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How to avoid the car fuel benefit charge

8 April 14 | By: Jas Jhooty

Introduction

mileage

You have to be very careful if you are providing company cars to your employees and not returning any car fuel benefit on their P11D forms. This is because the car fuel benefit is an “all or nothing” charge meaning that if even one mile of private mileage is paid for by the employer, the full fuel benefit applies for the period in which the company car was made available to that employee.

A disproportionate charge

When a company pays for fuel used in private journeys whether it for a single journey or multiple (e.g. 5 miles or 50,000 miles) the tax charge remains the same. If a fuel benefit becomes payable it is calculated by taking the appropriate percentage as worked out for the company car benefit and multiplying this by the fixed figure for the year. This is currently set at £21,700 for the 2014/15 tax year.

Depending on the company car’s carbon dioxide emissions the annual tax bill for the employee could be over £3,000 with the employer having to pay up to over £1,000 in the corresponding Class 1A NIC bill.

Good record keeping

The importance of good mileage record keeping cannot be stressed highly enough. This is true in both cases of whether you provide your employees with a fuel card or reimburse them for their business journeys only.

Get-out clause

In practice, all company car drivers are likely to clock up some private mileage, e.g. to or from home and their normal place of work. To avoid the fuel benefit charge employees must show that the company doesn’t meet the cost of any fuel for these journeys. There are two ways to do this:-

  • the employee has no fuel card and only claims for accurate business mileage at HMRC’s advisory fuel rates
  • the employee has a fuel card and reimburses the company with the cost of fuel used for identified private journeys. Again HMRC accept the use of their advisory fuel rates in calculating the rate at which private fuel is to be reimbursed to the company.

Please be aware that it’s not enough to simply reimburse the cost of the private fuel; the law says to escape the tax and NIC bill employees must be “required” to do so. HMRC accepts that the requirement to reimburse the cost of private mileage exists where the company has a policy to this effect and makes this clear to its company car drivers.

The company must also have a system for monitoring the policy. In practice, each car driver has to provide the company with a record of private mileage.

Timing trap

The rules also say that to avoid the tax charge, reimbursement must be made “in the year in question”. So, for example, where a director/employee submits their March travel details to the company after April 5, they’ll already be too late to avoid the tax charge. However, the good news is that by concession HMRC accepts a reimbursement as soon as possible after the end of the tax year. (see EIM25660)

How emTax can help

emTax consultants are all ex-HMRC Inspectors and can review your current expenses policies and procedures, normally as part of a general PAYE Healthcheck.

We are currently offering a free employment tax advisory visit where one of our consultant’s will visit your offices to run through our PAYE & NIC Audit questionnaire to assess the level of risk you may be facing.

If you interested in this free visit, please do not hesitate to contact us.

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