Where the employer company pays directly for the fuel into the director's private car (partly used for the business) by using a company debit card, my understanding is that the employer gets a deduction for travelling expenses and payments are reportable on P11d section M and NIC class 1A due, and the director claims tax relief for business element though tax return. Am I correct in my understanding? Another accountant is confident that Class 1 is due. If class 1 is due how is it paid/reported? Many thanks.
Related resources
Replies (3)
Please login or register to join the discussion.
It depends
The problem is the director wears two hats, as does anyone with a company debit/credit/fuel card.
On the one hand they have the authority to contract and pay for things on the company's behalf. On the other hand they have the power to enter into contracts as a private individual.
If the company settles an employees pecuniary liability, by somebody with a company card using it to settle the liability or by other means, then that's liable to Class 1 NIC.
If the company contracts to obtain goods, which is paid for by someone with a company card, and that it then provides to an employee, the cost of the goods is liable to Class 1A.
So the director turns up on the forecourt of the garage in his private car. He undoes the fuel gap and he takes goods (fuel) from the garage and puts it in his private car. By doing so he has entered into a contract to purchase those goods.
The contract wasn't in writing. It's not a verbal contract. It's a contract made by acting in a certain way.
Now did he enter into that contract as a private individual, putting fuel in his private car? or did he do so as the company's agent that wanted to buy some fuel and give it to him so that he could put it in his private car?
The answer lies with the man at the till. Does he think that the person that's being provided with the fuel under this contract is the person that drove the car onto the forecourt, with some unknown third party settling it via a card that they've provided to that person?
Or, does he think that the mystery third person has contracted to purchase the fuel and is then immediately donating it to the owner of the car? How could he possibly dream that up all by himself?
Unless the man behind the till was made aware of a different contractual position before the contract is formed, by taking the fuel, he's entitled to the first, more simplistic, understanding of the contractual position.
So unless you go up to the man behind the till and tell him that you're acting as X Ltd's agent in purchasing some fuel that X Ltd is immediately going to give to you and put in your car before the fuel is put in your car, when you pay for it with your company debit card you're acting as the company's agent in settling your pecuniary liability. That makes it liable to Class 1 NIC.
If you want a Class 1A liability instead, you need to go up to the man behind the till and put him straight on the correct contractual complexities before drawing the fuel. Obviously, he's going to think you're a complete idiot.
It was obviously a bit easier in the "fill her up please" days.
How do you account for Class 1? You have to put it through the payroll for NIC purposes only and the employee owes the employer the employee's contribution. Or if the employer decides to pay the employee's contribution, that's a benefit for tax purposes that also needs to go on the P11D.
The answer is to take it to an expenses loan account and then credit a monthly mileage claim to the same account.
Excellent summary, Steve
But what is the situation in these days of 'pay at the pump'? Do we need an additional question on the screen - "are you acting on behalf of your employer?" :)
I guess the answer is obvious and takes us back to the "fill her up" days - most pumps need the card to be authorised before a drop of fuel leaves the nozzle, so as far as the pump is concerned you're acting as the employer.
I've no idea with pay at the pump!
There is a list of things that clients should be told just not to do in my opinion.
As an aside, the car park in Shoe Lane (of Thornton v Shoe Lane Parking Ltd fame, which is of relevance) was recently demolished. See it in pictures.