Company Vehicles & Benefits In Kind
Company Cars
There has been little change for a number of years in the way that those who have the use of a company car are taxed on that benefit in kind. The taxable benefit in kind is calculated by multiplying the list price of the relevant vehicle by a percentage determined by the car's co2 emissions figure (click here for the Co2 Emissions Table). From year to year there has occasionally been a reduction in the base co2 emissions figure at which the percentage rises start.
The taxable benefit starts at 15% of the car's list price for cars with an emissions figure of less than 144g/km rising to a maximum of 35% of list price. A car's list price is the on the road price including any optional accessories, VAT, delivery charges and vehicle excise duty but excludes the first registration fee. The list price is subject to a maximum of £80,000.
Diesel Cars
Those employees who drive diesel cars are subject to a 3% surcharge on top of the calculated emissions based percentage. In an attempt to encourage company car drivers to select 'cleaner diesels' this surcharge could be avoided if the car purchased had a diesel engine that fell into the Euro IV bracket which was a new generation of cleaner diesel engine. Now that the majority of diesel engines fall into this category the exemption from this surcharge was scrapped such that the exemption now only applies to diesel cars that have a date of registration falling on or before 31 December 2006.
Older Cars
As there is no reliable co2 emissions date for cars registered before January 1998 the old method of calculating the benefit in kind, based on the engine size, is still in use for such cars. These percentages are as follows:-
| Engine Size (cc) | Percentage of list price |
|---|---|
0-1400 |
15% |
1401-2000 |
22% |
Over 2001 |
32% |
Fuel for Private Use
Where an employee has a company car that is also used for private mileage and the fuel for that private mileage is paid for by the company there is an additional fuel benefit charge. The fuel benefit arising is based on the same co2 emissions based percentage as used in calculating the car benefit with the difference that the percentage is applied against a set figure of £14,400. This figure has remained constant for a number of years. Unfortunately unless the employee refunds all fuel used for private mileage the full benefit charge is applied. The fuel benefit charge is waived where the employee keeps an accurate and detailed record of private mileage and can demonstrate that all fuel for private mileage is refunded to the employer. The appropriate mileage rates at which this should be calculated is as follows:-
| Private Mileage Refund Rates | |||
|---|---|---|---|
Rates Per Mile |
|||
| Engine Capacity | Petrol |
Diesel |
Gas |
| Up to 1400cc | 9p | 9p | 6p |
| 1401 - 2000cc | 11p | 9p | 7p |
| Over 2001cc | 16p | 12p | 10p |
VAT Fuel Scale Charges
Where you have company cars through your business you have the option of claiming back all the VAT paid on the fuel purchased for the cars. However, where the company cars are used for private mileage a fuel scale charge must be put through the VAT Return for each Return period. If the company can prove that no private mileage is travelled in the cars no fuel scale charge is necessary. In practice it is very rare that no private mileage is travelled in a company car so in the vast majority of cases a fuel scale charge is applicable if the VAT is reclaimed.
As any VAT reclaim on fuel is optional it is up to the company to determine whether or not it is beneficial to claim back the VAT given that a fuel scale charge will be applied. In cases where total mileage is relatively low it is often not beneficial to reclaim the VAT as the resulting fuel scale charge will result in a greater net cost to the company.
For VAT accounting periods commencing on or after 1 May 2007 the VAT fuel scale charge will be based on the Co2 emissions figure of the vehicle in question rather than the vehicle's engine size. The Co2 is usually shown on the vehicle log book and this figure should be used to calculate the fuel scale charge. This change is an attempt by HMRC to align the fuel scale charge with the environmental efficiency of the vehicles engine such that cars with a higher Co2 figure (and therefore a less clean engine) will suffer a greater fuel scale charge than it's greener counterparts. Where the vehicle's log book is unavailable the Co2 emissions figure can be obtained from the online database compiled by The Society of Motor Manufacturers Limited available at http://www.smmt.co.uk/co2/co2search.cfm . To obtain the relevant VAT fuel scale charge as based on the Co2 emissions figure please visit the following page 'Vat Fuel Scale Charges'.
Business Use of Own Car
Where employees use their own car for business use it is reasonable for the company to reimburse the cost of this business mileage to the employee without the employee suffering any tax charge on the payments received. The statutory rate at which these payments should be made are known as Approved Mileage Allowance Payments and are as follows:-
Cars & Vans |
|
|---|---|
On the first 10,000 business miles per tax year |
40p per mile |
On each additional business mile |
25p per mile |
Motorcycles |
24p per mile |
Bicycles |
20p per mile |
These payments do not require to be reported on Form P11D provided the employer does not reimburse business mileage at a rate higher than that shown above.
Company Vans
From 6 April 2007 employees who have a company van available for unrestricted private use is taxed on a benefit in kind of £3,000 per annum with a further £500 per annum charge if fuel is provided for private use. For an employee who is a higher rate taxpayer this represents an increase of £1,200 in the tax payable as a result of having a company van with fuel available for private use. In the case that employees have a company van for business purposes only and any private use is restricted to insignificant use only along the lines of:-
1. Taking an old mattress or other rubbish to the tip once or twice a year.
2. Regularly making a slight detour on the way to work to buy a newspaper.
3. Stopping at the dentists on the way home from work.
then the van benefit charge can be removed. However, any use for private purposes in excess of the above will result in the full company van benefit being assessed.
For information purposes HM Revenue & Customs have stated that they would consider the following to be out with the insignificant private use range:-
1. Using the van outside of work for social activities;
2. Taking the van away on a week’s holiday;
3. Using the van to go to the supermarket every weekend.
Employee Contributions
Where an employee makes a cash contribution towards the cost of their company car or van or indeed any other asset available for their private use the amount of that contribution can be deducted from the value on which the benefit in kind is to be calculated. For example, if an employee makes a contribution towards the purchase of a new company car then the amount contributed will be deducted from the list price on which the benefit in kind is calculated (subject to a maximum deduction of £5,000).
Income Tax arising on the provision of company cars or vans
Where an employee has the use of a company car or van for private mileage they will suffer a tax charge calculated on the benefit in kind charge arising on that vehicle. The relevant benefit in kind is added to their other income in order to arrive at the tax charge arising and it is normal practice for this tax to be collected through PAYE via an adjustment to the employee's PAYE Code.
We hope that you have found this guide useful. If you would like some further advice or assistance please contact us.
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