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Are you looking for Car Taxation – Employee OR Car Taxation – Employer – Van Taxation – Vehicles and VAT CAR TAXATION - EMPLOYEEOn this page you will
find details how car taxation
effects the employee, P11D, Co2 emissions, Benefit in Kind taxation
(BIK), Car Fuel
Benefit and the Fuel Benefit Charge (FBC), Opting
out of the Company car and AMAPs (Approved Mileage Allowance
Payments) If you
are a director or an employee earning more than £8,500 p.a.
when
you have the
benefit of a company car, you become liable to Benefit in Kind (BIK)
taxation. The amount you pay depends on the P11D
price
(approximately the list
price) of the vehicle and its CO2
emissions. The P11D price
and CO2
emissions of a vehicle should be freely available from the car
manufacturers (CO2
Emissions are shown on the V5
–
Vehicle Registration Document). The P11D is the list price of the car, the day before it was registered, including delivery charges but excluding Road Fund Licence and 1st Registration Fee. N.B. this is not the price you pay for the car. Any extras fitted to the car including items fitted after the vehicle is delivered, e.g. a tow bar, should be included in this figure. The official CO2 should then be rounded down to the nearest band, see below, and the percentage obtained. Currently there is a 3% surcharge for all diesel engine cars but this is being abolished from April 2016. Please
note some extras e.g.
automatic transmission, alloy wheels, wider tyres etc. can have an
impact on
the Co2 emissions figure for the standard vehicle.
Take this percentage of the
P11D price to get the taxable Benefit In Kind (BIK). The amount of tax you will
pay then depends on your highest tax band 20%, 40%. or 45% Example: For the period 2015/16 if you are
driving a petrol
vehicle with a P11D
value of £20,000 and Co2
emissions of 124 you will
have a taxable
BIK of £3,800 (124 Co2, rounded down to 120 - as it is
a petrol
vehicle the percentage is 19%, £20,000 x 19% =
£3,800) You will then pay tax, on
this taxable BIK of £3,800, at your personal tax rate. At 40% - £1,520 per annum or £126.66 per month At 20% - £760 per annum or £63.33 per month If you would like further
information, clarifications of any of the issues or a more personal
calculation please contact us. Car
Fuel Benefit
If your employer pays for
the fuel that you use for private miles – this includes
travel to
and from a
regular place of work - you will have to pay Car Fuel Benefit. Now based on a government set
Fuel Benefit Charge (FBC) Multiplier - £21,100
for 2013/14 and will increase in subsequent years - the
taxable benefit is calculated by taking the CO2
percentage
of your
car and applying this to the FBC. Example: Tax Years 2013/14 - Petrol Car with CO2 emissions
of 142 21,100 x 20% = Taxable benefit of £4,220 @ 40% =
£1,688 per annum or £141 per month @ 20% =
£844 per annum or £70 per month We suggest you ensure that
you are not paying more in taxation than the actual cost of the private
fuel
used. This will depend on your rate of tax and the fuel consumption of
the
vehicle as well the amount of private miles you travel. You can buy a
lot of
‘free’ fuel for £141 per month!
Don’t forget
your employer is still having to
pay for the fuel and also National Insurance on your Car Fuel Benefit
so you
could all be better off by not having free fuel at all. As mentioned above regular
commuting from your home to your normal place of work is counted as
private
mileage. The rules regarding these aspects are quite complex especially
if you
are on secondment or travel to various sites. Please feel free to
contact us to
discuss for further clarification or receive our free calculation
spread sheet. By going
down this route you have no taxable BIK and hence save yourself the
taxation
every month, your salary cheque will be larger due to less tax payable
but you
do not have a car! Your
employer will usually offer you additional salary to compensate and
could also
offer you ‘pence per mile’ (PPM) for your business
mileage.
This amount could
vary between just sufficient to cover the cost of the actual fuel used
or could
be more generous and would in fact make a contribution to the running
costs.
The added salary will be taxable but the PPM payment for business
mileage is
tax free up to certain limits set by the Inland Revenue each year.
These are
known as Approved Mileage Allowance Payments. Remember!
Now you don't have a company car it will be down to you to purchase,
maintain
and service the car. You will also have to pay the Road Fund Licence
and
insurance (this will also have to cover you for business use). You will
have to
pay the financing charges and suffer the loss in value over the period,
purchase tyres, roadside assistance and of course the fuel itself.
Don't
underestimate the cost of all of this. Although you will be saving
benefit in
kind tax, this, along with your net
salary increase and any
contribution
via payment for business mileage, will need to cover all these costs. Approved Mileage Allowance Payments
(AMAPs) These are the maximum
amounts that can be received without paying tax or NIC. If you receive
less
than the stated maximums the difference can be claimed as Mileage
Allowance Relief.
This can
be done within your self-assessment tax return at the end of the tax
year but
can also be built into your tax code, so that you receive the benefit
now. Currently the maximum amounts you can receive tax-free are:
By
offering a company car to any employee earning more than
£8,500
pa or any
director, it will mean that they will incur a taxable Benefit in Kind
(BIK) –
for further details see Car Taxation – Employee, as an
alternative you could
offer your employees an increase in salary to ‘opt
out’ and
purchase their own
cars, this could mean the company makes savings on:- · Time spent on purchasing and managing
the fleet · Administration and tax reporting · Class 1A NIC on the Benefit in Kind · Acquisition and funding cost · Maintenance and servicing costs as well
as Road Fund
Licence and
Insurance But you have to consider what will
you need to offer your employees: Additional
salary - the net
amount after tax, plus the savings they will
make by
not paying Benefit in Kind tax will need to be sufficient for them
to
fully
run a car on contract including maintenance, insurance etc. to be able
keep
them as satisfied employees. We find
most employees ‘dissatisfaction’ with any company
car
scheme is the fact that
they feel
they are paying too much tax – most forget that
the Inland
Revenue would most probably take as much, if not more, from any
increase in
salary – a well researched lower emission vehicle may be all
that
is required
to halve their tax bill as well as reduce your NI bill and possibly
increase
the amount of Capital Allowances you can offset against Corporation Tax. Free Fuel - Are you still offering this
to your employees? Are you aware how much this costs, the driver and
you? The
Government have purposely made this benefit very expensive as they feel
this
encourages driving unnecessary miles and hence increases Co2 and your
carbon
footprint. In practice it could be cheaper for your employee NOT to
have free
fuel, straight away dramatically decreasing these tax bills and could
also save
you all the cost of the fuel and National Insurance! If you want to offer an opt out
don’t forget to
consider: § Just like running your own fleet you
still need to check
on a regular
basis that each driver holds a current valid driving licence. § If you do offer a company car do you pay
for the fuel for
the drivers
personal miles? § Your new star employee has a bad credit
history and can't
finance a
vehicle, what do you do then? § Your employee gets divorced and the
partner gets the car! § Your employee is off long term sick, doesn't receive any
commisson payments and
the car is
repossessed! § Personal insurance for your employee is
three times the
cost it was on a
fleet policy and they can't insure the type of car they were previously
driving! § Do you restrict vehicle choice
– will a Porsche
Boxster or a 4x4 fit the
company image? § Their vehicle gets ‘written
off’ and they are
left with a £3,000
shortfall on what they owe on finance. § You want to move the employee to an
office based role but
they are still
paying for a car contract on 30,000 miles for year – do you
still
pay them the additional
car benefit in salary? § Health and Safety regulations mean that
you, as the
employer, are still
legally responsible for the safety of their car. How will you check
that the
car is safe and regularly serviced? As well as the implications of the
Corporate Manslaughter and Corporate Homicide Act. Please
feel free to contact us to discuss your options. VAN TAXATION
Anyone whose personal use of a van is
purely incidental,
does not have to pay any BIK. If personal use is allowed
you will
then pay tax based on a flat rate BIK of £3,000 plus
£564
if you receive free personal fuel. Incidental use is not 100%
clarified by the Inland Revenue but, for instance, whereas parking your
company car
at home (where you at least have the ability
to drive on
personal use) would involve a BIK charge, driving your company van
between home
and work will not incur a charge. The definition of
commercial vehicle always used to be clear cut – 1 row of
seats
and no side
windows behind the driver. When double cab pick-ups and vans entered
the
market, for a time, technically, they would not have been seen as
commercial
vehicles. When someone purchases a
car, VAT is included in the price @20%. Unless you can prove to the
Inland
Revenue that the vehicle is used 100% for business use, no VAT is
reclaimable.
100% business use is not easy to prove and is normally only achieved by
such
businesses as driving schools and self-drive hire companies etc. A
comprehensive mileage log needs to be maintained showing every trip,
the
vehicle must be a pool car and can’t be allocated to one
individual and the
vehicle must always be kept at the business premises i.e. never stored
at the
directors or employees home. These rules affect all
methods of purchase where ownership is gained, or can be, i.e. payment
in cash,
bank or other loan, Hire Purchase (HP) fixed or variable rate Balance
Payments,
Lease Purchase (LP), Personal Contract Purchase (PCP), Contract
Purchase (CP). When a vehicle is leased
the leasing company purchases the car – obviously they
will not use the
car personally so for them it is 100% business use and they will
reclaim the
VAT. When you lease from them they will calculate the figures based on
the
pre-VAT price and then charge you VAT on the monthly rentals. Inland Revenue rules allow
100% reclaim of VAT on leased vehicles for 100% business use but
they
will also allow 50% VAT reclaim even if there is personal use
–
this can be a
major benefit being able to claim 50% of the VAT which you
couldn’t claim back
if the car was purchased. These rules affect all
methods of Leasing – long term rental – where the
hirer can
never gain
ownership, i.e. Finance Lease, also known as: Leasing, Car Leasing,
fixed
period Lease, Lease, Lease Hire, Lease Rental – many names
for
the same thing,
and Operating Lease, which, for vehicles, is always referred to as
Contract
Hire. Commercial
Vehicles
Historically a commercial
vehicle was defined as having one row of seats, no windows behind the
driver
and predominantly used for the delivery of goods. Double Cab Pickups
and vans
broke this rule and for some time they were defined as passenger cars.
This has
now been clarified and they are now classed as commercial vehicles as
long as
they
have a carrying capacity of at least 1 tonne and are built to primarily
carry
goods rather than passengers. Irrespective of whether you
purchase a van and ownership is gained (using cash or loan, Hire
Purchase – HP,
fixed or variable rate Balance Payments, or Lease Purchase –
LP)
OR Lease a van
using Finance Lease or Contract Hire, you can claim 100% of the VAT. You should note that Her
Majesty’s Revenue and Customs (HMRC) can restrict the
percentage
of VAT you
claim on a commercial vehicle to the actual percentage of business to
total
miles – this can be particularly important to drivers of
Double
Cabs.
* Inland Revenue can limit the
percentage claimed in
relation to percentage of business use, perhaps particularly important
for users of Double Cabs.
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