Fleet Management - a taxing job!
The bottom line
When a business provides a vehicle – either a car or van - to an employee, it will usually be treated as a taxable benefit. For the employee, this means that they will be liable for the payment of the additional tax for the benefit. The tax rate for a taxable car or van will either fall at 20% or 40% depending on their salary level?.
For the employer, it will mean that they will then also be liable for the payment of a greater amount of National Insurance, at a rate of 13.8% of the taxable benefit provided. The bracket of National Insurance attached to this benefit is called ‘Class 1A National Insurance’ and it must be declared on Year End P11D(b) forms to HMRC.
How do the numbers add up?
Getting the mathematics behind the taxable benefit absolutely correct is critical, to avoid being hit with additional tax charges. The taxable benefit is calculated in two separate parts:
- Part One - Vehicle benefit
- Part Two - Fuel benefit provided for private use
For each separate part of the calculation, there are two different formulas that apply to cars and vans respectively.
Part One - Vehicle benefit
Manufacturers list price x a %, based on the CO2 emissions of the car = taxable benefit.
The starting price that forms the basis of the calculation is the listed price from the manufacturer, rather than the price you paid for the vehicle. To understand the % due, please check the CO2 emissions table on the HMRC website.
Vans of all sizes have a fixed taxable benefit of £3,230.
Please note that this figure is set for the current tax year and could change in the next tax year.
Part Two - Fuel benefit provided for private use
Fixed £22,600 (current tax year value) x % based on CO2 emissions (same as for car benefit) = taxable benefit
Fixed taxable benefit of £610 (for current tax year). Remember - companies are still only liable for National Insurance payments. It is the employee who is liable for the tax.
Let’s take a quick look at what this means in real terms:
Piping Hot Boilers provide their four employees with a van each to reach clients. For every van where both private usage and fuel are provided, the company will only pay a National Insurance charge of £530 per van in the 17/18 tax year. The calculation behind this figure is:
£3230 fixed taxable benefit + £610 fixed fuel benefit x 13.8% = £530 x 4 vans = £2120 NI payable.
The top six fine print rule you NEED to know
The are some fine print rules that are important to understand before you really know where you stand. Here’s the six most important.
- If the vehicle is only to be used, and is only available, for work use, with ‘NO’ private use whatsoever, then there is no taxable benefit. It is important to note that you should be prepared to demonstrate this to HMRC if challenged. This can be demonstrated easily using vehicle tracking software.
- For those who are driving a van for work usage only, with permitted travel to and from work with no other private usage, there is ‘NO’ taxable benefit.
- For cars where to and from work travel is provided, then there is a taxable benefit.
- There is ALWAYS a taxable benefit if a vehicle is provided for private use (outside permitted use).
- There is a fuel taxable benefit if fuel is paid by the company and private mileage by an employee is allowed.
- Failure to keep fully accurate records for vehicle usage and mileage can result in HMRC treating the vehicle as a taxable benefit and you may incur penalties if your records are not sufficient. Vehicle tracking is the best way to keep fully accurate records to record usage/ mileage
Hmmm, not sure how this can work for you?
The sums may simply not add up for you and your company. There are alternatives and work-arounds that could put you in a better position.
Charge for private mileage
Simply charging the employee for any private mileage incurred is the most common method of dispensing with fuel taxable benefit. However – and as with anything to do with HMRC – you need a robust, reliable and accurate reporting system to demonstrate and confirm that the employee is paying as they should be for all private mileage.
Do not provide fuel
Ensure that your company vehicle driving employee pays for all fuel and then claims back business mileage using HMRC’s advisory rates. Make sure you keep these up to date as they change throughout the year. If they request a higher rate for any reason, they may be taxed on the difference.
https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016 (Tal to allow us to drop in a table in this section and reference HMRC webpage)
There is another, simpler way…
You can minimize your costs by accurately managing vehicle usage and private mileage. The best way to manage your fleet in this way is by tracking your vehicles. You will save, not only on fuel used and wear and tear as a result of private mileage, but also save on NI and tax for your employees.
Using Vehicle Tracking for providing data to HMRC
RAM Tracking is the only vehicle provider in the UK to be accredited by independent assessor Investor in Customers for exceptional customer service levels. Our software allows businesses regardless of industry and size to not only track their fleet of vehicles, but make important strategic decisions backed by powerful data and numbers.
With this fleet tracking system, you can access all the information you need to know even on the go with our app, the suite of reports available means you can generate key data at the press of a button, so you and your fleet manager can stay on top of vehicle usage.
This also means that you can generate reports for HMRC instantly (as one of our customers found out how vehicle tracking could save you time and money for HMRC audits recently) as the data has already been collected, collated and processed by the RAM Tracking system.
It can be easy to hop behind the wheel of a vehicle and even the most devoted of employees can find themselves tempted on a rainy day or when under pressure to get somewhere. Yet, the RAM Tracking system will trace this, and proactively alert you in real-time, so you will be able to charge them – and that’s probably something they could do without…
The RAM Tracking system can save companies time and money, in particular paying extra National Insurance. RAM Tracking allows your business to protect employees from paying excessive tax for private usage that can quickly mount up.