HMRC has amended guidance on the tax treatment of electric charging of company cars and vans at residential properties
The costs of charging are now treated as a tax-free benefit, whereas in the past HMRC said that where an employer reimburses their employee for the cost of charging a company-owned, wholly electric car that is available for private use, the reimbursement was taxable as earnings.
HMRC has now changed this position and has updated the EIM23900 manual to reflect their revised interpretation regarding home charging of electric company cars.
Section 239 ITEPA 2003 provides an exemption on payments and benefits provided in connection with company cars and vans. This legislative provision therefore exempts aspects such as vehicle repairs, insurance, and road tax.
HMRC previously maintained that the reimbursement of costs in relation to charging a company car or van at a residential property was not caught by this exemption.
‘Following a review of our position, HMRC now accepts reimbursing part of a domestic energy bill, which is used to charge a company car or van, will fall within the exemption provided by section 239 ITEPA 2003,’ HMRC confirmed.
This means that no separate charge to tax under the benefits code will arise where an employer reimburses the employee for the cost of electricity to charge their company car or van at home.
The exemption will however only apply providing it can be demonstrated that the electricity was used to charge the company car or van.
Employers will need to make sure that any reimbursement made towards the cost of electricity relates solely to the charging of their company car or van.
For the first time in over a year, the Bank of England has maintained the current interest rate at 5.25%
The decision to hold the base rate comes after the minimal drop in inflation to 6.7%. The monetary policy committee voted by a majority of 5–4 to maintain bank rate at 5.25%. Four members wanted to increase the interest rate by 0.25%, to 5.5%.
This means that HMRC interest rates will remain at 7.75% until at least November when the Bank meets again.
The Bank also indicated that it expects inflation to return to the 2% target in the medium term, but unlike last month’s report, did not put a timeframe on its earlier estimate of Q2 2025.
‘Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term,’ the Bank noted. ‘Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.’
CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation, the Bank said. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.
Nigel Green, chief executive of deVere Group, the financial advisory and asset management firm, said: ‘The central bank policymakers should go further and commit to stopping the hiking agenda, rather than just pausing it.
‘The battle against inflation is gradually being won. Further stifling economic growth by resuming rate rises next time around will lead to yet more decline in investment, entrepreneurial activity, development, innovation – and therefore jobs and a decline in overall economic well-being.
‘As such, this is now the time for the BoE to stop – not pause – interest rate hikes.
‘The time lag for monetary policies is notoriously long. It typically takes about two years for the full effect of rate hikes to filter fully into the economy – and this is where we are.’
The impact of soaring interest rates has had a punitive impact on businesses exposed to high borrowing.
Nils Kuhlwein, partner at Kearney, said: ‘While the effect of rising interest rates on UK plc is well-known, closely watched, and priced into future risks, successive base rate jumps over recent years have turned the screw on these companies.
‘Recent Kearney research into companies which are unable to meet interest obligations through operating profit – known as ‘zombie companies’ – shows that if struggling UK companies were forced to refinance at twice the interest rate they enjoy currently, the share of this ‘walking debt’ amongst UK business would increase by almost 10%.
‘Given that many of these companies currently see rates as low as 2-3% on some debt, this is hardly unreachable.’
HMRC has revised interest rates with late payment bills charged 7.75% from 22 August, the highest rate since 2001
The late payment and repayment interest rates follow the rise in the Bank of England base rate to 5.25% on 3 August and are applied to the main taxes and duties that HMRC currently charges and pays interest. The rates will rise to:
- late payment interest rate — 7.75% from 22 August 2023
- repayment interest rate — 4.25% from 22 August 2023
This means that the late payment interest rate will increase by 0.25% to 7.75% from 22 August. The last rate increase was on 11 July. Rates were last this high in August 2007.
Late payment interest is payable on late tax bills covering income tax, National Insurance contributions, capital gain tax, corporation tax pay and file, stamp duty land tax, stamp duty and stamp duty reserve tax. The corporation tax pay and file rate also increases to 7.75%.
Repayment interest will also be increased from the current 4% rate to 4.25%.
Corporation tax self assessment interest rates relating to interest charged on underpaid quarterly instalment payments rises to 6.25% from 6% for the earlier date of 14 August.
With late payment interest now 2.5% above the Bank of England base rate, HMRC continues to pay lower interest to taxpayers affected by overpayments of tax at 4.25%, up from 4%.
The interest paid on overpaid quarterly instalment payments and on early payments of corporation tax not due by instalments rises to 5% from 4.75% from 14 August.
The UK private rental sector has lost approximately 400,000 rental homes since 2016, as landlords face increasing costs and higher mortgage rates
According to a report by CBRE, changes to policy in the past decade have increased the amount of tax payable on both purchasing a buy-to-let property and its rental income, leaving many landlords leaving the market due to growing cost pressures.
This has resulted in the loss of approximately 400,000 rental homes in the past seven years, aligned with the additional rate of stamp duty for second properties, which increased the upfront cost of buying a rental property.
On top of this, the rise of the Bank of England’s base rate, which started in 2022 and has gone from 0.25% to 5.25%, has ultimately led to higher mortgage costs.
CBRE has warned that if the trend continues, the UK will lose almost 10% of its private rented households by the end of 2023.
Scott Cabot, head of residential research at CBRE, said: ‘Changes to policy in the past decade have increased the amount of tax payable on both purchasing a buy-to-let property and its rental income and ultimately have reduced the viability of a buy-to-let investment.
‘More recently this has been compounded by high inflation which has driven a rapid rise in interest rates and increased other costs associated with owning and managing a property.
‘Higher mortgage costs could mean that buy-to-let borrowers may start to struggle to meet banks’ lending criteria. As interest rates rise and mortgage rates increase, the rent needed to satisfy these conditions moves in tandem.’
Landlords who plan to incorporate their portfolios as limited companies, which can offer no charges on capital gains tax (CGT) or stamp duty land tax (SDLT) at the time of transfer, must beware of the strict eligibility rules and unintended consequences.
According to Rick Schofield, a tax expert at accountancy firm Azets, scores of portfolio landlords are incorporating their property portfolio through incorporation relief.
Owning property through a limited company offers a series of tax benefits, with profits and gains being subject to 19% corporation tax rather than income tax at up to 45% or CGT of 28%.
For example, a landlord with five rental properties at a total value of £1m, purchased for a total of £800,000, could save £56,000 on CGT alone.
In Q1 2023, over six in 10 landlords planning to buy a new rental property said they would do so within a limited company structure, according to research by Paragon Bank, a specialist buy-to-let lender.
This followed a 5% increase compared to Q4 last year and a year-on-year rise of 12% to make a return to the high reported in Q2 2022. Landlords who intend to buy as an individual has fallen by 5% since last year, now standing at 24%.
Schofield said: ‘The first thing a landlord should consider when thinking about incorporating is whether they need their rental income to live off. Individuals can’t benefit from incorporation relief, but in a limited company structure, the company pays tax.
‘If you then need the cash, you must take it by way of dividend and you pay tax again. Where a landlord is building a portfolio and doesn’t need the cash immediately, incorporating as a limited company makes absolute sense, but it isn’t straightforward and there are lots of ways to get it wrong.
‘To qualify for incorporation relief on CGT, the limited company needs to be a commercial business. This typically requires five or more properties that the landlord has owned for at least two years and can evidence managing agent hours and activities – for example, collecting rent, managing repairs, and vetting tenants.
‘SDLT is more complex and there is a divergence of opinion around eligibility. Usually, landlords need to incorporate as a limited liability partnership, which then needs to conduct the business for a period of time. This is a grey area, and while most stamp duty lawyers accept two years, landlords must seek appropriate tax advice’