The Company Merchant Limited

Fuel Scale Charges

Where the employer pays for any fuel used privately by the employee, there is an additional scale charge based on theCO₂-based car benefit percentage applied to a standard value of £16,900.

Employee Contributions

Where the employee is required, as a condition of the car being made available, to payfor the private use of a car the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will reduce its price for tax purposes.

By contrast it is "all or nothing" for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel!

HM Revenue & Customs has published advisory fuel rates which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.

Advisory fuel rates (from 1 July 2008)

Advisory fuel rates (from 1 January 2009*)

*As was done for the July 2008 changes, HMRC is content for the new rates to be implemented immediately where employers are able and wish to do so.

Tax Payable

These standard charges are subject to income tax at basic or higher rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code. 

For the benefit to be attractive, the employee must pay less in extra tax than it would cost him to run his own car out of his taxed income. These are examples of the 2008-09 tax costs to an employee of a company car:

Tax Free Benefits

Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

Pool Cars

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others. 

Please note: A pool car must not normally be kept overnight at or near an employee's home.

"Lower Paid" Employees

The provision of a car for an employee (NOT a director) who is paid at a rate below £8,500 per year (including the value of benefits) does NOT attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.

Special Consideration for Sole Traders

If your spouse is employed in your business (but not as a partner), it can be very tax efficient to provide them with a car, as long as they earn well below £8,500. The use of the car can be tax-free in their hands, and the business will get full tax relief on all the expenses connected with the car, provided you can demonstrate the car is necessary for business purposes.

Business Use of an Employee’s Own Vehicle

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own vehicles.

A statutory system of tax and national insurance free mileage rates applies for business journeys in employees’ own vehicles, as follows:

            Cars and vans:

                        On the first 10,000 miles in the tax year             40p per mile

                        On each additional mile above this                                 25p per mile

            Motor cycles                                                                            24p per mile

            Bicycles                                                                                    20p per mile

It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D.

Company vans

The taxable benefit for the unrestricted use of vans will be £3,000. There is a further £500 of taxable benefit if the employer provides fuel for private travel.

Van drivers can avoid the benefit in kind charge of £3,000 per year, if they agree not to use the van for personal journeys. Driving to and from work is acceptable as long as there is a reasonable amount of business use. It is advisable to keep a regular check on the vehicle’s mileage to ensure the ‘only for business rule’ is kept.

Tax Saving Check List

·       Keep adequate records of business mileage.

·       Always check your tax code to see that the correct benefit is being applied.

·       Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.

·       If you have low private mileage, you may be better off if you pay for all your own private fuel.

·       If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.

·       Encourage your employer to apply for a P11D dispensation.

·       If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.

·       Tax - free parking is a must!