Guide to Business Motoring 2016-17
For many businesses, motoring costs are a significant expense in the profit and loss account. Managing the cost of motoring is not restricted to tax efficiency – you must also consider ownership (should the car be personally owned), financing and running costs.
For those who are sole traders or partners, ownership is not an issue – the income tax scale charge system does not apply to the owner’s own vehicle.
For directors and employees, it is not uncommon for cars to be owned privately, although each situation should be considered on an individual basis.
The three principal options are:
• Outright purchase, possibly funded by a loan/overdraft
• Hire purchase/ lease purchase/ personal contract purchase
• Contact hire/leasing.
The decision as to which is appropriate will need to take into account a range of factors including the availability of cash, car ownership and the VAT situation.
Generally, tax relief is available for the cost of business usage, which will be influenced by the annual mileage, the fuel type of the vehicle, the age of the car acquired and the effective retention period.
Who Owns the Car?
Employed or self-employed?
In general, the tax costs related to the provision of a car that is available for both private and business use for a sole trader or partner are less than those associated with the provision to an employee or a director.
Sole trader and partners
The tax cost of private motoring is generally calculated on a case-by-case basis, taking into account the actual private and business mileage to identify the proportion of the cost of running the car which is not a deductible expense. The proportion of costs attributable to business motoring is tax-deductible, so qualifies for relief against both tax and Class 4 NICs.
Employees and company cars
Where the company owns the car the decision to be taken is who pays for the fuel. Because, inevitably, fuel will be used for both private and business journeys, a system needs to be in place to record the journeys and enable the business and private proportions to be calculated.
Who pays for the fuel?
If any private-use fuel is provided by the employer, the employee will be liable for tax, and the employer for Class 1A NICs, on the benefit unless he or she reimburses the employer at the HM Revenue & Customs advisory fuel rates (see below). However, if the employee pays for all fuel, there will be no personal tax liability (and no matching NIC liability) if the business proportion is reimbursed by the employer at the same rates. Businesses must now retain VAT receipts to support the claim for VAT input tax recovery on fuel purchased by employees.
|Up to 1400cc||10p||8p||7p|
|1401 – 1600cc||12p||8p|
|1601 – 2000cc||10p|
|These rates effective at 1 March 2014 – contact us for any updated rates|
Higher rates can be negotiated where a case can be made for using a vehicle with a higher than average fuel consumption.
The Cost of the Benefits
Where fuel for private use is provided by an employer – even as little as a litre – the employer is liable for Class 1A NICs, and the employee for tax, on the full benefit.
This is calculated by multiplying £22,200 by a percentage, normally between 5% and 37%, the rate being dependant on the fuel type and the car’s CO2 emissions.
A VAT scale charge also applies, with the annual cost ranging from £88 to £312 depending on the car’s CO2 emissions.
The employer’s Class 1A NIC liability, and the employee’s tax liability, on a company car will be calculated by reference to a benefit figure.
This figure is determined by multiplying the cars UK list price on the day before it was fist registered (and including the UK list price of most accessories, whether fitted on or after delivery) by the same emissions-based percentage as applies for the fuel benefit.
Please note there is no longer any ceiling on the list price.
Have you considered a company van?
The taxable benefit for the unrestricted use of company vans is £3,170 plus a further £598 of taxable benefit if fuel is provided by the employer for private travel.
Therefore the maximum tax will be £1,427, plus up to £269 for fuel for the employee or director and matching Class 1A NIC costs of £437 for the van and £83 for fuel for the employer.
A ‘van’ for this purpose included some extended cab pick-ups, complete with off-road styling, air conditioning and leather upholstery!
There is no benefit charge on electric vans.
Records and returns
If you are a sole trader or a partner, you need to record motoring expenses and mileages for the purpose of claiming tax reliefs for these costs. However, if you are the owner of a limited company or of a business providing one or more company cars, you must also comply with the reporting requirements of HM Revenue & Customs.
You must give notice when a company car is first provided to an employee or director, report certain changes and annually report the taxable benefit(s). A form P46 (Car) must be filed within 28 days of the end of the tax quarter reporting all relevant company car changes (except where one car is replaced with another). A form P11D, reporting all benefits and expenses payments not covered by a dispensation, must be filed no later than 6 July following the end of the tax year. The same deadline applies for providing a copy to the employee or director while the employer’s national insurance payable on the benefit is due by 19 July.
Employees and directors using their own cars
In many cases business travel will be undertaken by employees and directors using their own vehicles. HM Revenue & Customs has authorised mileage rates (see below) which can be paid by employers to reimburse the cost of such usage, and payments at these rates will be accepted for all tax purposes:
|Vehicle||First 10,000 miles||Thereafter|
|Car or van||45p||25p|
|These rates effective at April 2016|
Pros and cons of company cars
Pros: essential tools for your business; control over company image and costs; peace of mind employees.
Cons: paperwork; fleet management; capital locked into the car fleet; cost of finance; tax and NIC costs.
We can help you weigh up the options and decide on the best course of action for your business. Please call one of our experts on: T. 01233 630000