Car Leasing Tax Issues

Your Car Tax Questions Answered

What are the key differences between taking a car allowance compared to running a company car?

A car allowance is subject to tax and Class 1 National Insurance Contributions as earnings through the payroll. A company car is subject to a car benefit charge and the employer must report it to HM Revenue & Customs on form P11D after the end of each tax year. The tax is paid either by direct payment to HMRC or via a restriction to the individuals tax code. The employer is liable to Class 1A National Insurance Contributions on the benefit. The benefit is calculated using the list price of the car and accessories multiplied by the appropriate percentage arrived at by reference to the fuel type and CO2 emissions figure. Adjustments are made for capital contributions or private use contributions made by the employee.

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What is the Car Fuel Benefit Charge?

If the employer provides fuel for a company car, there is also a car fuel benefit charge unless it can be demonstrated that the employer pays for no fuel for private mileage (not even £1 worth). The fuel benefit is calculated using a fixed multiplier, which for the current tax year is £18,800 and the appropriate percentage already calculated for the car benefit. The employer may claim Capital Allowances on company cars.

What is the significance of a car model's CO2 emissions in terms of selecting a company car?

The car benefit is calculated as a percentage, which is based on the level of CO2 emissions. The higher the level of CO2 emissions, the higher the percentage used, up to a current maximum of 35%.

Businesses can now operate and run 100% electric vehicles, such as the Nissan LEAF, what are the tax benefits in doing so?

The benefit charge is nil if the company car cannot produce CO2 emissions under any circumstances when driven.

Some employees use their private car while on business – what are the implications of doing so?

Business mileage travelled in private cars may be claimed at tax-exempt rates of up to 45p per mile for the first 10,000 miles per annum and 25p per mile thereafter. If the employee takes other employees on the business journey, they can claim an additional 5p per passenger per business mile. The exempt rates are deemed to cover a proportion of the vehicle running and maintenance costs as well as fuel costs. A business mileage log showing the date, start and end locations of the journey, the purpose and the mileage should be kept to support the claims.

It is often said that a pick-up truck is tax efficient for a business; can you explain why this is?

Certain pick-up trucks commonly referred to as double cab pick-ups are classified as vans for HMRC purposes. Vans attract completely different tax rules and there is no benefits charge whatsoever if there is no significant private use of the van (travel to and from work excepted). In basic terms, to qualify as a van the double cab pick-up must have a payload of 1 tonne (1,000 kg) or more.

What are the business benefits of running a fleet solely on contract hire?

I think the main benefit is cash flow; the employer pays the monthly lease cost without expending capital reserves on purchasing the vehicles. In addition, if the vehicles are used for business travel, the employer can reclaim 50% of the VAT. Of course, there is also the advantage of being able to afford to change the cars for newer and better models at regular intervals.

Tax is a complicated area for employees to understand, if someone needed to remember one thing what should it be?

If your employer provides fuel for your company car, it is not worth incurring a car fuel benefit unless you have high private mileage. An average fuel benefit charge would be £18,800 x 23% = 4324. In terms of tax this would amount to £864.80 or £1729.60 for a 40% taxpayer. Remember, your employer needs to provide only £1 worth of private fuel and you will incur the full fuel benefit charge. To avoid it, the employee must keep a mileage/journey log to support his/her business mileage claim and they should claim per mile at HMRC's Advisory Fuel Rates.