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Are business motoring costs driving up your tax bill?

Although there have been increases in the taxable benefit rates over the last few years, the company car remains a popular business tool for many. Here we outline some key aspects to consider.

The company car
Employees and directors pay tax on the provision of the car and on the provision of fuel by employers for private mileage. Employers pay Class 1A national insurance contributions (NICs) at 13.8% on the same amount, which is payable by 19 July following the end of the tax year.

The amount on which tax and Class 1A NICs are paid in respect of a company car depends on a number of factors. Essentially, the amount charged is calculated by multiplying the list price of the car, including most accessories, by a percentage. The rate is dependent on the fuel type and the car’s CO2 emissions, which will be somewhere between 7% and 37%.

Fuel for private use
The employer is liable for Class 1A NICs where fuel is provided to employees for private use. Meanwhile, the employee is liable for tax on the full benefit.

Where an employer provides fuel for private travel there is a taxable benefit. This is calculated by applying the appropriate percentage to the car fuel benefit charge multiplier, which for 2016/17 is set at £22,200.

Employees can avoid the car fuel charge either by paying for all fuel themselves and claiming the cost of fuel for business journeys at HMRC’s fuel-only advisory rates, or by reimbursing their employer for fuel used privately using the same rates.

Company vans
Where a company vehicle is appropriate, you might want to consider opting for a van over a company car. Company vans give rise to a £3,170 taxable benefit for unrestricted use. A further £598 of taxable benefit is charged if fuel is provided by the employer for private travel purposes. The maximum tax on a company van will therefore be £1,426.50, plus up to an additional £269.10 for fuel for the employee or director if applicable. Restricting the employee’s private use of the van to home-to-work travel only, however, may potentially reduce these figures to zero.

Employees using their own vehicles
For employees who use their own vehicles for business travel purposes, HMRC’s approved mileage allowance payments will apply. These can be used to reimburse employees for the costs of fuel used during business journeys. The rates are 45p per mile for the first 10,000 miles and 25p per mile above this. If you use your motorbike the rate is 24p per mile, whilst those using a bicycle can claim 20p per mile.

We can help you to understand the tax implications of a company car and review the alternative options that may be available. Please speak to us for advice.