Benefit-in-kind tax compliance is a key issue for UK business, but one that can often be fraught with difficulty.
It is crucial to first understand HMRC regulations and then to ensure comprehensive mileage records are kept in order to demonstrate compliance.
Poor record-keeping can not only result in fines from HMRC for non-compliance but can also lead to greater tax liabilities for both employer and employee.
Private use of a company vehicle is viewed by HMRC as a benefit-in-kind, which means the employee must pay income tax on the value of this benefit unless they can prove negligible private use. Private use is defined as everything not related to work and includes commuting.
An employee’s liability then depends on the value of the benefit. For cars, this value is calculated using the car’s list price, its percentage of CO2 emissions, and the type of fuel it runs. Vans are viewed as a flat rate taxable benefit of £3,230 for the 2017/18 tax year.
At the same time, the employer must pay 13.8% of the value of the benefit in National Insurance contributions.
Fuel is also regarded as a taxable benefit if it is provided free or subsidised for private travel, so it is also important to distinguish between fuel used for business and private journeys clearly in company records.
The importance of properly declaring any benefits received by employees is paramount as HMRC regularly issues penalties for businesses that fail to comply with its rules, in line with the potential tax revenue lost, and the degree of responsibility or guilt.
The penalty can be 100% of tax and National Insurance contributions for a deliberate and concealed action, 70% for a deliberate but not concealed action, and 30% for a careless action. Employers can also be fined up to £3,000 per annum per employee for an incorrect tax return.
Not only can proper mileage records help businesses to avoid fines, it can also help them to reduce their overall tax burden in some cases.
For example, the use of an electronic mileage logbook can help to relieve the burden on staff to keep detailed records of trips made by automatically logging the details of each journey. This means private and business mileage can then be more easily distinguished to identify where employees are not liable to either benefit-in-kind or fuel tax due to insignificant private use.
For a full explanation of current HMRC rules and regulations, as well as examples of how you could reduce your tax liability, read the full TomTom Telematics tax guide in association with Grant Thornton now.
* The contents of this blog should be used for reference purposes only and both TomTom Telematics and Grant Thornton UK LLP recommend that no action be taken on any matter in the blog or accompanying guide without the reader taking independent professional advice.