The tax trouble with company cars
Fuel price fall
In January 2016 the price per litre of diesel joined petrol in dropping below £1 - the lowest it’s been for five years. In fact, it will cost you £20 less to fill a 50-litre tank than it did in 2012. That’s the good news. But does this price fluctuation have a sting in the tail?
Footing the bill
For cars used in business there are generally two options. If the driver pays for fuel, the business will usually reimburse them, whereas if the business pays it’s usual for the driver to reimburse any fuel cost they incur for private trips. HMRC likes to keep close tabs on these arrangements and you need to as well. Note. The business must not reimburse more than a reasonable mileage rate to employees for fuel they pay for which is used for business journeys. You can use HMRC’s advisory fuel rates or negotiate your own with the relevant tax office.
Tax trouble
There are two main areas of tax you need to watch out for: income tax on benefits in kind (BiK) and employers’ NI.
BiK. If fuel in a company car is used for private journeys, a taxable BiK is triggered which can be disproportionately high. The same BiK applies whether the value of the fuel provided is £1 or £10. For 2016/17 it’s £22,200. This figure is multiplied by the percentage rate used to work out the BiK for the company car, which is linked to its CO2 emissions.
NI. If the driver is also liable to a BiK charge, the firm has to pay Class 1A NI. The amount payable is 13.8% of the BiK.
Costly slip
In other words, the driver and the firm could be stung for a few thousand pounds for what, on the face of it, appeared to be a minor oversight on a few pounds of fuel for private use. To avoid tax and NI on company car fuel it must be a requirement that the driver makes good (reimburses) the cost of fuel paid for by the business and used for private use. Tip. Make sure that company car users keep an up-to-date log of all private mileage so that you can accurately work out how much the reimbursement should be.
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Derek sometimes uses the company’s Ford Focus. He pays for any fuel on the company credit card and reimburses the firm for any private mileage. But one month he forgets - he thinks it’s probably just £100 worth of fuel he’s used but it’s a costly slip up because he’s triggered a taxable BiK. The car’s CO2 figure is 150g/km, for which the BiK rate is 27%. This equates to £5,994 and a £2,398 bill for Derek as a higher rate taxpayer (£5,994 x 40%). The company is hit with an NI charge of £827 (£5,994 x 13.8%).
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