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An AccountingWEB.co.uk guide to company cars and fuel

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18th May 2009
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This article provides a summary of the rules on how cars and fuel are taxed together with a review of the key problem areas encountered by employers and employees, and a look at how benefit tax is developing in the area for the future.

Summary

Cars are taxable as a benefit in kind on directors and employees earning at a rate of more than £8,500 per annum. Cars are taxed at a percentage of the list price of the vehicle. The percentage is determined by the official emissions of the car, and in some cases, the fuel it uses (or is adapted to use). Cars are taxed when available for private use, not on the amount of private use. A car is not taxed for a period for which it is unavailable to the employee if more than 30 days (usually by virtue of being under repair or similar).

List price

  • The car is taxed on the list price quoted by the manufacturer on the day the car is first registered.
  • Where the employer has gained a discount off the list price, the car will be taxed on the higher list price, and not the price paid.
  • List price should include all accessories fitted to the vehicle when new, and accessories fitted subsequently if they cost more than £100.
  • The maximum list price for this purpose is currently £80,000, but this limit will be removed in 2011/12.
  • Contributions to the cost of the car by the employee can be deducted from the list price but are restricted to a maximum of £5,000
  • For “classic cars” – that is those over 15 years old and with market value of greater than £15,000 – the market value is used rather than the list price.

Relevant percentage

  • The percentage applied to the list price is determined by the official emissions of the car.
  • The fuel type adjustment allows the table which applies to petrol cars to be adapted for other types of fuel. The most common adjustment is the addition of 3 per cent for diesel cars.
  • The lowest figure on the Table, equating to 15 per cent benefit will reduce to 130g/km in 2010/11 and to 125g/km in 2011/12. This will provide an increase of up to 13 per cent in their car tax bill for some drivers.
  • There is also a special “lower” rate on the table for cars emitting no more than 120g/km. Petrol cars will be taxed at 10 per cent, and diesel at 13 per cent.
  • All reductions for alternative fuels will be abolished from 2011/12, with only electric cars being taxed on a separate scale from petrol (table rate) and diesel (plus 3 per cent). Electric cars will attract 9 per cent tax.
  • Cars without an emissions figure or which were registered before 1 January 1988 are taxed based on engine size

Taxing availability

  • Where the car is provided to a director it will be difficult to establish that the car is not available for private use, even if it is not so used.
  • Where an employee is provided with a car, lack of availability for private use is easier to demonstrate, by including details of the bar on private use in the contract of employment
  • Cases have been argued where an individual is abroad on business, and HMRC contended that the car was still “available” to them.

Contributions made for private use

Payments which are made in respect of private use of the car are deductible from the benefit as calculated. You will need to ensure that the payment is in respect of private use, and not just to secure a better car.

Fuel as a benefit in kind

If fuel is provided in a company car it is taxable at the same rate as applies to the emissions of the car, applied to the fuel benefit which is currently £16,900. There is no tax charge on the fuel if the employee makes good the FULL cost of fuel for private journeys. Such a claim would need to be substantiated if the employee claimed that no tax was due. Employees can be reimbursed for business miles at the advisory fuel only rates or any other rate agreed by HMRC.

Fuel points to watch

  • If free fuel is withdrawn during the tax year the benefit can be apportioned to the time the fuel was provided.
  • Fuel tax depends on the provision of the car, so if a car is only provided for part of the year, fuel only applies for part of the year.
  • Reimbursing private journeys using the advisory fuel rates can be risky unless there is good evidence that all private journeys have been reimbursed to the employer.
  • If the car is available for the whole year, but fuel is made available part way through the year, a full year’s tax charge will apply.

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