Capital allowances are a mechanism for providing tax relief for capital expenditure.

Relief is generally given in the form of a writing down allowance, although a first year allowance is available for expenditure on new and unused zero-emission cars. Expenditure on cars does not qualify for the annual investment allowance or for the time-limited super-deduction or 50% first-year allowance available to companies. Capital allowances cannot be claimed where the simplified expenses system is used to pay mileage allowances.

Capital allowances for cars can be claimed by both unincorporated businesses and companies. They can also be claimed where the cash basis is used as expenditure on cars cannot be deducted under the cash basis capital expenditure rules.

First-year allowance

A 100% first-year allowance is available for expenditure on new and unused zero-emission cars. This means that the cost can be deducted in full in computing taxable profits in the period in which the expenditure is incurred.

The first-year allowance is only available for new cars; second-hand zero-emission cars only qualify for a writing down allowance.

A balancing charge, equal to the sale proceeds, will arise if the car is sold.

Writing down allowances

There are two rates of writing down allowance – the main rate and the special rate. The available rate depends on the car’s CO2 emissions and the date on which the expenditure was incurred.

New and used cars purchased on or after 6 April 2021 which have CO2 emissions of 50g/km or less (other than new electric cars qualifying for a 100% first-year allowance) are added to the main rate pool and receive main rate allowances at the rate of 18% on a reducing balance basis.

Cars purchased on or after 6 April 2021 with CO2 emissions in excess of 50g/km must be added to the special rate pool. They attract special rate writing down allowances of 6% on a reducing balance basis.

If the car is sold, the sale proceeds must be added to the relevant pool. This ensures that capital allowances are given for the difference between the cost and the proceeds over the life of the car.

Private use

If a sole trader or partner uses a car partly for business and partly for private use, capital allowances are proportionately reduced to reflect the private use. Cars used for business and private use have their own pool rather than being added to the main rate or special rate pool.

Employees

Employees are not able to claim capital allowances for cars, even if they use them for business. The approved mileage rates (which may be paid tax-free up to the approved amount) provide an element to cover depreciation.

For inheritance tax (IHT), there are potentially two nil rate bands available. The first – the nil rate band – is available to everyone and is set at £325,000 until 5 April 2026. An estate does not have to pay any IHT up to this amount.

The second nil rate band is the residence nil rate band (RNRB). This is available where the main residence is left to a direct descendant, such as a child or grandchild. The RNRB is set at £175,000 until 5 April 2026. However, unlike the nil rate band, the RNRB is tapered where the value of the estate is more than £2 million. The RNRB is reduced by £1 for every £2 by which the value of the estate exceeds £2 million, meaning that it is not available to estates valued at £2.35 million and above.

Spouses and civil partners

An IHT inter-spouse exemption means that no IHT is payable on anything that a person leaves to their spouse or civil partner.

Each spouse/civil partner has their own nil rate band and RNRB for IHT purposes. The IHT rules also allow any portion of the nil rate band or RNRB which is not used on the death of the first spouse/civil partner to be transferred to the surviving spouse/civil partner and claimed by their executors on their death. This is useful where a couple wish to leave their estate to their surviving spouse/civil partner in the first instance and to their children following the surviving spouse/civil partner’s death, but do not want to waste their nil rate bands.

Transferring the nil rate band

The percentage of the nil rate band that was not used when the first spouse/civil partner died can be used by the surviving spouse/civil partner’s estate as long as:

• the couple were married or in a civil partnership when the first death occurred; and
• the unused nil rate band is claimed within two years of the death of the surviving spouse or civil partner.

It is important to note that it is the unused percentage of the nil rate band that is transferred, not the absolute amount. This provides an automatic adjustment if the nil rate band changes between the first death and the second death.

The way in which the claim is made depends on whether a full IHT return (IHT400) is needed. If a full return is required, the claim should be made on form IHT402, which should be sent to HMRC with the IHT400 (and any other forms that are required). The IHT400 should be sent to HMRC within 12 months of the date of death.

If the death occurred after 1 January 2022 and the estate is an excepted estate, the transferable nil rate band can be claimed when applying for probate.

Transferring the unused RNRB

As with the nil rate band, the unused percentage of the RNRB is available on the estate of the surviving spouse or civil partner. Again, this must be claimed. This is done on form IHT435 which should be sent to HMRC with the IHT400.

Example

Polly died in June 2017 leaving her estate valued at £600,000 to her husband Paul. At the time of her death, the nil rate band was £325,000 and the RNRB was £100,000.

Paul dies in May 2022. He leaves his entire estate, valued at £1.4 million to his daughter Poppy. In addition to his nil rate band of £325,000 and his residence nil rate band of £175,000 his estate is able to claim the unused portion of Polly’s nil rate band and RNRB, which is 100% in each case. Consequently, Paul’s estate is able to benefit from a further nil rate band of £325,000 and a further residence nil rate band of £175,000. As it is the unused percentage that is transferred, Paul’s estate benefits from 100% of the RNRB at its value of the time of his death (i.e. £175,000), rather than the absolute value of the RNRB at the time of Polly’s death (i.e. £100,000). Consequently, IHT is only payable to the extent that the value of his estate exceeds £1m (2x £325,000 + 2 x £175,000).

No-one wants to pay more tax than they need to. Consequently, it is important to keep good records of business expenses so that deductible expenses are not overlooked.

General rule

The basic rule is that a deduction is allowed for expenses incurred wholly and exclusively for the purpose of the trade, profession or vocation. Unlike the equivalent rule for employment expenses, there is no requirement that the expense is ‘necessarily’ incurred. This means that as long as an expense is incurred for the purposes of the business and only for that purpose, a deduction is given.

Private expenses are not deductible

No deduction is given for private expenditure and under no circumstances should private items be `put through the business’. It is good practice to keep private and business expenditure separate and to have a separate bank account for business expenses. If you run your business as a limited company, the company should have its own bank account.

Mixed use expenses

If you incur an expense for both business and private purposes, you can deduct the private element if this can be separately identified. This may be the case if you use a phone for business and private calls. Any apportionment should be on a just and reasonable basis. If you cannot separate out the private use and the expense has a dual purposes (such as work clothes which also provide warmth and decency), the expense should not be deducted.

No deduction for drawings

If you operate your business as a sole trader or other unincorporated business and you pay yourself a salary or take drawings from the business, you cannot deduct these when working out your profit. You pay tax on your profit and are free to use the profits as you please. However, if you operate as a personal or family company, you can deduct any salary that you pay yourself (together with any employer’s National Insurance and employer pension contributions).

Capital expenditure

Capital expenditure can only be deducted in computing profits if you use the cash basis and the expenditure can be deducted under the cash basis capital expenditure rules. You cannot deduct capital expenditure if you prepare accounts under the accruals basis.

Common deductible expenses

The actual expenses that can be deducted will vary from business to business – what is important is that they are incurred wholly and exclusively for the purpose of the business. However, the following are example of common deductible business expenses.

1. Cost of goods sold, such as raw materials and goods brought for resale.
2. Distribution and packaging costs.
3. Office expenses, such as stationery and printing costs and phone bills.
4. Travel and subsistence expenses, such as fuel parking and fares for using public transport and hotel bills for overnight business trips.
5. Motor expenses, such as car insurance, MOTs and repairs.
6. Staff costs, such as wages, salaries, employer’s National Insurance and pension costs.
7. Rent and rates.
8. Gas, electricity and water bills.
9. Repairs to business expenses.
10. Advertising and promotion costs.
11. Bank interest and other finance costs.
12. Accountancy, legal and other professional costs.
13. Uniforms (but not general clothing even if only worn for work).

Non-deductible expenses

A deduction for certain expenses is expressly prohibited. This includes the cost of business entertaining, which if deducted in computing accounting profit must be added back to arrive at taxable profit. Likewise, depreciation (an accounting concept) is not deductible in arriving at taxable profit; instead relief is given in the form of capital allowances.

If their profits are high enough, the self-employed pay two classes of National Insurance contribution – Class 2 and Class 4.

Class 2 contributions are flat rate contributions of £3.15 per week for 2022/23. It is the payment of Class 2 contributions that enables a self-employed earner to build up entitlement to the state pension and certain other contributory benefits. Class 4 contributions are payable on profits in excess of the lower profits limit, but do not garner any pension or benefit entitlement.

Lower profits limit for Class 4

The lower profits limit for Class 4 contributions is aligned with the primary threshold for Class 1 National Insurance contributions. This is set at £190 per week for the period from 6 April 2022 to 5 July 2022 (equivalent to £9,880 per year), rising to £242 per week (equivalent to £12,570 per year and aligned with the personal allowance) from 6 July 2022. The annualised primary threshold is £11,908. Consequently, the lower profits limit for Class 4 is set at £11,908 for 2022/23.

Class 4 contributions are payable at the main rate, which is 10.25% for 2022/23, on profits between the lower profits limit and the upper profits limit, which at £50,270 is aligned with the upper earnings limit for Class 1 contributions. Any profits in excess of the upper profits limit attract Class 4 contributions at the additional Class 4 rate, set at 3.25% for 2022/23.

Higher starting point for Class 2

Historically, a liability to Class 2 contributions has arisen where profits exceed the small profits threshold, which for 2022/23 is set at £6,725. However, the starting point for Class 2 contribution is to be increased with retrospective effect from 6 April 2022 to align it with the starting point for Class 4 contributions. For 2022/23, this is £11,908.

As Class 2 contributions earn entitlement to the state pension, self-employed earners who have profits between the small profits threshold, set at £6,725 for 2022/23, and the new starting limit of £11,908 will be treated as if they had paid a Class 2 contribution. This means they get the benefit of having paid a Class 2 contribution, but for zero contribution cost. This move brings the position of the self-employed with low profits broadly into line with that for employed earners with low earnings who are treated as having paid Class 1 contributions at a notional zero rate on earnings between the lower earnings limit (£6,396 for 2022/23) and the primary threshold (£11,908 for 2022/23).

Self-employed earners with profits below the small profits threshold can opt to pay Class 2 contributions voluntarily to maintain their contribution record. At £3.15 per week for 2022/23, this is a much cheaper option that paying voluntary Class 3 contributions, which are set at £15.85 for 2022/23.

Looking ahead

The Class 4 rates were increased by 1.25 percentage points for 2022/23 only pending the introduction of the Health and Social Care Levy. The rates are due to revert to 9% (main rate) and 2% (additional rate) from 2023/24. However, the self-employed will also have to pay the Health and Social Care Levy of 1.25% on profits in excess of the lower profits limit from 2023/24, so the total hit remains the same in 2023/24 as in 2022/23. However, unlike Class 4 contributions, liability to the Health and Social Care Levy remains beyond state pension age.

The flat rate scheme offers VAT registered traders who meet the eligibility conditions a simpler way to work out the VAT that they need to pay over to HMRC. However, while it may save work, it may also cost more than working out VAT in the traditional way.

Nature of the scheme

Under the scheme, traders pay a percentage of their VAT-inclusive turnover over to HMRC, rather than working out the difference between their output VAT and their input VAT. The percentage that they pay is set by HMRC and depends on the business sector in which they operate.

Eligibility

The scheme is only open to VAT-registered businesses which expect their annual VAT taxable turnover to be £150,000 or less. This is the total of everything that they sell that is not exempt from VAT, and is exclusive of VAT. A trader cannot re-join the scheme if they have left it in the previous 12 months.

Once in the scheme, a trader can remain  unless their turnover in the last 12 months was more than £230,000 including VAT, or they expect their turnover in the next 30 days alone to be more than £230,000 (including VAT). If this is the case, the trader must leave the flat rate scheme and work out VAT due to HMRC in the usual way.

Advantages

The main advantage of the scheme is that it is simple and that it saves work. There is no need to keep detailed records, particularly of VAT on purchases and expenses. The VAT that is paid over to HMRC is simply the flat rate percentage multiplied by the VAT-inclusive turnover in the period. The scheme may also save money if the VAT due at the flat rate is less than that using the traditional calculation.

Disadvantages

The main disadvantage is that more VAT may be payable to HMRC than if VAT is calculated in the traditional way. This will be the case if the amount determined using the flat rate percentage is more than the difference between output VAT and input VAT in the period. Much will depend on whether the traders input VAT is covered by the margin allowed by the flat rate percentage.

The scheme can be particularly costly for limited cost businesses. These are business where goods are less than either 2% of turnover or £1,000 a year (£250 per quarter). Limited cost businesses must use a higher rate of 16.5% to work out the VAT that they pay over to HMRC, regardless of the sector in which they operate.

The rules can operate harshly for limited cost businesses. In deciding whether a business is a limited cost business, no account is taken of spending on services on which VAT is incurred. The flat rate percentage for limited cost businesses of 16.5% of VAT-inclusive turnover is equivalent to 19.8% of net turnover, leaving little margin for input VAT recovery as 99% of the VAT charged at 20% must be paid over to HMRC. This may be problematic for a business that spends little on goods but which incurs significant VAT on services and items such as fuel and promotional items, which are excluded from the calculation. Where this is the case, the trader may pay much more VAT over to HMRC than under traditional VAT accounting.

Do the sums

In order to decide whether the time savings offered by the VAT Flat Rate Scheme are worthwhile, there is no substitute for doing the sums.

Where an employee uses their own vehicle for business journeys, their employer can  cover the associated costs by paying a mileage allowance. As long as the allowance does not exceed that payable at the approved rate, payment of the allowance is tax-free. Employers can instead reimburse the employee’s actual costs associated with using their own vehicle for business. However, as this is difficult and time consuming, paying approved allowances should be an easy win, were it not for rising fuel prices.

The approved mileage rates have not been increased since April 2012, yet fuel prices are now considerably higher than they were 10 years ago. Given the current climate of rapidly rising fuel prices, is paying mileage allowances at the approved rates still a good idea?

Approved mileage allowance payments

Under the approved mileage allowance payments system (AMAPs), employers can pay mileage allowances to employees tax-free as long as the amount paid does not exceed the ‘approved amount’.

The approved amount is simply the number of business miles in the tax year multiplied by the approved rate. For cars and vans, this is set at 45p per mile for the first 10,000 business miles in the tax year and at 25p per mile for any subsequent business miles. For motor bikes, the rate is 24p per mile.

As long as the amount paid is not more than the approved amount, it can be paid tax-free. However, if it exceeds the approved amount, the excess is taxable. If instead the amount paid is less than the approved amount, the employee can claim tax relief for the shortfall.

A similar system applies for National Insurance. However, as National Insurance is not worked out cumulatively, the 45p per mile rates applies to all business mileage undertaken in the employee’s own car or van.

Impact of fuel prices increases

The approved mileage rates have not increased since April 2012, when petrol was around £1.42 per litre. At the time of writing (in June 2022), it was around £1.85 and rising. In the 10 years since the last increase in the approved rates, fuel prices have increased by more than 30%.

The approved rates are supposed to cover all costs associated with using a personal car for business, including running costs, insurance and depreciation. In a climate of rising costs, it is now doubtful whether they do.

The employer can instead make payments based on the actual costs tax-free. However, the associated record keeping is likely to prove prohibitive. Alternatively, they can agree higher bespoke rates based on actual costs with HMRC, but again the level of work involved is unlikely to make this a popular option.

Employers who wish to make a more accurate reimbursement of employee’s costs can pay above the approved mileage rates, but this will trigger a tax liability for the employer. Where the amount also exceeds the approved amount for National Insurance, Class 1 National Insurance contributions are payable by the employer and employee, and must be processed through the payroll.

The employee can claim a deduction for any difference between the amount paid and the actual costs incurred; however, as these are tricky and time consuming to work out, most employees will simply not bother and take the hit. The solution is really for HMRC to increase the approved rates to reflect current prices so that they do what the system is supposed to do.

Directors and shareholders in close companies are often able to influence the payments that are made to them. Broadly, a close company is one that is controlled by five or fewer shareholders. Personal companies and most family companies are close.

In a close company, there are often numerous transactions between the director and the company – the company may, for example, make payments to the director, loan money to the director and may also make payments on the director’s behalf. On the other side of the coin, the director may loan money to the company, repay loans or make payments on the company’s behalf. The director’s loan account provides the means for keeping track of the transactions between the director and the company. However, tax consequences arise if the director’s loan account is overdrawn at the end of the accounting period or if a loan has been made which has not been repaid.

Loan repaid by corporation tax due date

The corporation tax for an accounting period is due for payment nine months and one day after the end of the accounting period. If the loan is repaid in this period (or the overdrawn balance cleared), there are no further tax consequences. However, the loan must be reported on the company’s corporation tax return. Depending on the amount of the loan, there may also be a benefit in kind tax charge for the director, and a Class 1A National Insurance liability on the company. This will be the case if the amount owed by the director to the company exceeds £10,000 at any point in the tax year.

An overdrawn account can be cleared in various ways, for example, by paying money into the company from personal resources, crediting a bonus or salary payment to the account or by declaring a dividend. It should be borne in mind that there will be tax and National Insurance contributions to pay on a salary or bonus payment and tax to pay on a dividend.

Loan remains outstanding

If the loan has not been repaid and the director’s account remains overdrawn at the corporation tax due date, the company must pay tax on the overdrawn balance. This rate of this tax (Section 455 tax) is linked to the dividend upper rate. Consequently, it was increased to 33.75% from 6 April 2022 in line with the increase in the dividend upper rate applicable from the same date. The increase in the rate means that it is now more expensive for a company to loan money to a director. The rate of Section 455 tax was 32.5% prior to 6 April 2022 (and 25% prior to 6 April 2016).

Where a Section 455 tax charge arises it must be paid with the corporation tax for the accounting period, nine months and one day after the end of the accounting period. Crucially, it is not corporation tax, and also unlike corporation tax it is a temporary tax that is repaid if the loan balance is cleared. The tax becomes repayable nine months and one day after the end of the accounting period in which the loan is repaid. It is usually set against the corporation tax for the period, or repaid to the company if there is no corporation tax to pay. The repayment of the section 455 tax must be claimed – it is not made automatically.

Planning considerations

Personal and family companies will need to budget for the higher Section 455 charge when making loans to directors (or to other participators) that will not be repaid by the corporation tax due date.

When deciding whether to clear the loan, the whole picture needs to be considered. It is only worth paying a dividend or bonus to clear the loan if the tax consequences of doing so are less than paying the section 455 tax, for example, if a dividend would be sheltered by the dividend allowance or taxable at the dividend lower rate. Otherwise, it is better to leave the loan outstanding and pay the tax. If the director has several loans made over different period, it makes sense to clear those made on or after 6 April 2022 first.

There are various ways to enjoy savings income tax-free. However, not all routes are open to all taxpayers – the options depend on the nature of the savings and the saver’s other earnings and marginal rate of tax.

Savings Allowance

Basic and higher rate taxpayers are entitled to a savings allowance. The allowance is set at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers. The allowance is available in addition to the personal allowance and also the dividend allowance. Taxpayers who pay tax at the additional rate (which applies to taxable income in excess of £150,000) do not benefit from a personal savings allowance and must pay tax on any savings income unless it is otherwise exempt.

There is no need for a separate savings allowance for savers who total income is less than their personal allowance as the personal allowance will shelter any savings income.

Savings starting rate

Savings income which falls within the savings starting rate band is taxed at the savings starting rate of 0%. Depending on the individual’s personal circumstances, they may be able to enjoy up to £5,000 of savings income tax-free.

The savings starting rate band is set at £5,000, but is reduced by any taxable non-savings income. This is other taxable income in excess of the personal allowance (but excluding any dividends which are treated as the top slice of income). Consequently, the full £5,000 savings starting rate band is available where other taxable income is less than the individual’s personal allowance. The standard personal allowance is £12,570 for 2022/23. The savings starting rate is eroded once taxable income in excess of the personal allowance reaches £5,000.

The savings starting rate is applied before the personal savings allowance.

Tax-free savings

If savings are held within a tax-free wrapper such as an Individual Savings Account, the associated savings income is tax-free.

Case study

Marion has a state pension of £11,000 a year. She has considerable savings which generate interest of £9,000 a year. She also receives interest of £200 a year from savings held in an ISA.

As her total income of £11,000 is less than her personal allowance of £12,570, the remainder of her personal allowance is available to shelter the first £1,570 of her savings allowance.

Her pension (her only other taxable income) does not exceed her personal allowance; consequently, she is entitled to the full £5,000 savings starting rate band. Savings falling within this band are tax-free (attracting the savings starting rate of 0%).

She is also able to benefit from the personal savings allowance, which is £1,000 because she is a basic rate taxpayer. The remaining interest (other than that from her ISA) of £1,430 (£9,000 – £1,570 – £5,000 – £1,000) is taxed at the basic rate of 20%. The interest of £200 from her ISA is tax-free.

The Covid-19 pandemic forced large numbers of employees to work from home for the first time. Having made the transition to home working, post pandemic, many employees have continued to work from home some or all of the time.

Household expenses

Employees who work from home may incur costs as a result, such as increased household bills. The tax legislation allows employers to make a tax-free payment of £6 per week (£26 per month) to employees who work from home at least some of the time to help them meet the costs. The payment can be made tax-free regardless of whether the employee works from home through choice.

If the employer does not contribute towards the costs of additional household expenses, the employee may be able to claim tax relief. During the Covid-19 pandemic, the conditions were relaxed and employees who were required to work from home during the pandemic were able to make a claim of £6 per week for 2020/21 and 2021/22 for the full tax year (even if they returned to the office for some of the year). However, the easement came to an end on 5 April 2022, and for 2022/23 onwards relief is only available where the employee is required to work from home (either by the employer or the nature of the work), but not where the employee has the option to work at home or at the employer’s premises but chooses to work from home.

Hybrid working arrangements are attractive because of the flexibility that they offer. However, the choice element will limit to ability to claim a deduction for household expenses. Requiring the employee to work from home on, say, one specified day of the week will open the door to a claim.

Homeworking equipment

Where an employee works from home, depending on the nature of their job, they may need equipment to enable them to do so. Where the employer provides homeworking equipment, no tax liability arises in respect of that equipment.

During the Covid-19 pandemic, the rules were relaxed so that where an employee purchased homeworking equipment, the cost of which was later reimbursed by the employer, the reimbursement was not taxed. If the employer did not reimburse the cost, the employee could claim a tax deduction.

However, this easement ended on 5 April 2022. The strict statutory rules now apply, and as employees are not able to claim a deduction for capital expenditure (such as the cost of a computer), where this cost is reimbursed by the employer, the reimbursement will be taxable.

However, a deduction is allowed for revenue expenses wholly, necessarily and exclusively incurred in undertaking the employment duties, and any reimbursement of those costs can be made tax-free.

The High Income Child Benefit Charge (HICBC) is a tax charge that claws back payments of child benefit where the recipient or the recipient’s partner has income of at least £50,000 per year. Where both the recipient and their partner have income of this level, the charge is levied on the one with the higher income. The scope of the charge may mean that it falls on someone who did not receive the benefit and who is not a biological or adoptive parent of the child/children in respect of which the benefit was paid.

For 2022/23, child benefit is payable at the rate of £21.20 for the eldest child and at the rate of £14.45 per week for subsequent children.

The HICBC applies where the recipient of the benefit or their partner has ‘adjusted net income’ of at least £50,000 a year. This is taxable income before personal allowances, but after gift aid and pension payments.

The HICB charge claws back 1% of the child benefit paid for every £100 by which adjusted net income exceeds £50,000. Where adjusted net income is £60,000 or above, the HICBC is equal to the child benefit paid for the tax year.

Basic rate taxpayers and HICBC

Despite its name, a person can be a basic rate taxpayer and still fall within the scope of the HICBC.

For 2022/23, a person in receipt of the standard personal allowance of £12,570 with no adjustments will not pay higher rate tax until their income exceeds £50,270. However, the HICBC bites where income exceeds £50,000. A person with income of £50,270 in receipt of child benefit will face a HICBC of 2.7% of their child benefit, despite being a basic rate taxpayer.

Pay the charge

Where the charge applies, the person liable for the charge must complete a self-assessment tax return and pay the charge, with any other tax and National Insurance due under self-assessment, by 31 January after the end of the tax year to which the charge relates.

Stop the benefit

Where income is at least equal to £60,000, the HICBC claws back all the child benefit received in the tax year. Consequently, there is no net benefit to receiving the child benefit, and there is the added hassle of completing the relevant section of the self-assessment tax return and paying the tax. As a result, it may be preferable not to receive the child benefit in the first place.

The recipient can elect to stop receiving child benefit by completing the online form or contacting the Child Benefit Office by phone or by post.

However, child benefit paid for a child under the age of 12 earns National Insurance credits that allow the year to be treated as a qualifying year for state benefit purposes. Consequently, anyone entitled to child benefit should still register for the benefit, even if they elect not to receive it, in order to benefit from the associated National Insurance credits. This is particularly important where the recipient does not pay sufficient National Insurance for the year to be a qualifying year, but their partner would be liable for the charge if the child benefit is paid.