Tax Issues - Employee Contributions

Example 1

Employee contributes 3,500 to cost of car.
Total price of car when made available 13,500
less contribution by employee 3,500
Price of car for tax purposes 10,000

Example 2

Same car as above: air conditioning added after 6 months; employee pays half cost
plus air conditioning (including fitting etc) 2,000
less contribution by employee 1,000
Therefore price of accessory to add for tax purposes 1,000
Revised price of car for tax purposes 11,000

Payments for the private use of the car, which your employee is required in a year to make as a condition of the car being made available for private use, can be deducted from the car benefit.

Example 3

Same car as above: employee required to pay 100 a month for the private use of the car.
Business mileage 9,000.
35% of revised price of 11,000 = 3,850
less one third for business mileage 1,283 = 2,567
less payment for private use (12 x 100) 1,200
Car benefit 1,367

Classic Cars

Special rules apply where at the end of a tax year a car
  • is 15 years old or more and
  • has an open market value of 15,000 or more, which is higher than its list price at the time of registration
The price of these cars for tax purposes is the open market value on the last day of the tax year, or the last day in the tax year on which the car is available to the employee.

The open market value must include any accessories. Values may be arrived at from valuations (eg. for insurance) or prices in the market or published prices.

Capital contributions by the employee towards the cost of the car or accessories can be deducted from the market value, up to a limit of 5,000.

Fuel provided for your employee's private use

There is a separate charge on the benefit of free fuel you provide for private motoring in a company car, for example from your own pumps or by paying for, or reimbursing, the cost of fuel. As an employer you may also be liable to pay Class 1A National Insurance contributions on the benefit of the free fuel. The value of the benefit for both income tax and National Insurance contributions purposes, is based on the engine size of the car and whether it is petrol or diesel powered.

There is a further band for cars without an engine capacity, for example rotary engined cars.

The full scale charge applies if any free fuel is provided for private use, but the charge is reduced to nil if the employee makes good the cost of all fuel provided for private motoring.

What records will I need to keep in the future?

For each employee, you should record
  • name and National Insurance number
  • date car first made available
  • type of car provided. eg
    • make and model
    • engine size/cc*
    • petrol or diesel*
  • date of registration
  • manufacturer's list price of car (including any VAT, car tax and delivery charge)
  • price of options and accessories (additional to standard equipment), including tax, delivery and fitting, when car first made available to employee
  • price of accessories after car first made available (and after 31 July1993) which had a price of more than 100
  • capital contributions made by the employee towards cost of car or accessories
  • annual payments for private use of car, where there is a requirement to make such payments
  • annual business mileage, to show whether it was
    • less than 2,500 miles
    • between 2,500 and 17,999 miles
    • 18,000 or more miles

How will I provide this information to the Inland Revenue?

Starting in July 1994, for cars made available after 5 April 1994, you should
  • send the Tax Office a quarterly return (Form P46(car)) as at 5 July, 5 October, 5 January and 5 April, showing employees
    • first provided with a car
    • provided with a change of car
    • provided with an additional car
    • already provided with a car who start to earn at the rate of 8,500 or more or become a director
    • no longer provided with a car.
  • Form P46 (car) will ask for
  • details of car: make, model, engine size (cc), petrol or diesel
  • price of car and accessories
  • capital contributions by employees
  • expected annual business mileage band.
You will also need to complete a form P11D at the end of the tax year to show details of all expenses payments and benefits provided for each employee.

What do I need to do now for existing cars?

We asked earlier this year if employers would help us to make the change in April 1994. Many of you have indicated that you will.

It would help if you could let your Tax Office have as soon as possible a list of your employees provided with a car, showing for each
  • name
  • National Insurance number
  • list price of car including delivery charge and accessories, less any capital contributions
  • amount of any payments made by the employee for private use
  • estimated mileage
This will help us get employees' PAYE codes adjusted in time for the start of the new system in April 1994, as codes for 1994-95 are issued in January 1994.

It will avoid employees paying too much tax from next April or having to pay more at the end of the year.

The new system for taxing company cars means the tax for most employees with company cars will change. Most will be better off under the new rules; others will face increases in their benefit charge.

It would help us to get your employees' tax right if you could send your Tax Office as soon as possible their names, National Insurance numbers, the list prices of the cars and accessories less any capital contributions, and their expected mileage bands.

How do I find details of existing cars?

We know you may not have records of list prices and all accessories for existing cars. In order to avoid unnecessary work, Tax Offices will accept prices based on
  • the list price of the car plus major optional accessories (automatic gearbox, air conditioning etc)
  • published guides where the manufacturer's price list is not available
You should use your best efforts to find the list price of each car and its accessories, but where the information is not available you should tell your Tax Office, and provide a reasonable estimate.

Manufacturer's list price

  • Identify the model from invoice, leasing company information or badge on car
  • Establish date of registration from registration documents held by employer, employee or leasing company
  • Find manufacturer's or importer's list price on day before date of registration from
  • specialist lists of prices in book form or on computer disk (eg as published by Glass's Guide Service Ltd) organisations offering specialist services providing prices for lists of cars (eg.Glass's Guide Service Ltd, phone 0932 823823; CAP Nationwide Motor Research Ltd, phone 0756 700666)
  • price lists from manufacturers or importer's special telephone contact points, eg
    • Ford: 0800 505152
    • Peugot: 0203 884000
    • Vauxhall: 0800 444200
    • leasing companies, some of whom are providing advice on prices for client companies invoice (if shown).

Appropriate Taxes

Add (if not already included)
  • VAT
  • Car tax (up to 12 November 1992)
as shown on manufacturer's price list, or invoice, etc

Do not add vehicle excise duty (road tax).

  • Delivery Charge
  • Add price for delivery, identified from
    • invoice
    • manufacturer's price list
    • specialist commercial lists, as above
  • Accessories
    • These include, for example:
      • options factory-fitted by manufacturer
      • manufacturer's extras fitted by dealer
      • independent extras fitted by dealer
      • independent extras fitted by independent supplier.
  • Add price of any accessories included when car first made available (including price - if any - for delivery and fitting). Obtain details from
    • manufacturer's price list
    • dealer's etc price list (or failing that, price charged by dealer)
    • independent supplier's price list (or failing that, price charged by independent supplier)
    • invoice
    • leasing company, for leased cars
    • employee
  • Add price of accessories fitted after car first made available to employee, where the price was 100 or more
Capital Contributions

Check what amount, if any, your employee contributed towards the cost of the car and deduct it from the list price of the car when notifying the Tax Office.

These notes are for guidance only and reflect the tax position at the time of writing. They do not affect your right of appeal about your own tax.

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