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Car – fuel-only advisory rates
Considering a company van
Where a company vehicle is still appropriate, it is worth considering a van as opposed to a car. Unrestricted use of a company van results in a taxable benefit of £3,500, with a further £669 benefit if free fuel is also provided. Limiting the employee’s private use to only home-to-work travel could reduce both figures tozero.
Considering a company car
Engine capacity
Petrol
Diesel
Gas
Up to 1400cc (1600cc for diesel)
1401cc - 2000cc (1601cc - 2000cc for diesel)
Over 2000cc
11p 9p
8p
13p 11p 9p
19p 13p 14p
Rates from 1 June 2021 and are subject to change. Note the advisory fuel rates are revised in March, June, September and December. In addition, a rate of 4 pence per mile can be paid to electric-only company car drivers.
Case Study
Hailey is an owner-director. Her company car (registered before 6 April 2020) has a list price of £25,785. The car runs on petrol and emits CO2 at a rate of 93g/km.
Hailey pays tax at 45% and her 2021/22 tax bill on the car is therefore £2,669 (£25,785 x 23% x 45%). Hailey’s company will pay Class 1A NICs of £818 (£25,785 x 23% x 13.8%).
The company also pays for all of Hailey’s petrol. Because she does not reimburse the cost of fuel for private journeys, she will pay tax of £2,546 (£24,600 x 23% x 45%) and the company will pay Class 1A NICs of £781 (£24,600 x 23% x 13.8%). The total tax and NIC cost is £6,814.
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.
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 my own car? In most cases, 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, 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.
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 £24,600. 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.
Childcare schemes
In 2017, the government introduced a tax incentive for childcare, Tax-Free Childcare (TFC). Under TFC, the tax relief available is 20% of the costs of childcare, up to a total of childcare costs of £10,000 per child per year. The scheme will therefore be worth
a maximum of £2,000 per child (£4,000 for a disabled child). Parents are able to apply for TFC for children under 12 (up to 17 for children with disabilities).
To qualify for TFC all parents in the household must generally meet a minimum income level, based on working 16 hours a week (generally £142 a week) and each earn less than £100,000 a
year and not already be receiving support through Tax Credits or Universal Credit.
Your next steps: contact us to discuss...
y PAYE and payroll issues
y Ensuring you have the correct PAYE code
y Putting together an attractive and tax-efficient remuneration package
y Cutting the cost of company cars and reviewing the alternatives
y Minimising NIC costs and understanding the tax implications of company cars
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