Author: Glenn

The tax you pay on the use of a company car depends largely on its CO2 emissions, so choosing a lower emission or electric vehicle can make a significant difference to your overall tax cost.

The benefits in kind (BIK) tax on company cars can be quite significant, with taxable rates ranging from 3% to 37% of the car’s list price when new. The rate depends on various factors, primarily the car’s CO2 emissions and fuel type. For instance, a petrol fuelled car emitting 155 g/km of CO2 or more would be taxed at the highest rate of 37% of its original list price. In contrast, an electric car with a range of 130 miles or more could benefit from the lowest rate of just 3%, significantly reducing the taxable benefit.

This creates a strong incentive for those driving company cars to switch to electric vehicles, as they would experience a noticeable reduction in their tax liability. This shift not only benefits the employees but also employers, who will see a decrease in Class 1A National Insurance contributions. These contributions are based on the total value of benefits provided in a tax year, so switching to electric vehicles helps lower overall costs for the employer.

Diesel cars attract an additional 4% supplement if they do not meet the Real Driving Emissions 2 (RDE2) standard. However, the supplement is removed entirely for diesel vehicles that are RDE2 compliant. The maximum BIK rate, including any diesel supplement, remains capped at 37%.

The taxable benefit is typically calculated based on the car’s manufacturer’s list price, which includes VAT, delivery charges, and number plates. The price considered is the list price on the day before the car is first registered. Any additional accessories fitted to the car also increase the taxable value. There are some exceptions. Employees can also reduce the list price by up to £5,000 if they make a capital contribution towards the cost of the vehicle. Special rules apply to classic cars, which have their own method for calculating the list price.

If your business has relatively low VATable expenses, the VAT Flat Rate Scheme can simplify your VAT reporting and may also improve cash flow.

The VAT Flat Rate Scheme is designed to simplify VAT accounting for small businesses. Instead of calculating VAT on each sale and purchase, businesses pay a fixed percentage of their total turnover, including VAT. This percentage varies depending on the type of business activity and is set by HMRC.

The scheme reduces the complexity of VAT compliance by eliminating the need for detailed calculations and record-keeping of input VAT on purchases.

To be eligible for the scheme, a business must expect its annual taxable turnover (excluding VAT) to be no more than £150,000 in the next 12 months.

The advantages of the VAT Flat Rate Scheme include:

• Simplified VAT Administration. Businesses don't need to calculate VAT on each sale or claim VAT on most purchases, reducing time and effort involved in VAT reporting.
• Predictability of VAT Payments. The fixed flat rate percentage makes it easier to predict and budget for VAT payments, improving cash flow management.
• Potential Financial Savings. If your business has minimal expenses that are subject to VAT, you may pay less VAT overall compared to the standard VAT method.
• Ideal for Service-Based Businesses. Businesses with minimal goods purchases, such as consultants, IT professionals and freelancers, often benefit the most. This is especially true if they are not classified as limited cost traders.
• 1% First-Year Discount. This temporary discount provides a cash flow boost, which can be especially useful for new or growing businesses. It only applies in the first year of VAT registration.

While the scheme can greatly simplify VAT reporting and reduce administrative burdens, businesses should regularly assess its suitability, as it may not always remain advantageous as a company expands or its circumstances change.

Recently, a clear legal precedent confirmed that the nature of an individual's work is determined by the reality of the actual employment relationship rather than by arbitrary titles. Mr. Gooch worked for the British Free Range Egg Producers Association (BFREPA) from 1 November 2011 until 26 April 2024, initially as a Policy Director on a "contracted services basis" for 2.5 days per week. The organisation, originally an unincorporated association, subsequently became an incorporated company in 2023 (BFREPA Ltd.), although the nature of its work was unaltered.

As Mr. Gooch's role evolved, so his compensation increased and, by 2016, he had effectively been promoted to Chief Executive of Services. Throughout his 12.5 years of engagement, he consistently submitted monthly invoices and was paid a retainer due to his self-employed status, without formally establishing a limited company. In February 2023, BFREPA's leadership expressed concern that their arrangement with Mr. Gooch looked remarkably similar to an employment relationship rather than a self-employed contract, even suggesting that the HMRC would likely classify him as an employee. As a consequence [of the evolving employment history of Mr. Gooch], in March 2023, BFREPA elected to give him 12 months' notice of termination, and he continued working until April 2024, at which point his email access was disabled, and he received a letter confirming that his contract would not be renewed. Mr. Gooch duly lodged claims against both defendants for unfair dismissal, unauthorised deductions from wages, unpaid holiday, wrongful dismissal for failure to pay statutory notice, and breach of contract relating to pension auto-enrolment. 

The Tribunal ruled that the claimant was a de facto employee, working under a contract of employment as defined by Section 230(1) of the Employment Rights Act 1996, Section 2 of the Working Time Regulations 1998, and Section 88(2) of the Pensions Act 2008. The Tribunal further concluded that personal service was a core requirement of the contract, one which contained no general substitution clause, and that the extent of the control was consistent with an employer-employee relationship for a senior employee alongside other strong indicators of a permanent employment relationship. The contracts also contained restrictive clauses that limited his ability to work for other companies in the same sector, a feature more commonly found in employment contracts than in contracts for service. 

This ruling provides a clear and detailed example of how a tribunal will look beyond the contractual terms to assess whether a person is an employee or a self-employed contractor. Employers cannot rely on a "contract for services" or a person's self-employed status to avoid the legal obligations of an employer. Instead, tribunals will scrutinise key factors such as the mutuality of the obligations, the degree of control, and the extent of integration in the business. Employers who treat long-term contractors like employees—providing them with a fixed monthly retainer, dictating their hours, and effectively integrating them into the business—risk having them reclassified as employees, and HR departments should ensure that contracts reflect the true nature of the relationship to avoid repercussions.  

Last week, we covered the new requirement for directors and persons with significant control (PSCs) to verify their identities from 18 November 2025. This process will be rolled out over 12 months, with Companies House reaching out directly to companies, providing guidance on what actions need to be taken and the deadlines for each step.

According to Companies House, ID verification is a significant step forward for UK businesses and offers numerous benefits. Ensuring that company directors and PSCs verify their identities, will help make sure that the people setting up, running and controlling companies are who they say they are.

This is intended to:

• improve the accuracy and reliability of data on the register;
• strengthen protections against fraud; and
• support a more transparent and trusted business environment.

This also enhances the credibility of data held by Companies House, which is important for businesses looking to build trust with investors, consumers and potential business partners. A verified presence on the register can help a business demonstrate they are legitimate and professional, helping them stand out in the competitive business landscape.

The introduction of ID verification will also make it harder for fraudsters or criminals to create anonymous corporate structures for illicit activities. This added layer of security strengthens the business environment by reducing the risks associated with fraud and economic crime.

For businesses, being listed on Companies House with verified details can boost credibility, aiding in securing contracts, attracting investors and accessing finance. It can also enhance opportunities for due diligence, helping companies evaluate potential suppliers and customers more confidently.

Change is part of every business journey. Whether it is prompted by new technology, regulation or shifts in the market, the ability to adapt determines how well a business performs in the long term. Yet managing change is not simply about introducing something new. It is about understanding what needs to change, why it matters and how to make the transition smoothly while keeping your team and clients on side.

The most successful businesses approach change as a structured process. It begins with recognising the need for change. This might come from declining profits, new reporting requirements, or a drive for greater efficiency. Once the need is clear, the next step is to define what the future should look like and what success will mean in measurable terms. For instance, a firm may aim to automate routine tasks, improve cash flow management or expand into new markets.

Good planning follows. This includes identifying resources, setting timelines, assigning responsibilities and communicating openly with everyone involved. People need to understand what is happening, when it will happen and what it means for them. Regular updates, clear information and honest answers help to reduce anxiety and build commitment.

Implementation is where plans become action. Training, testing and feedback are all essential at this stage. It is important to remain flexible and to make adjustments as issues arise. Small, visible wins also help to maintain motivation and demonstrate that progress is being made.

Once changes are in place, they need to be sustained. This means updating policies, embedding new processes into everyday work and making sure that improvements are monitored. Without ongoing attention, even successful changes can fade away over time.

Every change, whether large or small, brings both challenges and opportunities. The process can seem daunting, but a clear plan and the right guidance make a real difference. The aim is to move forward with confidence, maintaining control and ensuring that the change strengthens the business rather than disrupts it.

If you are facing a change process, whatever that might be, then pick up the phone. We can help you plan and meet your challenges.