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Car, Van and Fuel Benefits

Minimising the Tax on Company Cars- its not so difficult – speak to us at your Manchester Accountants.


It is a well known fact that the tax cost of being provided with a company car, which is also available for private use, is continually increasing at a rate above normal inflation. By way of example, a higher rate taxpayer, travelling 15,000 business miles per annum, would be liable to the following annual tax bills for being provided with a car and fuel for both business and private usage:

Based on a typical 2 year old 2 litre petrol car:

1990/91

Recently

Tax costs to the higher rate taxpayer employee:

 

- Income tax on the car

880

1,872

- Income tax on the fuel

240

1,498

National Insurance cost to the employer:

- Class NIC charge

Nil

1,078

total

£1,120

£4,448


As a result of this, employers and employees alike are both now looking at new ways of structuring how cars can continue to be made available, whilst minimising the overall tax leakage. Listed below are some of the options that should be considered:


Repay Private Fuel


The private fuel benefit in kind can be avoided if the employee makes good to the employer the full cost of all fuel used for private mileage. Such an arrangement can be beneficial even where private mileage is quite high, but where the related fuel cost is lower than the tax charge on the benefit. When calculating private mileage, home to work travel must be included.


Classic Cars


Special rules exist for assessing the benefit in kind value of classic cars over 15 years old, which are now worth over £15,000. For classic cars worth less than £15,000, such as old MG and Triumph sports cars, the traditional rules apply, basing the benefit on list price, which in this case may only be a few hundred pounds.


Own Vehicle Privately


Probably the most common solution to this perennial tax problem is to own and run the car personally, and charge the business a mileage rate for business travel. If a dispensation with the Inland Revenue is agreed before hand, the Fixed Profit Car Scheme mileage rates can be used, without any requirement for the employer to enter these transactions on year end payroll returns: P11D. For high business mileage users, such a structure can prove quite profitable.


Company Van


The rules for calculating, and hence taxing, the benefit on a company van are completely different to those for cars. There is a combined benefit, for both vehicle and private fuel, assessed at £500 for vans under 4 years old and £350 for those over. The definition of a van, for this purpose, is 'a vehicle built primarily to carry goods or other loads (but not people), with a design weight not exceeding 3,500 Kg'. This could include some off-road vehicles and certain pick-up truck

 

Pool Vehicle


Where a vehicle is available for use by more than one employee, with any private usage being merely incidental to business use, and where the vehicle is not normally kept overnight at or near the residence of any of these employees, no taxable benefit is assessed on the provision of this vehicle.


Ownership within an Unincorporated Structure


For many years now, there has been a material difference in the tax cost of providing a car to an employee, compared to the equivalent cost of a car being provided to a sole proprietor or partner of a business. If unincorporating the business, just to save tax on the car provision, is considered too drastic, then consideration should be given to setting up a parallel unincorporated business to, amongst other things, own and run the vehicles. To protect against a potential Inland Revenue claim of artificiality, there should be other commercial reasons for such a scheme. Ring fencing the business fixed assets, outside of the company, which is permanently exposed to potential commercial litigation, may provide such a reason.

 

 

Company cars 2010/11

CO 2   emissions (gm/km)  
(round down to nearest 5gm/km)

% of car's list price taxed

up to 130

15

135

16

140

17

145

18

150

19

155

20

160

21

165

22

170

23

175

24

180

25

185

26

190

27

195

28

200

29

205

30

210

31

215

32

220

33

225

34

230 and above

35


Company Cars


  • For diesel cars add a 3% supplement but maximum still 35%. Euro IV diesel cars registered before 1 January 2006 do not suffer the 3% supplement.

  • Discounts apply to certain environmentally friendly cars.

  • A 10% rate applies to non-electric cars with emissions of no more than 120gm/km.
  • Environmentally friendly discounts do not apply to these cars but the diesel supplement
  • does.
  • For cars registered before 1 January 1998 the charge is based on engine size.
  • The list price includes accessories and is subject to an upper limit of £80,000.
  • The list price is reduced for capital contributions made by the employee up to £5,000.

 

Car Fuel Benefit 2010/11


£18,000 x 'appropriate percentage'*

*Percentage used to calculate the taxable benefit of the car for which the fuel is provided.

  • The charge is proportionately reduced if provision of private fuel ceases part way through the year. The fuel benefit is reduced to nil only if the employee pays for all private fuel.


Van Benefit per vehicle 2010/11


Van benefit £3,000
Fuel benefit £550

  • The charges do not apply to certain environmentally friendly vans or if a 'restricted private use condition' is met throughout the year.

 

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