The letter is regarding your recent inquiry about the rules related to
company cars and what the fuel benefits in kind are. Also, the letter will talk
about the tax system in the United Kingdom and report on the significance of
taxation for individuals. Calculations will be included, and the explanations
will be based on the 2016/2017 legislation.   

The meaning of benefit in kind is that it is a
benefit given to the employee instead of cash for e.g. company cars. To
calculate benefit in kind multiply the P11D value by the benefit in kind %
banding and then multiply that answer by your tax band (FleetNews, Online) (See
Appendix 4). The Company cars are provided by a business to their employees for
the use of both personal and business. For company cars the person is
applicable to tax if he/she is using it or if the family is using it, also
includes travelling. Also, the tax is based on the value of the company car and
other factors such as the type of fuel it uses or its value on present day. In
addition, the value of the car is reduced if it has low emissions of carbon
dioxide, paying something towards the cost of the car and if the use of the
vehicle is part time. However, if the person’s employer pays for the fuel for
you consume for private use the tax will be applicable to you (GovUk, Online).

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It is important that the person informs HM
Revenue and Customs if their vehicle or details of fuel change. Example could
be the person receiving or returning a company car or the employer pays or
stops paying towards your fuel for private use.

Furthermore, employees are taxed on a
percentage of the vehicle’s list price. The percentage is dependent on the
level of carbon dioxide emissions. This normally ranges from 16% to 37%
increasing in intervals of 1% for every 5 g/km taking the surplus of 95 g/km
which is the base figure. Likewise, there is also a 3% increase for engines
that run on diesel bearing in mind that the maximum percentage is 37%. Also,
the fuel benefit uses the similar percentage that is used when calculating for
company cars.

Moreover, there are ways in which the person
can be exempt from paying tax for either a company car or fuel. Firstly, for
privately owned cars that are owned by employees or directors, the tax is
exempt. Similarly, cars that are used for journeys which involve business are
exempt. An example of this could be an engineer travelling to see one of
his/her clients. It is important that the employee is informed that the car is
not used for private use. In addition, cars that are used specifically for an
employee with a disability is also exempt. This is taking into consideration
that it is used for travelling to and from the workplace to their home (GovUk,
Online).

 

Furthermore, the person does not have to pay for
fuel which include private journeys if fuel is purchased by the employee for
their own use. Likewise, if the employee buys fuel and the amount is paid back
during the tax year and their payment is identical or more than the amount they
paid they are exempt. Also, pool cars are also exempt from tax, as the cars are
mutual by employees for business purpose and is normally kept on the business
premises. Nonetheless, it is important that there will be no exemptions if the
car is used for private use or the car is shared by employees and isn’t eligible
to be a pool car (GovUk, Online).

Fuel that is provided for private purposes is
subject to benefit charge. The benefit is calculated at £22,000 multiplied by
the percentage that is used for calculating the car benefit. The fuel benefit
becomes nil if the employee pays his employer for all the fuel that is provided
for personal use. Likewise, the figure also become nil if the fuel provided is by
the employer for the use of business. However, there is no reduction for the
fuel benefit if the worker only incompletely repays his employer for private
fuel (See appendix 2).

It is important that if the car is
inaccessible to the employee for 30 days or more the car and fuel benefit will
be reduced accordingly. In this situation the benefit would be calculated on a
daily basis. Also, if private fuel is withdrawn throughout the year the benefit
is reduced pro rota (See appendix 3)

Similarly, if you’re an employer who is a sole
trader the person is exempt from tax. If a person provides a car to someone in
the business only because they’re a close relative, they are exempt from tax. A
close relative comprises of parents, spouse or son and daughter.

It is important to know that if the cars that
are provided aren’t exempt, it is the duty of the person to report to HM
Revenue and Customs as you may have to pay National Insurance on the value of
the benefit.

For company
vans that are used privately the benefits are £3170 annually for open private  use of the van and £598 annually if private
fuel is delivered by the employer. If the van does not discharge any carbon
dioxide the benefit is 20% of the total benefit. In addition, taking   the van home at night and incidental personal
use isn’t considered to be private use.

According to
the HMRC, a van is; a vehicle that is primarily built for the transportation of
     goods or burden, a gross vehicle
weight – fully loaded – not surpassing 3,500kg, also work   buses and mini buses do not count as vans,
however double cab pickups can. (Holly Martin, 2017, Online). In addition, 4×4
pickups can also be classed as van as they have a payload at minimum a tonne.
In the eyes of HMRC they count as van and all the rules regarding the van also
applies to the 4×4 pickup.

The idea of
company cars and company vans and which one is better for business i.e. saving
money. Company vans have a fixed rate and the fact 4×4 pickup can also be
counted as one makes it the best option. If the 4×4 pickup was bought as a
company car it would be more          
expensive as it would be subject to benefit in kind rate charges (Holly
Martin, 2017, Online). It is also worth mentioning that to look and compare how
much tax you pay for company       car
tax compared to electric car. However, if a company car is necessary then it a
low            emission car will be more
tax efficient as you will be according to the benefit in kind rates.

The basic
rate band for the year 2016/17 is 20%, higher rate being 40% and additional
rate is 45%. The basic rate band is from £0-32,000, higher rate is from
32,001-150,000 and              
additional rate being over £150,000. Also, the personal allowance is
£11,000, it is important to take notice of these figures as they interlink with
company cars and fuel benefit in kind.                                                 

In the
approved mileage allowance payments system, the
following approved rates are:

Cars – First 10,000 business miles per tax
year is 45p per mile. Any additional miles are taxed at 25p per mile. If the
amount paid is lower the employee can claim the loss as an allowable
expense. 

If the car is for private use at the end of
the tax year the person will have to fill a form called P11D (See Appendix 1) and
pay Class 1A National Insurance on the assessment of the car benefit. The same
also applies for fuel which is used for private use, where the employee doesn’t
pay for the fuel they used privately during the tax year.

The P11D is a form where you need to report
the end of year expenses and benefits for employees and directors to HM and
Revenue Customs. The deadline for filling in the P11D form is 19 July following
tax year (RossMartin, 2014, Online).

Class 1A National insurance contributions are paid
by employers where they are paid in accordance to the taxable benefits provided
to employees. The current rate is 13.8% on the value of the taxable benefits. Furthermore,
Class 1A contributions is counted as a supplementary form of employment and is an
expense which is deductible when calculating the employer’s tax adjusted
profits. No class 1A contributions are payable taking in to account the
following things. These include benefits that are exempt, benefits which are
exempt from income tax and benefits that are treated as earnings and evaluated to
the Class 1 national insurance contributions.

To conclude the letter has outlined the rules
relating to company cars and benefit in kind and has also talked about P11D and
Class 1A contributions. Furthermore, recommendations have also been included in
this letter such as choosing a company van over a company as it can benefit the
person and his/her business. Likewise, additional information such as rate
bands and mileage have been included as these factors can also affect company
cars and fuel benefit in kind.

Yours Sincerely

T.Patel

Tawseef Patel (Mr)