Keeping HMRC Happy: Navigating the UK Tax Maze of Travel and Entertainment Expenses

The world of business travel and entertainment can be a bit of a minefield when it comes to tax. What can you claim? What can your employees claim? And what will land you with a hefty tax bill? Let's break down the key differences in how the UK tax system treats travel and entertainment expenses for staff versus clients.

Travel Expenses: Generally Deductible

The good news is that genuine business travel expenses are usually tax-deductible. This applies to both you and your employees. Here's what HMRC generally considers acceptable:

• Travel to a temporary workplace: If you or your employees need to travel to a location different from your normal workplace for a temporary assignment, the travel costs are usually deductible.

• Business trips: Travel costs for attending conferences, meetings, or visiting clients are typically allowed.

Important Note: The travel must be necessary for the business, and the expenses must be reasonable. Commuting to your normal place of work is not deductible.

Staff Entertainment: A Tricky Area

When it comes to entertaining staff, things get a bit more complicated. Here's the general rule:

• Tax deductions for entertaining staff. HMRC generally allows deductions for costs incurred when entertaining staff provided that it is wholly and exclusively for business purposes and is not excessive. This includes things like staff parties, team lunches, or social events.

• Benefits in kind for employees. Although the expenditure is allowable for the business the employee may have to pay income tax on the entertainment received from the employer. In this event many employers choose to include these items in a settlement with HMRC known as a PSA.

• Other examples:

• Annual events: You can hold an annual event for staff, such as a Christmas party, and the cost may be tax-deductible up to a limit of £150 per head and tax free for the employee. This event must be open to all staff.

• Trivial benefits: Read our blog here around Christmas parties and trivial benefits. 

Client Entertainment: Proceed with Caution

Entertaining clients can be a valuable business tool, but the tax rules are strict. Here's what you need to know:

• No tax deduction for most client entertainment. HMRC generally disallows deductions for the cost of entertaining clients. This includes taking clients to dinner, sporting events, or the theatre.

• Exceptions: Again, there are limited exceptions:

• Overseas clients: Entertainment expenses for overseas clients may be deductible in certain circumstances.

• Incidental entertainment: If the entertainment is incidental to a business meeting with a clear business purpose, it may be allowed.

Key Takeaways

• Keep accurate records: Meticulous record-keeping is essential to support any expense claims.

• Understand the rules: The rules around travel and entertainment expenses can be complex. When in doubt, seek professional advice from an accountant or tax advisor.

• Consider alternatives: Explore alternative ways to reward staff or build client relationships that don't involve lavish entertainment and may be more tax-efficient.

By understanding the UK tax treatment of travel and entertainment expenses, you can ensure your business remains compliant with HMRC regulations while effectively managing your expenses.

Autumn Budget 2024 deeper dive - Businesses

There was a huge amount of information within the budget documents so here are the main points for businesses.

What hasn’t changed?

• The main rate of Corporation tax is still at 25% and appears to be capped for the duration of this parliament

• Full expensing on capital items and the £1m Annual Investment Allowance remain unchanged

• Research and Development Tax Credits rates have not been changed 

• VAT rates remain the same

• Fuel Duty is frozen and the temporary 5p cut announced in March 2024 has been extended to 22 March 2026

Now for the changes…

Employers National Insurance:

The big news coming out of the budget for businesses, was the increase in the employer National Insurance rates. We have put together some simple calculators to assess the impact of these changes for your business, contact us here and we can send these over to you 

The headline changes on Employers National Insurance Contributions are :

• From April 2025 the rate of contributions is increasing by by 1.2% from 13.8% to to 15% 

• From April 2025 the threshold at which employers start to pay contributions on an employees salary reduced from £9,100 down to £5,000

• To ease the burden of these increases the employment allowance is raised from £5,000 to £10,500 also from April 2025. There is no change to the restrictions on who can claim the employment allowance with Sole director companies still excluded and groups of companies only having one allowance between them

• The increase in the employer's NIC rate also applies to Class 1A contributions paid on benefits in kind and Class 1B contributions paid on PAYE settlement agreements.

• Salary sacrifice arrangements with employees can help reduce the impact of these rises

National Living Wage Increases from April 2025

• The hourly rate for over 21’s  is increasing from £11.44 to £12.21 ph an increase of 6.7%

• The rate for 18-20’s is increasing from £8.60 to £10ph

• Under 18’s and apprentice rates are increasing from £6.40 to £7.55 ph

Company vehicles

• Double cab pick ups - see our blog post here on these changes from April 2025

• The 100% first year allowances for companies purchasing electric vehicles was due to come to an end in March 2025 but this has been extended for 12 months to March 2026.

• Company car tax rates for company car drivers have been announced up to 2029/30. The percentages that apply up to 2028 are here. Electric car rates will increase by 2% each year, rising to 7% in 2028/29 and 9% in 2029/30.

• The hidden surprise was for hybrid company car drivers whose percentage is calculated by reference to the number of zero emissions miles their vehicle can do. This condition is being removed and all hybrids will have a fixed percentage of 18% for 2028/29 and 19% for 2029/30 an increase of 13% for the worst hit!

• All other company car rates will increase by 1% each year.

As always, get in touch if you need any help or have questions!

Autumn Budget 2024 deeper dive - Individuals

There was a huge amount of information within the budget documents so here are the main points for individuals.

What hasn't changed

• Income tax rates and thresholds remain the same and continue to do so until 2028/29. The government have said that they will then rise in line with inflation reducing the “fiscal drag”

• Employees and self employed  National Insurance contributions rates have not changed.

• The abolition of the Furnished holiday letting regime is still going ahead from April 2025.

• There have been no changes to tax relief on pension contributions or the ability to draw a tax free lump sum from your pension pot. 

• ISA investment limits remain fixed at their current levels until 2030.

• High Income child benefit charge (HICBC) - The previous government proposed in the spring budget to move to a household income based charge rather than the current charge based on the highest earners income. It was confirmed in the budget that this proposal will not be considered further and the current system will remain unchanged. The increased income threshold of £60,000 for 2024/25 onwards hasn't been changed.

Now, for the changes….

Capital Gains Tax

It was expected that Capital Gains Tax rates would increase and this was confirmed in the Autumn Budget. Here are the new rates:

• The lower rate of 10% for basic rate tax payers has increased to 18% and the higher rate of 20% for higher rate taxpayers has increased to 24% with effect from budget day - 30 October. This change aligns the rates with the higher rates for disposals of residential properties so we are back to having just the two rates again.

• Business asset disposal relief - this relief applies where an individual disposes of their business, or shares in their qualifying company, and previously the rate was 10% on the first £1m of gain and 20% thereafter. The lifetime limit of £1m remains but the rates of tax are going up as follows

• Disposals between budget day and 5 April 2025 - no change - 10% on first £1m of gain then 20%

• Disposals between 6 April 2025 and 5 April 2026 - 14% on first £1m of gain and then 24%

• Disposals after 6 April 2026 - 18% on first £1m of gain and then 24%

Inheritance tax

The major change here is for businesses owners and farmers. Previously the value of qualifying business property (shares, land and business assets) was relieved from Inheritance tax. From April 2026

• Business property relief and agricultural property relief will be 100% of the first £1m of asset value

• Relief is restricted to 50% on the asset value over £1m giving an effective IHT rate of 20%

• Business property relief is also restricted to 50% on unquoted AIM listed shares (previously 100%) 

Another change to be aware of, Inherited pensions funds are generally outside of a person's estate for Inheritance tax purposes however from April 2027 these funds will become part of a person's taxable estate and subject to Inheritance Tax at 40% (on current rates)

Stamp Duty Land Tax (SDLT)

The additional rate for the purchase of any additional residential properties increased from 3% to 5% from 31 October 2024

Non UK domiciled individuals

The current regime is being scrapped in favour of a residence based scheme. This is a really complex area which requires specialist advice so we won't go into the details but it will apply to individuals arriving in the UK and becoming resident in the UK with overseas income and gains. 

Making Tax Digital for Income Tax (MTD for ITSA)

It is now confirmed that MTD for ITSA will go ahead from April 2026 after a number of delays.

MTD will affect individual sole traders and landlords with those having a combined turnover of £50,000 or more in the 2024/25 tax year joining the scheme from April 2026. In April 2027 those with combined turnover of £30,000 or more will join the scheme. The government confirmed those with combined turnover of £20,000 or more will eventually join but the date is unconfirmed. Check out our MTD blog for more detailed information.

Contact us to chat about any of the budget announcements or your personal tax situation.

Dext - New features alert!

Here at Lodestar, we know that time is your most valuable resource.

Running a business means balancing multiple tasks everyday—and when it comes to accounting, it can often feel like you’re drowning in paperwork and receipts. 

When we look after your bookkeeping, you will be set up onto a software called Dext. Recently, Dext has introduced some fantastic new features that can save you even more time, reduce manual errors, and make your financial management smoother and more accurate.

In this blog post, we’ll walk you through some of the latest updates coming to Dext and explain how these new tools can help your business stay organised and efficient.

Upload PDF Files Directly via the Dext Mobile App

As a business owner, you're probably always on the go. Whether you're meeting clients, attending events, or managing daily operations, you don't always have the time to sit down at your desk to process your receipts and invoices. But now, with Dext’s new mobile app feature, uploading PDF files has never been easier. 

Using the in-app gallery (available on both iOS and Android devices), simply snap a photo or select your PDF file and send it directly into Dext’s secure system.

Dext has also added Share Sheet importing - with just a few taps, you can select and upload documents straight to your Dext account, whether they’re saved in your cloud storage, local file system, or elsewhere.

Track Your Mileage with Ease Using Dext

Dext’s Mileage Tracking feature allows you to easily track and log the miles you drive for business purposes, so you never miss out on potential tax deductions. Whether you’re attending client meetings, running errands, or driving between business locations, you can automatically record your mileage, making it easier to track your business vehicle use.

Some of the key features include:

• Automatic Trip Logging with GPS tracking

• Simple Categorisation

• Customisable Rate for Tax Deductions

• Manual Entry Option

Whether you’re driving a company car or using your personal vehicle for business, Dext’s Mileage Tracking feature ensures you don’t miss a mile. With automatic tracking, easy categorisation, and quick reporting, Dext takes the hassle out of mileage logging and makes sure you can claim every eligible mile when tax time comes.

If you need help getting started with Dext, have questions about any of the latest features, or need assistance with your general bookkeeping, our team is ready to support you every step of the way.

Double Cab Pickups - car or van? It depends.... (and it's changed!)

What is a Double cab pickup?

It is a vehicle that has a front passenger cab with a second row of seats to fit around 4 passengers plus the driver. It has 4 separate doors, and an uncovered pickup area at the rear.

These have been a popular purchase for businesses to use as company vehicles. They are big enough to use as a work vehicle yet also suitable for day to day personal/family use.

And…as long as the model chosen had a payload of at least 1 Tonne, it could be treated as a commercial vehicle for company tax purposes, making it a tax efficient option as well as a practical one.

Earlier this year there was a decision to change the tax treatment of these vehicles by HMRC that was very quickly overturned.

However, in the October budget, it has been reviewed again and from April 2025 these vehicles will now be taxed as cars.

This means: 

• Lower Capital allowances- No first year allowances or Annual Investment Allowances.

• Benefit in Kind value will be higher - The benefit will be based on the value of the vehicle, its fuel and its emissions, rather than the flat rate for commercial vehicles. This will cost the company more in Class 1A National Insurance, and the user of the vehicle will have a higher personal tax bill.

In short, it will become much less tax efficient to have a double cab pickup as a company vehicle. 

Any purchase of double cab pickups before 1 April 2025 will still be treated under the old rules..

For Benefit in Kind purposes,  there will be a transitional arrangement meaning a double cab pick up purchased prior to 1st April 2025 can be treated as a commercial vehicle until the earlier of - its disposal, the lease expiry or 5th April 2029.

So… if you were thinking of getting a double cap pickup, it may be worth doing so before 1st April 2025.

Autumn Budget 2024 - A Record Breaker!

Today marked the first budget presented by a female chancellor of the exchequer and the biggest tax raising budget since 1993, raising £40bn.

Here we summarise the key changes you need to know about:

National Living Wage

The rate will increase by 6.7% to £12.21 per hour, with the 18-20 year old rate also increasing to £10.00 per hour.

Both of these changes are from April 2025.

Employers National Insurance

The rate is increasing by 1.2% to 15% from April 2025.

The threshold at which employers start to pay contributions on an employees salary is to be reduced from £9,100 down to £5,000.

The employment allowance will be raised from £5,000 to £10,500 ( A company with one director being the only employee on the payroll is still not eligible for the employment allowance).

Capital Gains Tax

The lower rate of 10% is set to increase to 18%. 

The higher rate of 20% is to increase to 24%.

This increase aligns with the current higher rates on disposals of residential properties.

Business asset disposal relief

This is the relief that limits the tax rate on the disposal of your business to 10% provided it has been operating for at least 2 years and is a qualifying business.

The lifetime allowance of £1,000,000 remains in place.

The rate of tax on the first £1m of capital gain increases from 10% to 14% for disposals after 6 April 2025 and to 18% for disposals after 6 April 2026.

The rate of tax on capital gains tax on gains over £1m on business assets will be the normal rates above.

Inheritance tax

Inherited pension pots are currently exempt from Inheritance tax, however they will form part of an estate and be subject to Inheritance tax from April 2027.

Business property relief and agricultural property relief is reduced to 50% on the value of assets over £1m in an estate. This will take effect from April 2026.

Corporation Tax

The rate of Corporation tax rate will be capped at 25% 

Full expensing and £1m annual investment allowances will remain.

R&D rates remain unchanged.

These rates will remain for the duration of the parliament.

SDLT (Stamp Duty Land Tax)

The higher rate on the purchase of additional residential properties will increase from 2% to 5% from 31 October 2024.

VAT

There are no increases to the VAT Rates.

The widely publicised introduction of Vat on private school fees will go ahead from 1 January 2025.

No Changes

Income tax - No changes to the tax rates and thresholds, however the thresholds will be unfrozen from 2028/29 and then rise with inflation.

Employees and self employed National insurance.

Electric company car tax rates beyond 2028.

We will provide more detail on some of these key points shortly but if you want to discuss your own situation, get in touch.

Bookkeeping: A Balancing Act of Balls

Bookkeeping is often compared to juggling multiple balls in the air, each representing a different aspect of a business's financial health. It requires focus and a keen eye for detail to keep all the balls in motion and prevent them from dropping.

Here are some of the balls that bookkeepers must juggle on a daily basis and multiply this over several clients when working in an accounting practice:

• Accounts receivable: Keeping track of invoices, payment due dates, and outstanding balances.

• Accounts payable: Managing bills, supplier  payments, and ensuring timely payments to avoid late fees.

• Cash flow: Monitoring the flow of money in and out of the business to ensure sufficient liquidity.

• Payroll: Calculating salaries, wages, taxes, pensions and other deductions for employees.

• Financial reporting: Generating financial statements such as profit and loss statements, balance sheets, and cash flow statements for internal decision-making and external reporting.

• Internal controls: Implementing and maintaining systems and procedures to efficiently collect data and ensure the accuracy and reliability of financial records on a real time basis.

• Data entry: Recording transactions, reconciling bank accounts, and updating financial databases.

While juggling multiple balls can be challenging, bookkeepers play a vital role in ensuring the financial stability and success of businesses. Their ability to keep track of all the moving parts and maintain accurate records is essential for making informed decisions.

Bookkeepers are the unsung heroes of the business world, working diligently behind the scenes to keep the financial balls in the air, allowing business owners to focus on their core operations and drive growth.

Link My Books Insights: Unlocking the Power of Your eCommerce Data

In the fast-paced world of eCommerce, knowledge truly is power. That's where Link My Books' 'Insights' feature shines. It takes the raw data from your connected sales channels and accounting software and transforms it into actionable information to help you make smarter business decisions.

What can Insights do?

• Profit & Loss at a Glance: See your true profit and loss, taking into account all your sales channel expenses, not just the cost of goods sold. This is crucial for accurate financial planning. (Note this doesn’t replace Xero as it doesn’t account for overheads or corporation tax, but is useful for a snapshot of Gross profit)

• Profit & Loss by Sales Channel: Get a better understanding of your sales and Gross profit across all sales channels. This knowledge can help you assess which sales channels work best for you and where you should focus your energy.

• KPI’s: Insights shows KPI’s that are relevant for ecommerce businesses such as Refund rates, return on investment, Sales growth and Fee ratio. This allows you to track the movement on these KPI’s over time, analysing how changes made in the business are affecting the financial data.

• Benchmarking: See how your KPI’s stack up to the ecommerce industry overall. This allows you to sense check whether movement in your KPI’s are as a result of changes you’ve made in your business, or changes in the overall ecommerce landscape.

Why is this important?

The Insights feature takes the guesswork out of eCommerce. Instead of relying on gut feelings, you can make data-driven decisions that lead to increased sales, improved profitability, and better overall business performance.

If you're serious about growing your eCommerce business, Link My Books is a tool you can't afford to overlook. Not only does it seamlessly bring all the data from your sales channels into Xero, it goes above and beyond to provide insights into that data, enabling you to make informed decisions about your business.

Ready to unlock the power of your data? Get in touch to give Link My Books a try today!

What can we expect from the new government's first budget?

On 29 July the Chancellor Rachel Reeves revealed the first budget will take place on 30 October 2024.

In her speech she painted a grim picture of the country’s finances so what can we expect from the budget?

• Personal Taxes - the Labour party manifesto pledged not to raise the Income tax and National Insurance rates so we shouldnt see any changes there but Capital Gains tax rates and Inheritance tax could be targeted with Capital Gains tax rates being lower than Income tax in most cases.

• Business taxes - Labour pledged that they would not increase Corporation tax rates above 25% for the term of their government so it's possible we could see a change to the small companies rate of 19%.  The business rates system may also see an overhaul.

• VAT - Again there was a pledge not to increase VAT rates, but see below for the changes on private school fees. 

• Pensions have been in the spotlight with a new Pension Schemes Bill mentioned in the King's speech  so we may see some changes to the rules on how pensions are taxed.

What we already know

• The much publicised addition of Vat to private school fees will go ahead - draft legislation has been issued for this to start on 1 January 2025 with anti avoidance rules to stop forward paying of fees between now and then. The intention is that nurseries will remain exempt and before and after school clubs and holiday clubs which are childcare based (not education based) will remain exempt 

• Furnished holidays lets - The previous government announced that the favourable tax treatment of holiday lettings was to be abolished from 6 April 2025 - this will remain with draft proposals of the changes now being released.

• Non-domiciled individuals - The previous governments plans to remove the domicile concept from the tax system and move to a residence based system for offshore income and gains will remain and start from 6 April 2025.

• Winter fuel payments are abolished for all pensioners except those receiving pension credits and means tested benefits.

• The new government want to tackle the “Tax gap” and have promised to invest in HMRC capacity to improve service levels and address non-compliance so we can expect to see an increase in HMRC activity in these areas