Car taxation for Employees and Employors

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CAR TAXATION - EMPLOYEE

On 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 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. 

 

Percentage of vehicle P11D Price (add 3% for diesel for tax years marked*)

Co2

2014/15*

2015/16*

2016/17

2017/18

2018/19
0 0% 5% 7% 9%

13%
1-50 5% 5% 7% 9% 13%
51-75

5%

9%

11%

13%

16%

76 -94

11%

13%

15%

17%

19%

95- 99

12%

14%

16%

18%

20%

100

13%

15%

17%

19%

21%

105

14%

16%

18%

20%

22%

110

15%

17%

19%

21%

23%

115

16%

18%

20%

22%

24%

120

17%

19%

21%

23%

25%

125

18%

20%

22%

24%

26%

130

19%

21%

23%

25%

27%

135

20%

22%

24%

26%

28%

140

21%

23%

25%

27%

29%

145

22%

24%

26%

28%

30%

150

23%

25%

27%

29%

31%

155

24%

26%

28%

30%

32%

160

25%

27%

29%

31%

33%

165

26%

28%

30%

32%

34%

170

27%

29%

31%

33%

35%

175

28%

30%

32%

34%

36%

180

29%

31%

33%

35%

37%

185

30%

32%

34%

36%

37%

190

31%

33%

35%

37%

37%

195

32%

34%

36%

37%

37%

200

33%

35%

37%

37%

37%

205

34%

36%

37%

37%

37%

210

35%

36%

37%

37%

37%

215

35%

37%

37%

37%

37%

Over 220

35%

37%

37%

37%

37%

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  - £21,700 from April 2014 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 2014/15 - Petrol Car with CO2 emissions of 142

21,700 x 21% = Taxable benefit of £4557

@ 40% = £1,823 per annum or £152 per month

@ 20% = £911 per annum or £76 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.
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Opting out of the Company car

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.
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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:

 

per mile

Up to 10,000 business miles

0.45p

Over 10,000 business miles

0.25p


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CAR TAXATION - EMPLOYER

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.
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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 £3,090 plus £581 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.

In 2000 this was clarified and they are now classed as a commercial vehicle even with rear seats and side windows, as long as they have the ability to carry 1 tonne, (all double cabs in the UK will have been built to this criteria) and are built primarily to carry goods rather than passengers.
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VEHICLES AND VAT

On this page you will be able to find information regarding Cars and Commercial Vehicles (Vans) and the effect on them of VAT. This page will cover the basics, for any more complicated questions please feel free to telephone us.

Cars

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.
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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.

 

Any Personal use

100% Business use

Purchase of a car – Cash – HP – LP etc

NIL

100%

Lease of a car

50%

100%

Purchase of a commercial vehicle

100%*

100%

Lease of a commercial vehicle

100%*

100%

* 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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