Company Cars and Vans
Company directors and employees pay tax on the benefit of a car provided to them by their employer if the car is available for their private use. "Private Use" includes commuting from home to your normal workplace. A number of cases have been decided by the Tax Tribunals on the issue of whether a car was available for private journeys but the claimant usually lost. This is because the tax charge is based upon the test of availability; exceptional steps are required to prevent a car from being available.
The benefit is calculated according to two factors; the level of Co2 emmissions and the manufacturers list price for the car. Excluding some hybrid cars the Co2 emmissions will result in a benefit that is between 15% and 35% of the list price - but add 3% for diesel cars. The amount of benefit is then added to your income and you will pay tax on that at your marginal rate. Tip : you can achieve considerable tax savings by shopping around for a car with lower Co2 emmissions, and there are several high performance / low Co2 cars now on the market.
For the company, it is worth looking at contract hire of low Co2 emission vehicles. A vat registered business can reclaim 50% of the vat on hire cars, whereas vat on purchase of a car cannot usually be recovered. There are good deals to be found.
When the employer provides fuel as well as the car, tax is also paid on the benefit of any fuel used privately unless the employee repays the cost of all private journeys.
Tip: unless you have very substantial private mileage the taxable fuel benefit can be a very expensive price to pay for your petrol. There are alternative choices.
Either the employee can reimburse the cost of private fuel (there are strict rules to follow - please ask us for more information) or more simply the employer can pay for only the cost of fuel for business journeys.
In contrast, there is no taxable benefit for providing a van when any private use is restricted to ordinary commuting. (Don't ever take the van on a shopping trip to Calais!). There is a fixed benefit of £3,000 per annum if (exceptionally) the van is used for more extensive private travel, and a further benefit of £550 if the employer pays for the fuel.
A van currently qualies for first year capital allowances which means for small businesses that the whole cost may be set against tax in the first year. If vat registered the vat will be recoverable (except in some cases using the flat rate scheme)
TIP: a van therefore enjoys various tax privileges when contrasted to a car - for more information as to which vehicles qualify as vans please see the HM Revenue & Customs website which you can access from our links page.
When employees use their own car they can be paid a tax free allowance for business mileage. The rate is 45p a mile for the first 10000 miles per annum, and 25p thereafter. You can pay a higher rate and only the additional amount will be taxable.
Mileage allowances for fuel
When employees use a company car but pay for their own fuel or, perhaps, the employer pays for fuel for business journeys, a tax free allowance can be paid according to the following table:
When VAT registered, the employer can reclaim VAT on the fuel element of mileage allowances (i.e. 20/120ths of the fuel allowance rate), whether paying a full mileage allowance for the employee's car or just the fuel allowance. BUT in order to reclaim the VAT the employer must obtain and keep the fuel receipts - the EU court has held that if you do have a receipt then this will be good enough evidence that the allowance does include VAT.
Our initial consultation is FREE. To find out more call us on 01784 243054.
The above information is only a general guide. We cannot accept responsibility for the financial consequences of any transaction that you may undertake or refrain from undertaking based upon the information given on this website.