Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.

Electric Cars

Electric company cars can be good for both employers and employees. There are now favourable Benefit in Kind charges for employees and tax deductions for the employer. The Government clearly has an agenda to encourage electric car take up, but for the moment we can all share in the tax benefits.

For the 2021/22 tax year, where the car is 100% electric, the Benefit in Kind charge is just 1% of the list price of the car. This rises to 2% for each of the next three tax years. This charge covers all the costs incurred by the company in connection with the car, except for the provision of a chauffeur and the payment of fines and penalties.

Further benefits can be provided as well as the car including insurance , maintenance, installation of a charging point at the employee’s home, and provision of a charge card to allow access to charge points. No additional benefit is charged.

All this can be provided as part of a salary sacrifice arrangement. Salary sacrifice arrangements only work in specific circumstances, and this includes the provision of an electric car. If the employee makes payments towards the benefit out of their gross salary, the employer does not have to pay national insurance contributions at 13.8% (15.05% in 2022/23) on the salary sacrificed while obtaining a contribution towards the expenses that they are incurring in providing the car. A win-win situation for both employee and employer, with generous tax savings for both parties.

An outright purchase of an electric car means that first year allowances can be claimed with a significant potential reduction business tax in the year of purchase.

A lease can be that of an operating or a finance lease and we will not go into the differences here but at the end of the day, the costs will all be allowable.

If the car is not used exclusively for business purposes, it is not possible to reclaim the VAT on the car purchase. Very few cars will qualify. For leased cars, it may be possible to reclaim 50% of the VAT payable on the lease payments.

Fitting electric charging points will be eligible for a 100% deduction against taxable profits in the year the expenditure is incurred.

Where an employee charges their car at home, no VAT can be reclaimed as the electricity supply is to the employee not the company.

Where the car is charged at the employer’s premises, only the proportion of VAT attributable to the business mileage can be reclaimed. 

For owner-managed businesses, there is scope for tax arbitrage in the case where an electric car is provided to an employee (e.g., spouse, civil partner or significant other). The employer would obtain full tax relief on the costs of providing the car, but the employee would be taxable only on the low benefit in kind. If this sort of planning is undertaken, records should be kept to show that the total remuneration received by the employee is in line with what any other employee would receive.

What this means is that you can now provide tax efficient cars for members of your family and, for the moment, put all the costs through the business.

MPs call for road pricing

The impending ban on the sale of new diesel and petrol vehicles will leave a big gap in tax revenues for the government. MPs on the governments own Transport Committee have been looking at solutions.

They are recommending a road pricing system, based on miles travelled and vehicle type using telematics, would enable the government to maintain the existing link between motoring taxation and road usage. This would include all road vehicles including foreign drivers and be based on based on technology which would measures road use.

MTD will raise costs for small traders

A recent study has been looking into costs as well as the perception of how these costs will change.

Costs have already risen due to the cost of implementing software combined with the increased time spent submitting a VAT return. You can add to this the concerns about the cost of the software increasing or being discontinued.

Where businesses have tried to cut cost by using bridging software which enables them to continue using spreadsheets, there were concerns that providers will stop providing bridging software so that users will be forced to change their systems again in the not too distant future.

There is also anxiety amongst those using free or very cheap software that there is likely to be an increase in fees as providers end free trials and special offers.

Research commissioned by HMRC into the impact of MTD has found that the benefits of Making Tax Digital for VAT identified by participants using fully compatible software included reduced scope for error, saved time, increased VAT confidence and greater financial confidence, insight and control. These benefits in turn resulted in reduced emotional stress and anxiety.

Those who felt the benefits outweighed the costs tended to be more focused on growth, at an earlier stage in the business life cycle and more able to adapt to change. They were willing to innovate and try new approaches and also tended to have multiple employees and a high number of financial transactions.

Participants who felt neutral about the costs and benefits of Making Tax Digital for VAT tended to have already been using accounting software and experienced only a minor change.

For other software users, the costs outweighed the benefits as they had simple financial requirements.  For them, fully compatible software felt overly complex and sophisticated for their needs.

Participants who had progressed from using paper ledgers to spreadsheets with bridging software reported saving on accountancy fees due to being able to digitally share their records with their accountant, saving their accountant considerable time. Bridging software was therefore seen as an acceptable compromise between small businesses and HMRC. I

HMRC increase interest rates

The Bank of England Monetary Policy Committee voted on 2 February 2022 to increase the Bank of England base rate to 0.50%.

HMRC have accordingly announced that their late payment interest rate will increase by 0.15% to 2.75% from 4 January 2022.

The rate, which applies to late payments of the main taxes and duties administered by HMRC, is tracked at 2.5% above the base rate. It had previously been held at 2.6% since April 2020.

The repayment interest rate of 0.5% remain unchanged.

Pension Taxes

Pension tax reliefs

Tax relief boosts the value of your pension pot immediately, so cannot be ignored. It is 20% of the amount going into your pension. So, if you pay £80 into a self-invested personal pension (SIPP) or workplace pension, that will be topped up to £100 whatever your marginal (or top) tax rate. Your pension pot is automatically boosted by 25%.

Because higher rate taxpayers can claim additional relief on their tax returns, every  £100 in their pension pot only cost them £60 after the tax reliefs. That is effectively a 66.7% return before any investment growth.

Salary sacrifice

The employee agrees to a lower gross income and the employer paying the difference into a pension alongside their usual contributions. Both employee and employer will as a result pay lower National Insurance contributions (NICs), which are set to rise in April, and this makes pension saving even more tax efficient. 

Also, where you are close to the earnings threshold where the higher 40% tax rate kicks in, you could dip under it by using salary sacrifice pension contributions.


There are ceilings on what can be saved tax-free.

For most people the total sum of personal contributions, employer contributions and government tax relief received cannot exceed the annual personal allowance of £40,000 (2021/22). But the rules can get quite complicated.

Also, you cannot contribute more than 100% of your earnings to a pension during the tax year.

There is also a lifetime allowance restricting how much you can build up in pension benefits over your lifetime while still enjoying the full tax benefits. Exceeding the lifetime allowance of £1,073,100  will lead to additional tax charges on the excess when you come to take your pension benefits.

Carry forward of unused allowances

The pension annual allowance is £40,000.

Unused allowances from up to the three prior tax years can be used in the current tax year but you must use the current year’s annual allowance first.

You could potentially carry forward up to £120,000 of unused allowances and add them to this year’s £40,000 allowance.

But remember that you are still limited to 100% of your salary in the tax year you are making the contribution, regardless of how much you have available from previous annual allowances.

Tax-free pension lump sum 

Up to 25% of your pot can be accessed tax free currently from 55, but set to rise to 57 from 2028. 

Money purchase annual allowance trap 

If you are planning to access your pension you need to think carefully about both the tax impact and the effect it will have on your ability to save further amounts into pensions in the future.

Anyone who makes a flexible withdrawal from their retirement pot beyond the 25% tax-free lump sum triggers the money purchase annual allowance which permanently slashes their annual allowance from £40,000 to just £4,000, and revokes the privilege to carry forward unused allowances from previous tax years.

High income child benefit tax charge 

If you or your partner have registered for and claim child benefit, and one of you earns more than £50,000 a year, you’ll be liable for the high income child benefit tax charge. This can be a major irritation for some couples as it needs to be paid through self-assessment. The charge increases gradually depending on how much you earn. For those earning £60,000 or more, it equals the total amount of the child benefit.  

This means lots of people choose not to claim child benefit – but by not claiming, you or your partner might miss out on National Insurance credits that count towards state pension entitlement. 

One option is to register for child benefit but opt to not receive it.  So you don’t have to pay the tax charge but still accumulate NI credits.

A salary sacrifice arrangement may be another way with the top up going into your pension contributions to take your gross earnings below the £50,000 threshold.

Inheritance planning

If you die before age 75 your fund can be passed on to your beneficiary tax-free, while if you die after 75 it is taxed in the same way as income when your beneficiary draws an income. Furthermore, if your beneficiary dies before age 75 they too can pass on any untouched funds tax-free – even if you died after age 75. 

Therefore, it’s essential that you arrange for your pension to go where you want it to – particularly as this can change according to your family circumstances. 

By completing a nomination form your beneficiaries will have more options to ensure this is taken as tax efficiently as possible based on their circumstances at the time. 


Even savers without earned income who don’t pay tax can still pay into a pension and receive 20% tax relief. In this case, the ceiling on annual pension saving is £3,600, made up of your contribution of £2,880 and the taxman’s contribution of £720.


If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.



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