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The company car and travel costs - some of the facts

23rd April 2018

The company car and travel costs - some of the facts

The company car continues to be an important part of the remuneration package for many employees, despite the increase in the taxable benefit rates over the last few years.

Employees and directors pay tax on the provision of the car and on the provision of fuel by employers for private mileage. Employers pay Class 1A NICs at 13.8% on the same amount. This is payable by the 19 July following the end of the tax year.

The amount on which tax and Class 1A NICs are paid in respect of a company car depends on a number of factors. Essentially, the amount charged is calculated by multiplying the list price of the car, including most accessories, by a percentage. The percentage is set by reference to the rate at which the car emits CO₂

Travel and subsistence costs

Site-based employees may be able to claim a deduction for travel to and from the site at which they are working, plus subsistence costs when they stay at or near the site. Employees working away from their normal place of work can claim a deduction for the cost of travel to and from their temporary place of work, subject to a maximum period.

Approved business mileage allowances – own vehicle

Vehicle

First 10,000 miles

Thereafter

Car/van

45p

25p

Motorcycle

24p

24p

Bicycle

20p

20p

 

Pooling your resources

Some employers find it convenient to have one or more cars that are readily available for business use by a number of employees. The cars are only available for genuine business use and are not allocated to any one employee. Such cars are usually known as pool cars. The definition of a pool car is very restrictive, but if a car qualifies there is no tax or NIC liability.

Car – fuel only advisory rates

Engine capacity

Petrol

Diesel

Gas

Up to 1400cc

11p

9p

7p

1401 – 1600cc

14p

8p

1601 – 2000cc

11p

Over 2000cc

22p

13p

13p

Rates from 1 March 2018 and are subject to change. Note the advisory fuel rates are revised in March, June, September and December. Please contact us for any updated rates.

 

Mileage allowance vs free fuel

A frequently asked question is: would I be better off giving up the company car and instead claiming mileage allowance for the business travel I do in a car that I buy myself? The rule of thumb answer to this is that you are more likely to be better off if your annual business mileage is high.

Another frequent question is: would I be better off having my employer provide me with fuel for private journeys, free of charge, and paying tax on the benefit, or bearing the cost myself? In this case, the rule of thumb answer is that you are only likely to be better off taking the free fuel if your annual private mileage is high. However the cost to the employer of providing this benefit is likely to be high.

Every case should be judged on its own merits, and considered from both the employee’s and the employer’s point of view. While cost is an important factor, it is not the only one. As an employee, using a company car removes the need to worry about bills or the cost of replacement. As an employer, running company cars allows you to retain control over what may, for your business, be key operating assets.

Fuel for private travel

If your employer provides fuel for any private travel, there is a taxable benefit, calculated by applying the same percentage used to calculate the car benefit to the fuel benefit charge multiplier of £23,400.

You can avoid the car fuel charge either by paying for all fuel yourself and claiming the cost of fuel for business journeys at HMRC’s fuel only advisory rates, or by reimbursing your employer for fuel used privately using the same rates.

Considering a company van

Many employers and employees have benefitted from significant savings by replacing company cars with employee-owned cars part-funded by mileage allowances at HMRC rates. Where a company vehicle is still appropriate, a van rather than a car is worth considering.

Unrestricted use of a company van results in a taxable benefit of £3,350, with a further £633 benefit if free fuel is also provided. Limiting the employee’s private use to only home to work travel could reduce both figures to zero.

Use our helpful tax calculator

CLIENTS WORDS

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