Any tax related information is meant as a reference only.1
Jack drives a company car worth £20,000, which runs on petrol. The vehicle’s C02 emissions of 170 g/km mean Jack’s car benefit is charged at 33% of £20,000, leading to an amount of £6,600 before tax for the 2017/2018 financial year.
If Jack never pays for the fuel he uses on private journeys, he will also have to pay £7,458 in tax for the fuel benefit.
Total Fuel and Car Benefit in Kind: £14,058.
As Jack is paying income tax at the 20% rate, he will effectively face an annual tax bill of £2,817 for his company car.
If Jack’s private use of his company car is insignificant, he could show evidence of that by using an electronic record book, and in this way reduce the tax hit.
ZYR Foods, as the employer of Jack, will need to pay Class 1A National Insurance Contributions on Jack’s car and fuel benefit.
So, the company faces a bill of 13.8% of £14,058, leaving them owing HMRC £1,940 in National Insurance.
Multiplied over a fleet and the bill could be much larger.
If the amount of private activity on Jack’s company car is insignificant, the employer can ask Jack to show evidence by using an electronic record book.
In this way, ZYR Foods can reduce the National Insurance bill arising from the employee’s benefit in kind.
|Calculation||Tax and NIC||Explanation|
|£20,000*33%||£6,600||List price multiplied by CO2 emissions percentage|
|£22,200*33%||£7,458||Fuel benefit figure for 2016/17 tax year multiplied by CO2 emissions|
|TOTAL||£14,058||Total benefit in kind charge.|
|Employee tax at 20%||£13,082*20%||£2,817||Assuming the employee is a basic rate tax payer (earns less than £43,000). Income tax due from employee via P11D.|
|TOTAL||£2,8172||Total liability for the employee.|
|ER NIC||£14,058*20%||£1,9403||Payment of Class 1A NIC due from employer via Form P11D(b).|
2 this is a cost to the employee
3 this is a cost to the employer (social charges)
LMN Fruits operates a fleet of company vans. For the 2017/18 tax year, the company has provided one of its senior employees with access to a van.
If the employee maintains a mileage log book - or mileage record book - during the fiscal year, demonstrating insignificant private use of the company van, both LMN Fruits and its employee would be able to avoid paying the tax bill, leading to savings of:
Tax implications for the employee
There will be a benefit in kind charge of £3,230 for the private use of the company van, and £610 for fuel if that is provided by the employer; a total taxable benefit of £3,840. If the employee is paying income tax at the highest rate tax band (currently 40%), he/she will face a tax bill of £1,536.
Using an electric logbook, Jack is able to more accurately track his business and private mileage. As this can be identified, Jack can repay the cost of his private mileage thus removing the benefit in kind tax.
Tax implications for the employer
LMN Fruits will pay National Insurance Contribution of £530 on the employee’s taxable benefit.
Similar to the above, where Jack is able to identify private mileage using the electronic logbook, he can repay the cost of all private fuel, saving ZYR national insurance contributions at 13.8% on the value of the fuel benefit.
There is no statutory definition as to what constitutes ‘insignificant’; to consider what is ‘insignificant’ employers will need think about indicators such as the number of private journeys, the private distance travelled and the patterns of travel. If the employer has any doubts whether private use is insignificant then they can ask the employee to maintain records to support the position and validate it against the odometer readings.