Any tax related information is meant as a reference only.1
In the UK, employees often end up paying dearly for the private use of company vehicles, because the non-wage benefit is subject to income tax as part of the employee's wages. Private use of company vehicles also has a cost for employers, who are liable to pay extra National Insurance charges.
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For compliance purposes, employees should keep an accurate record of their business journeys, for example, using a log book.
Employees using their own cars for business journeys can claim up to 45p per mile tax-free for the first 10,000 miles, 25p per mile thereafter, with a supplement of 5p per mile if sharing the car with a business colleague.
There are two types of taxable benefit, or benefit in kind, arising from company cars.
The best way for employees to demonstrate tax compliance is to keep an accurate record of all private trips made.
If an employee has private use of a company car, he/she will pay income tax at rates on the benefit in kind. The value of the benefit is calculated using the list price value of the car, the CO2 emission percentage, and fuel type. Car benefit is also an important factor to consider for employers, as they must pay 13.8% of the value of the car benefit in National Insurance Contributions.
A fuel benefit applies if the employee is provided with free or subsidised fuel for private travel. The charge is calculated using the same percentage as the car benefit, on a flat amount of £22,600 for the 2017/18 tax year, which often leads to a significant tax/National Insurance bill.
Employees may use a van for insignificant private use such as commuting to work, without having to report it or pay any duty to HMRC.
If a company van has zero private use, HMRC expects employers to be able to provide supporting evidence. As an employer, the best way to stay compliant is to require your employees to maintain a mileage log.
HMRC defines a pool car or van as a vehicle available for work purposes to more than one driver, and not used for any significant private activity. If the vehicle is being used for significant private activity, then it falls under the same tax classification as a company car.
To avoid doubts, a good practice is to maintain a mileage log including information about locations visited, the reason for the journey, the name of the driver, and set out a clear policy for employees who have access to the vehicle.
The UK tax year runs from 6 April to the following 5 April.
A comprehensive guidance of the tax legislation in the UK is available on HRMC’s website http://www.hmrc.gov.uk/cars/index.htm.
HMRC expects employers (and employees) to keep six years’ worth of records related to benefits in kind, which means an electronic mileage log book is an ideal tool for having error-free and easy-to-access data in the event of a tax audit.