register an Overseas Entity £100 £234 134%
Updating an Overseas Entity £120 £234 95%
Removing an Overseas Entity £400 £706 77%

Other Changes from the ECCT Act

Companies House will be seeing further changes as part of the ECCT act to make their services stricter and more difficult to abuse. Some changes were implemented on 4th March, which included:

  • Companies House being granted greater powers to query info and request evidence, as well as being able to remove factually incorrect info.
  • Companies must have a registered address – PO boxes no longer allowed.
  • Companies must provide a registered email address on Confirmation Statement submissions.
  • Must confirm company is formed for a “Lawful Purpose” & “intended future activities will be lawful” on Confirmation Statement – This will usually appear as a tick box on digital and software submissions.
  • Companies House can now share data with other government departments and law enforcement.

Further changes are also expected such as additional identity verification for company owners and improving ownership transparency by providing additional shareholder information.

The timeline for additional changes is currently unclear. For example, it is expected that limited partnerships will need to provide more information to Companies House in the future. These changes cannot be implemented without secondary legislation.

Companies House will also be following HMRC’s shift to digital submissions. Software is already available to submit confirmation statements, but no date has yet been provided to swap from paper to online.

 

If you have any further questions about these changes, or you need help submitting information to Companies House, please do not hesitate to contact us.

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Final Payroll 2024

With the end of the 2023/24 tax year approaching, the time has come to prepare the final payroll. Submitting the last payroll of the year has a few extra steps. It’s important to know how to prepare for it.

When does the Final Payroll End?

The final payroll will be the last payroll you submit before the tax year ends on 5th April 2024. If your workers are paid monthly their last payroll will always be Week 52 as they will always have 12 pay days. For weekly, fortnightly, and four-weekly payrolls, they could have a Week 53.

Week 53 payrolls are caused when there are 53 pay days during the year. If you pay your employees on Fridays, this year you may have a week 53 payroll if you last processed your payroll on the following dates:

  • Any new employees are set up on your payroll software.
  • Any employees that have left have been processed as leavers.
  • Tax codes for 2024 are up to date.

What Should I Check Before Running the Final Payroll?

Correcting mistakes on the final payroll can be more difficult than other periods. Because of this, we would recommend double-checking all figures before processing them or sending them to your payroll provider. You should also check for the following:

  • Any new employees are set up on your payroll software.
  • Any employees that have left have been processed as leavers.
  • Tax codes for 2024 are up to date.

How do I Submit the Final Payroll?

HMRC will be notified that a submission is for the final payroll through either a Full Payment Submission (FPS) or Employer Payment Summary (EPS). If you outsource your payroll, this will be done by your provider.

How do I Correct the Final Payroll?

If you need to change the figures included on the final payroll, the corrected FPS must be submitted by 19th April 2024.

If the wrong payment date is shown on the FPS, the corrected FPS must be submitted by 5th April 2024.

What are P60s?

A P60 is a form issued to all employees showing their earnings and tax deductions for the tax year.  It is needed when completing the employment section of a Self-Assessment tax return. P60s must be sent before 31st May 2024.

What are P11Ds?

P11Ds are forms that must be submitted to HMRC to show the expenses and benefits provided to employees during the tax year. Examples of benefits include company cars, interest-free loans, and private medical insurance. The deadline for 2024 P11D submissions is 6th July 2024.

Changes from April 2024

Once the final payroll has been submitted, you should review the changes that may be needed during the new tax year. Increases to the National Living Wage were announced in November, whilst a decrease in National Insurance was confirmed during the Spring Budget.

You should also check if you have received any 2025 tax codes for your employees. These will be received either pay post or through your HMRC PAYE portal.

 

If you need any further information about the final payroll for 2024, or any other payroll services, please do not hesitate to contact us. We also provide a Payroll Year End Checklist which could be used as a guide.

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Spring Budget 2024

On 6th March 2024, Chancellor of the Exchequer, Jeremy Hunt, announced the government’s plans for the UK economy in the Spring Budget. With a focus on lowering inflation and increasing the countries GDP per capita, the chancellor set out plans to be enrolled over the next few years. But how will these changes affect business owners and taxpayers?

National Insurance Cuts

The most notable change announced during the Spring Budget was a 2% cut in employee National Insurance (NI). This is on top of the 2% cut announced in the Autumn Statement last November. This means that, from 6th April 2024, employee NI will drop to 8%; the lowest rate since 1975. Those earning an average salary of £35,400 will save £450.

It is important to note that these changes only apply to the basic NI rate. Any earnings over £4,189 per month will still be taxed at 2%.

Previously, NI for the self-employed (known as Class 4) was set to decrease to 8% from April 2024. The Spring Budget has announced a further 2% reduction. This means those who are self-employed will be taxed at 6% from next month.

Employer NI contributions will not be changing according to the Spring Budget. The rate will remain at 13.8%.

VAT Threshold

Another significant announcement from this year’s Spring Budget relates to the VAT threshold. The threshold will increase from £85,000 to £90,000. This is the first rise the VAT threshold has seen since 2017.

The increase has been introduced to prevent smaller businesses from falling into the VAT regime due to rising inflation and the cost of living crisis. However, many are worried that this increase of only £5,000 may not be enough to cover the cost increases.

Capital Gains Tax

The higher rate of Capital Gains Tax (CGT) on residential property sales will decrease. The Spring Budget states that the rate is being cut from 28% to 24% from 6th April 2024. The basic rate on property sales will remain at 18%. CGT only applies to certain property sales – you can find out more here.

High Income Child Benefit Charge

A raise of the High Income Child Benefit Charge (HICBC) threshold to £60,000 was also announced in the Spring Budget, along with raising the withdrawal taper from £60,000 to £80,000. This will increase from April 2024.

The charge allows child benefits to be taken back from higher earners through the tax system and has been unchanged since its introduction in 2013.

The rise will be introduced to prevent basic rate taxpayers having to complete tax returns for only their HICBC. This issue was caused by the tax thresholds increasing for the 2021/22 tax year, pushing the higher-rate bracket above the original £50,000 threshold.

Additional Changes

The following are additional changes announces during the Spring Budget:

  • Non-Dom status will be abolished from April 2025. A new system will be introduced where no tax will be paid on non-UK income for the first 4 years of being in the UK. UK tax rates will apply after this period.
  • Multiple dwellings relief will be abolished. This allowed Stamp Duty Land Tax relief for transactions where two or more dwellings were purchased at once.
  • The furnished holiday lets regime will cease from April 2025. This allowed short-term lets to receive tax reliefs like small businesses.
  • A New UK ISA will be introduced, allowing individuals an additional £5,000 annual investment in UK assets.
  • Fuel Duty freeze has been extended for a further 12 months.
  • Alcohol Duty will be frozen until February 2025.
  • Vape Duty will be implemented from October 2026. An increase in Tobacco Duty will occur at the same time.

 

If you have any questions about how the budget could affect you or your business, please do not hesitate to contact us.

 

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Vehicle Benefits In Kind Breakdown

If your company provides vehicles or fuel to its employees or directors, these could be classed as Benefits In Kind (BIKs).

BIKs are defined as an item of monetary value provided by a business that is not “wholly, exclusively, and necessary” to perform their duties. This essentially means that the item is also used outside of work. Examples include private healthcare and company cars.

Using this definition, if you have received a vehicle through a company and use it for personal mileage it will be a BIK. If the fuel costs are covered by the employer this is also a BIK.

Calculating Employee Benefits In Kind for Vehicles

When it comes to vehicles, the way the BIK tax owed by employees is calculated depends on the type of vehicle. Recent legislation changes to how vehicles are classified should be considered when assessing how you account for new vehicles.

Vans

Benefits for vans are calculated as flat rates which are multiplied by the individual’s tax band. For 2023/24, the annual Van Benefit charge is £3,960, whilst the Fuel Benefit Charge is £757.

A basic rate (20%) taxpayer would owe:

Van Benefit Charge = 3960*20% = £792

Van Fuel Benefit Charge = 757*20% = £151.40

Total Tax Owed = £943.40

Cars

Calculating the BIK for cars is more complicated as you must use a BIK percentage. This percentage is based on the vehicle’s CO2 emissions (or electric range for hybrid vehicles). The percentage may increase by 4% for diesel cars if they do not meet RDE2 standards. The BIK percentages have been frozen until the 2024/25 tax year.

To calculate the BIK tax on a car, you multiply the list price or P11D value of the car by the BIK percentage, then multiply again by your tax band. The Fuel Benefit for cars is calculated by multiplying the Car Fuel Benefit Multiplier by the BIK percentage, then multiplying again by your tax band. The multiplier for 2023/24 is £27,800. This is set by HMRC for each tax year.

Example

You are a basic rate taxpayer, who had received a non-RDE2 compliant diesel car from your company with a list price of £17,000 and CO2 emissions of 117 g/km. The tax you would pay is as follows:

BIK % = 28+4 = 32%

Annual Benefit In Kind (BIK) Tax = 17000*32%*20% = £1,088

Car Fuel Benefit Charge = £27,800*32%*20% = £1,779.20

Total Tax Owed = £2867.20

Paying for Benefits In Kind – Employers

BIKs are filed by employers using P11D forms. This will account for the benefit by increasing the individual’s salary. Employers will pay a National Insurance Contribution of 13.8% on the value of the BIK. The total BIKs per tax year must be reported by employers using a P11D(b) form, which summarises the benefits provided to all employees during the period. This must be submitted by 6th July following the period. For example, the P11D(b) form for the 2023/24 tax year must be submitted by 6th July 2024.

Paying for Benefits In Kind – Employees

Employees will likely pay for BIKs through their tax code. HMRC will amend the employee’s tax code to allow the tax owed to be deducted from their wages. It can, however, take time for the P11D submission to be processed and therefore you may receive a notice stating you have underpaid your tax for the year. HMRC will collect the due tax via an updated tax code in a future tax year, or by issuing a simple assessment which allows the tax to be paid in one lump sum.

 

If you have any further questions about how Benefits In Kind apply to your business, or you are unsure of how they affect your tax, contact us for guidance.

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Double Cab Pickups – Benefit In Kind Changes

Update – Government U-Turn

On 19th February 2024, 1 week after the classification criteria was updated, HMRC announced a full U-turn on the treatment of double cab pickups. It has been decided that they will now continue to use the payload system to classify vehicles, as explained in our “How Were Double Cab Pickups Treated Previously?” section. This has occurred due to push back from the motor industry over the significant increase in tax the change would have caused for most double cab pickup owners.

 

Changes to the tax treatment of double cab pickups have recently been announced by the government. This will change how benefit-in-kind tax is calculated for these vehicles if owned by your company. These changes will be introduced to remove a loophole which allowed them to be accounted for as vans rather than company cars. The tax paid on vans is usually lower than the tax paid on cars.

How Will Double Cab Pickups be Accounted for?

For vehicles ordered on or after 1st July 2024, new criteria will dictate that almost all double cab pickups will be classed as cars. This is due to the new legislation used to determine how a vehicle should be classified.

 If a vehicle’s primary suitability is construction, it will be classed as a van. This means that the vehicle must only be used for transporting goods. As double cab pickups can transport both goods and passengers, they cannot be classed as vans and must be treated as cars.

Vehicles that are already on fleet or have been ordered prior to 1st July will be treated as they were until 5th April 2028.

How Were Double Cab Pickups Treated Previously?

The old criteria that were used to decide whether a vehicle was a car or van was dependent on payload. A vehicles payload is usually given in the manufacturer’s manual and is equal to the gross weight minus the unoccupied kerb weight.

Vehicles with a payload under 1 tonne would be classed as cars, whilst those which are 1 tonne or over would be classed as vans.

Double cab pickups are much heavier than standard cars; they would almost always meet the old van criteria.

Will All Double Cab Pickups be Classed as Cars?

Not necessarily. Within the legislation, the government have included exceptions which could allow double cab pickups to be classed as vans. This is dependent on whether modifications have been made to the vehicle.

The modifications must be “sufficiently permanent & substantial in scale”. Examples provided include replacement of the rear side windows (either with metal panels or fibreglass) or welding a new load base.

Defining whether a modification can fit the criteria can be difficult. For example, removal of the rear seats of a double cab pickup would only be classed as substantial if all the related fittings are also removed. The easiest way to check that the modification is substantial is if it could be easily reversed. If so, the changes cannot be used to justify the van classification.

How does the Benefit in Kind Differ?

A benefit in kind (BIK) is defined as goods and services received by employees or directors from a company which are not included in their salary, for example a company vehicle. The method of taxing these BIKs is dependent on the type of vehicle they are classed as.

Vans use a flat rate to calculate the tax owed. On the other hand, the tax owed on cars is dependent on the CO2 emissions and list price of the vehicle. Please see our Vehicle Benefit In Kind Breakdown for more information on how it is calculated.

Example

The tax owed by a basic rate (20%) taxpayer on a petrol-powered double cab pickup with a list price of £20,000 and CO2 emissions of 170 g/km would be calculated as follows if it was classed as a car:

BIK% = 37%

BIK Tax = 20000*37%*20% = £1,480

Fuel Benefit Tax = 27800*37%*20% = £2057.20

Total tax owed = £3,537.20.

The calculation for the same vehicle if classed as a van is as follows:

BIK Tax = 3960*20% = £792

Fuel Benefit Tax = £757*20% = £151.40

Total tax owed = £943.40

You would have to pay £2,593.80 more if the vehicle was classed as a car. As double cab pickups tend to have both high list prices and high emissions, the tax owed will almost always be higher when classed as a car.

 

If you are unsure about how these changes could affect you, or you have any other queries about tax, please contact us

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