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John M Taylor & Co | Accountants Paisley/Taxation/Vat Returns/Business Start Ups/Sage/Payroll/Bookkeeping

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, the relevant percentages can be found at page 67 of HMRC's Guide '480: Expenses and Benefits'. From year to year there has occasionally been a reduction in the base co2 emissions figure at which the percentage begins to increase.

The taxable benefit starts at 5% of the car's list price for cars with an emissions figure of less than 75g/km rising to a maximum of 35% of list price for cars with an emissions figure in excess of 215g/km (petrol cars). A car's list price for the purposes of calculating company car benefit is the on the road price including any optional accessories, VAT, delivery charges and vehicle excise duty but excludes the first registration fee. HMRC have produced a handy calculator that will calculate the company car benefit applicable if you input the relevant vehicle details

Diesel Cars


Those employees who drive diesel cars are subject to a 3% surcharge on top of the calculated emissions based percentage.

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 £20,200 (£18,800 up to 05/04/12).  Unfortunately unless the employee refunds all fuel used for all 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 (reviewed twice yearly) at which this should be calculated are as follows:-


Private Mileage Refund Rates - Petrol and LPG cars
(as from
01/06/2013)

 

Rates Per Mile

Engine Capacity

Petrol

LPG

Up to 1400cc

15p

10p

1401 - 2000cc

18p

11p

Over 2001cc

26p

16p



Private Mileage Refund Rates - Diesel Cars
(as from
01/06/2013)

 

Rates Per Mile

Engine Capacity

Diesel

Up to 1600cc (Up to 1600cc - Diesel cars)

12p

1601 - 2000cc

15p

Over 2001cc

18p

If you would like a copy of our private travel mileage log please email us and we will be happy to send you a copy.

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 . 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 rates 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

45p per mile *

On each additional business mile

25p per mile

For each passenger

5p per mile

Motorcycles

24p per mile

Bicycles

20p per mile


* Prior to 6 April 2011 the rate applicable to the first 10,000 business miles per tax year was 40p 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.

These rates are a guideline only, some employers may choose to pay less than this amount or more than this amount. If a higher rate is used then the excess over the approved rates should be recorded on the employee's P11D form for the relevant tax year. If a lower rate is used then the shortfall in comparison to the approved rates can be claimed as 'Mileage Allowance Relief' via a deduction in the employee's tax code. This can generally be claimed by contacting HMRC with the relevant details. The first claim will generally need to be in writing but following this HMRC may accept claims by telephone depending upon the amounts involved. For further information see HMRC's website

If you use your personal vehicle for business mileage you should ensure that you keep a detailed mileage log to support any claim to Mileage Allowance Relief. For a free copy of our business mileage log feel free to email us at mail@johnmtaylor.co.uk and we shall be happy to provide a copy.

Company Vans


Employees with a company van available for unrestricted private use are taxed on a benefit in kind of £3,000 per annum with a further £564 per annum charge (£550 per annum prior to 06/04/2013) if fuel is provided 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.

What To Do Where There Is Insignificant Private Use


If your employees are not permitted to use their company vans for any more than insignificant private use, along the lines of the definition stated above then there should be no need for them to be assessed on a taxable benefit. However, many employers in this situation fail to recognise that there is a requirement for them to put in place a formal restriction on private use of the company van and then to monitor van use to make sure the restriction is being adhered to. A simple additional to their employment contract or a company van policy statement would suffice to demonstrate the restricted private use. All company van drivers who wish to avoid a benefit in kind must maintain a log of all mileage to show the extent of any private mileage.

One thing (of many) that HMRC are known to check during a PAYE compliance visit is whether or not a private use restriction has been put in place in relation to company vans and, further, that the restriction is actually enforced. If an employee is found to regularly do private mileage (say for example circa 20 miles per month) then this exceeds the definition of insignificant private use so a taxable benefit would be assessed. The other thing to be aware of here is that often HMRC will seek to assess any additional Tax and NIC liability on the employer rather than on the employee as part of the conclusion to their PAYE compliance review. Record keeping on behalf of both the employees and the employer is critical if a nil van benefit position is to be supported.

If you provide company vans to your employees and would like a sample of our company van policy statement or a company van mileage log please email us at and we shall be happy to forward a copy to you for your use.

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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