Depending on the lifespan of your company it is likely that HMRC will pay you a visit to review your company’s PAYE records. Should you be selected for such a review then there are a number of things you should be aware of to prepare yourself for the day of the visit.
HMRC’s decision to check your PAYE records could be the result of something specific, typically a suspicion that benefits and/or expenses have not been properly reported.
Use the time leading up to the day of the review by carrying out your own PAYE audit, preferably by your tax advisor. By knowing what HMRC may be looking for will enable you to properly prepare for and survive their visit.
The private use of a car provided by an employer is a taxable benefit unless the car qualifies as a ‘pool’ car. The benefit is calculated by reference to the list price of the car.
This is top of HMRC’s hit list as many employers fall into the trap of using the wrong valuation of company vehicles when calculating the car benefit. The value that must be used is:
Some employers still use the price shown on the car purchase invoice which can be costly especially if the error persists for a few tax years, as additional tax and NIC will arise.
Where the company reimburses business mileage this should be in accordance with HMRC’s advisory fuel rates. Different rates apply according to the vehicle’s engine size and its fuel type. The rates are updated each quarter so you should make regular checks to ensure that the correct rate is being used. Should a higher rate be claimed then a car fuel benefit could be levied.
It is also necessary to keep a detailed mileage log to support all claims to demonstrate to HMRC that fuel is not being provided for private motoring.
Again, detailed logs of journeys should be maintained and remember to stop claiming travelling expenses as soon as you know when the 24 month rule kicks in.
Where the company reimburses your business calls you should be able to identify them to support such a claim. If any private calls and rental are reimbursed then this counts as earnings and PAYE tax and NIC will be payable. Where the phone is used for business only, then this can be avoided by arranging for the contract with the phone provider to be put in the name of the company.
The provision of a single mobile phone is not a taxable benefit but the contract must be in the name of the company. Where an employee has more than one mobile phone on which private calls can be made, then they can choose which phone is to be the taxable phone for the year.
Where your company provides internet access at your, the director’s home, solely for business purposes and the bill does not distinguish between private and business, then provided any private use is insignificant and does not affect the cost of the package, then no benefit -in-kind arises.
If you, the individual, are the subscriber and your company reimburses you the costs, then the amount attracts Class 1 NIC and is a benefit-in-kind.
Where the company pays for business entertaining keep all receipts and keep a record of the attendees and the purpose of the expense.
There are a number of other benefits that HMRC will check on but the above should cover some of the main areas that affect freelancers.