Personal Finance – In good company

Where an employee is provided with the private use of a company car then a taxable benefit arises. The employee pays tax, and the employer pays National Insurance Contributions (NIC) on the value of this benefit with the administrative, collection and reporting PAYE duties falling on the employer. The annual benefit value is calculated by linking the list price of the car and a percentage charge, ranging from 1535%.The percentage charge is primarily determined by the cars level of carbon dioxide (CO2) emissions. The provision of fuel for private use attracts an additional charge of £14,400 multiplied by the relevant percentage used for the car benefit. Driving between work and home is classified as private mileage.

Let us consider, for example, a new, five-door, petrol-drive Ford Fiesta, list price £12,000 with a 15% charge based on its CO2 emissions where the employer pays for all of the fuel. The employee does 10,000 business miles a year. The value of the total car and fuel benefit would be £3,960. This would result in an additional tax charge of £1,584 for a higher rate taxpayer. The employer here, in addition to the actual costs of financing the purchase and the running costs of the car, would pay an additional £507 in NIC.

The tax and NIC can be minimised by the employer taking advantage of small loans exemption and helping the employee purchase the car. Paying approved mileage rates for business miles at rates of 40p per mile for the first 10,000 miles and 25p thereafter is NIC free and attracts no additional tax charge for the employee. An employee doing annual business miles of 10,000 could claim up to £4,000 per year. Approved mileage rates also exist for motorbikes and bicycles.

Car benefits make up the largest section in the P11D return. It is good practice to get all necessary information when the car is first purchased. A lot of the main information to record is found on the cars Vehicle Registration (V5) document for example, the registration date, CO2 emissions and fuel type.

Mahmood Reza is Proprietor of Pro Active Accounting.
T: 0116 224 7122
E: info@paa.uk.com