A recent report revealed that 250,000, more than one in four, company car drivers is provided with private fuel by their employer as a benefit in kind, writes Paul Donno, director at Jacobs Allen.
This can result in an excessive tax charge in the majority of cases.
We have to consider why so many employers and users of company cars choose to opt for this supposed benefit in kind. Perhaps the reason for this is company car drivers not wanting to record their business mileage and claim this back from their employers. But a little effort could significantly reduce tax payable and benefit everyone involved.
Let’s take some typical figures as an example; assume a diesel car with emissions of 130g/km CO2, private mileage of 10,000 miles per annum, with fuel cost at £1.35 per litre at an average consumption of 43.8mpg. The cost of the private fuel is £1,399.
The taxable benefit in kind for the employee is 21 per cent of the fuel benefit charge of £21,100, so £4,431. Assuming that the employee is a 40 per cent tax payer, the actual tax payable by the employee is £1,772. In this case, the employee would actually be £373 worse off by accepting private fuel paid for by their employer. Turning to the employer, they will also pay Class 1A National Insurance on the value of the benefit in kind of £4,431 @ 13.8 per cent, being £611. So, if an employee were to record and claim just business mileage, there would be a tax saving of nearly £1,000.
Looking at choosing a company car, if as an employer you supply a vehicle to an employee, try to supply a vehicle with less than 95g/km C02 emissions to maximise the capital allowances (immediate 100 per cent of the vehicle cost) you can claim against profits. If this is not practical, we would suggest choosing a vehicle with emissions below 130g/km CO2 to get 18 per cent of the unclaimed balance of cost allowed against profits each year. Any greater emissions will reduce your rate of write-off against profits to only 8 per cent per annum on unclaimed balance of cost; this will take 35 years to get the vehicle cost allowed for tax purposes!
It is important to review all benefits supplied to employees each year or so to ensure best value is obtained. With careful planning, both the employer and employee will benefit by minimising their tax liabilities and so increase the net cash pay available to the employee. This gives an effective pay increase without any additional cost to the employer.
To calculate the benefit in kind on a company vehicle you can use the calculator on the Jacobs Allen App by visiting the App Store on IOS or Android; just type Jacobs Allen and it is FREE. To discuss any issues arising from this article or for a general salary and benefits review, please email@example.com and see how much real benefit can be obtained for your business and employees.