MARCH - ISSUE 26
GO FIGURE FINANCIAL EST. 2013
C O N T E N T S | M A R C H 2 0 2 6 -14-13-10-09-06-16-
DISINCORPORATION OF A COMPANY
KEEPING DIGITAL RECORDS FOR MAKING TAX DIGITAL
TAX IMPLICATIONS OF REIMBURSING EMPLOYEES’ EXPENSES
HOW CAN SOLE TRADERS OBTAIN RELIEF FOR TRADING LOSSES?
FREE FUEL – IS IT A WORTHWHILE BENEFIT?
CLAIMING A TAX REFUND
Employees often incur expenses in doing their job and they may be able to claim these back from their employer through the expenses system. Where an employer reimburses expenses, there may be tax implications to consider
Exemption for paid and reimbursed expenses
A tax exemption applies to certain paid and reimbursed expenses It is available if the expenses which are paid or reimbursed by the employer would be fully deductible from an employee’s earnings had the employee met the cost themselves
Employees are allowed a deduction for expenses which are incurred wholly, exclusively and necessarily in the performance of the duties of the employment The tax legislation also allows a deduction for a number of specific expenses, such as certain travel expenses and fees and subscriptions paid to bodies approved by HMRC
As long as this test is met, the exemption applies regardless of whether the employer meets the cost at the outset or the employee pays initially and is reimbursed by the employer For example, if an employee is required to attend a meeting at a client’s office, the employee would be able to deduct the associated travelling costs if they met them themselves As this test is met, if the employer pays the cost, for example by purchasing a train ticket for the employee, or reimburses the employee’s travel costs, the exemption would apply and there would be no tax consequences in either case
How can sole traders obtain relief for trading losses?
Many employees see being allowed the use of their own company car as acknowledgement of their status in a company While the employee will be taxed on the benefit, the tax charge is usually not as high as having to finance the car out of their own savings or taking out a loan However, should the employer also offer to pay for all fuel (usually via use of a company fuel card), including for personal use, the employee could face a sizeable tax (and NIC) charge Many company car users are unaware that unless they fully reimburse their employer for private fuel use, they will be taxed on a fuel benefit – even if the private mileage is relatively low Private fuel use includes commuting to and from work
Crucially, the charge is not based on how much fuel is used privately Rather, it is based on the cost of an average company car (£28,200 for 2025/26) multiplied by the appropriate percentage based on the car’s CO2 emissions For 2025/26, the appropriate percentages range from 3% to 15% for cars with CO2 emissions of 1–50g/km to 37% for cars with emissions greater than 155g/km. Diesel cars are charged a 4% supplement on these percentages (although the appropriate percentage is ‘capped’ at 37%).
A table of the specific percentages can be found at:
https://www.gov.uk/guidance/company-car-benefit-the-appropriate-percentage-480appendix-2#petrol-powered-and-hybrid-powered-cars-for-the-tax-year-2025-to-2026
It is reasonable to assume that if a person pays too much tax, HMRC will automatically send the overpayment back to them Unfortunately, this is not the case, and where a taxpayer is due a tax refund, they may need to claim it.
Why an overpayment may arise
There are various reasons why a person may pay more tax than they need to. For example, where a taxpayer is in Self-Assessment and makes payments on account, if their circumstances change and their income falls, they may have paid more than they need to. An employee may pay too much tax if they have been given the wrong tax code, or if they have only worked for part of the tax year and not had the benefit of their full personal allowance
Determining if you have overpaid tax
There are various routes by which a tax overpayment can come to light For example, taxpayers who do not complete a Self-Assessment tax return and have paid too much tax will receive either a P800 calculation or a Simple Assessment letter These are normally sent out between June and March following the end of the tax year The letter will tell them that they have paid too much tax and how to claim a refund If the taxpayer is within SelfAssessment, they will not receive a letter However, they may find out that they have overpaid tax when they complete their Self-Assessment tax return
However, if HMRC’s return software is used to complete the return, remember the tax calculation does not take into account any payments that have already been made, and when these are deducted from the amount that the taxpayer owes, it may become clear that the taxpayer has paid too much
A taxpayer can also check whether they have paid too much by looking at their personal tax account online or via the HMRC app
Where a taxpayer needs to claim a tax refund, there are various ways in which this can be done. A claim can be made online using the tool on the Gov.uk website at www.gov.uk/claim-tax-refund. A tax refund can also be claimed through the taxpayer’s personal tax account or via the HMRC app. The refund will normally be made within five days of making the claim online.
If the tax calculation letter tells the taxpayer that they will receive a cheque, they do not need to claim a refund. The cheque will normally be sent within 14 days of the date on the letter
Where the taxpayer is within Self-Assessment, HMRC may not issue a tax refund if a tax payment, for example, a payment on account, is due within 45 days Instead, they will set the refund against the next tax bill
Interest is paid on overpaid tax at a rate of 1% below the Bank of England base rate, subject to a minimum level of 0 5%