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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.
Case Study
Olivia is an owner-director. For her company car she had
chosen one with a list price of £25,785. The car runs on petrol
and emits CO
2
at a rate of 148g/km.
Olivia’s company is successful and she pays tax at 45%. Her
2018/19 tax bill on the car is therefore £3,481 (£25,785
x 30% x 45%). Olivia’s company will pay Class 1A NICs of
£1,067 (£25,785 x 30% x 13.8%).
The company also pays for all of Olivia’s petrol. Because
she does not reimburse the cost of fuel for private journeys,
she will pay tax of £3,159 (£23,400 x 30% x 45%) and the
company will pay Class 1A NICs of £969 (£23,400 x 30% x
13.8%).
The total tax and NIC cost is £8,676. Furthermore, as well as
paying for the fuel, the company will also need to pay a gross
amount of over £12,528 to provide Olivia with the funds to
pay the tax.
When employers’ national insurance is taken into account, the
gross cost before tax relief of funding Olivia’s tax and the NIC
liabilities will be over £14,257.
Childcare schemes
The government has introduced a new Tax-Free Childcare (TFC)
scheme, which operates via an online childcare account. Existing
Employer-Supported Childcare (ESC) was set to be closed to
new entrants from 6 April 2018, with existing recipients being
able to choose to remain in the scheme for as long as their
employer continued to provide it, or move to the new TFC
scheme. However, the April deadline has subsequently been
extended by a minimum additional six months.
ESC, such as childcare vouchers, may be offered in addition to
employees’ pay or as a reduction in pay (commonly known as
salary sacrifice), enabling them to reduce the cost of childcare.
Under the new TFC scheme, relief is given at 20% of the costs
of childcare up to a total of childcare cost of £10,000 per child
per year. The scheme is worth a maximum of £2,000 per child
(£4,000 for a disabled child). All children under 12 years old are
eligible (or up to 17 for children with disabilities), but parents
must meet certain eligibility criteria.
Your next steps: contact us to discuss…
•
PAYE and payroll issues
•
Ensuring you have the correct PAYE code
•
Putting together an attractive and tax-efficient
remuneration package
•
Cutting the cost of company cars, and reviewing the
alternatives
•
Minimising NIC costs and understanding the tax
implications of company cars