Category: Fuel Benefits charge

Here’s the latest information on mileage rates for company cars, including the new coronavirus measures and what’s happening with the Advisory Electricity Rate for electric cars.

Company car mileage rates update

The company car benefit tax charge does not cover fuel provided for a company vehicle. This means that where an employer pays for all fuel (business and private), a statutory fuel scale benefit charge will be payable, based on the cash equivalent of the benefit each tax year (£24,500 for 2020/21) multiplied by a percentage depending on the car’s CO2 emissions.

If the company pays for all fuel, but the employee reimburses the company for private use, as long as the amount paid back is equal to, or more than, the amount for personal fuel in the same tax year, the employer will not have to pay anything to HMRC or report on such transactions.

Where the employer does not directly meet the cost of fuel used for business in a company car, but pays the employee a business mileage allowance, no fuel benefit charge will arise if the mileage allowance does no more than meet the cost of fuel used for business travel. If the mileage allowance is excessive, but it’s only paid for genuine business travel, the ‘profit element’ will be chargeable to tax in the normal way. However, a car fuel benefit charge will arise where, for instance, the payments to the employee cover travel between home and work.

HMRC publish rates that can be used by employers wishing to pay their employees the cost of fuel for business journeys in company cars (or, where the employer initially pays for all fuel, for reimbursement of private mileage by company car drivers to their employers). Hybrid cars are treated as petrol or diesel cars for this purpose.

Rates applying from 1 June 2020 are as follows:

Engine sizePetrolDieselLPG
1400cc or less10p6p
1600cc or less8p
1401cc to 2000cc12p8p
1601cc to 2000cc9p
Over 2000cc17p12p11p

 

HMRC’s guidance on fuel-only mileage rates for company cars confirms that employers are not obliged to use advisory fuel rates. Where an employer wishes to use them, they only apply where the employer:

  • reimburses employees for business travel in their company cars; or
  • requires employees to repay the cost of fuel used for private travel in those company cars.

If the employer pays more than the relevant advisory fuels rates and the payments are not an actual reimbursement, the excess is taxed (and subject to employees’ and employers’ National Insurance Contributions).

Coronavirus measures

For employees using company cars, an employer may agree to refund the fuel costs using the advisory fuel rates, of employees carrying out volunteer work related to coronavirus, for example, delivering medical supplies including PPE. These refunds are a benefit and the employer may settle any tax and National Insurance contributions on the employee’s behalf by reporting through a PAYE Settlement Agreement.

The employer may also agree to fund the cost of fuel for volunteer mileage related to coronavirus. HMRC have advised that volunteer mileage should not be taken into account for the purposes of the car fuel benefit charge for company cars.

Any tax and National Insurance contributions due should be reported through a PAYE Settlement Agreement as a coronavirus related benefit based on the appropriate advisory fuel rate for the volunteer mileage.

Electric cars

An Advisory Electricity Rate has been introduced for electric cars. The current rate is 4p per mile, though it should be noted that electricity is not a fuel for car fuel benefit purposes.

Where an individual is provided with workplace facilities for charging a battery of a vehicle used by them (including as a passenger), no taxable benefit arises for costs relating to the provision of electricity at those facilities if the following conditions are met:

  • the charging facilities must be provided at or near an employee’s workplace
  • charging must be available to either all the employer’s employees generally, or all the employer’s employees generally at the employee’s workplace
  • charging facilities must be for a battery of a vehicle in which the employee is either the driver or a passenger.

The benefit will remain taxable if it’s offered in conjunction with an optional remuneration arrangement.

Partner Note: ITEPA 2003, ss 150 – 152, 237A; FA 2019, s 8(1)

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There are five conditions that need to be met to get the tax benefits of a pool car.

When is a car a pool car?

Rather than allocating specific cars to particular employees, some employers find it preferable to operate a carpool and have a number of cars available for use by employees when they need to undertake a business journey. From a tax perspective, provided that certain conditions are met, no benefit in kind tax charge will arise where an employee makes use of a pool car.

The conditions

There are five conditions that must be met for a car to be treated as a pool car for tax purposes.

  1. The car is made available to, and actually is used by, more than one employee.
  2. In each case, it is made available by reason of the employee’s employment.
  3. The car is not ordinarily used by one employee to the exclusion of the others.
  4. In each case, any private use by the employee is merely incidental to the employee’s business use of the car.
  5. The car is not normally kept overnight on or in the vicinity of any of the residential premises where any of the employees was residing (subject to an exception if kept overnight on premises occupied by the person making the cars available).

The tax exemption only applies if all five conditions are met.

When private use is ‘merely incidental’

To meet the definition of a pool car, the car should only be available for genuine business use. However, in deciding whether this test is met, private use is disregarded as long as that private use is ‘merely incidental’ to the employee’s business use of the car.

HMRC regard the test as being a qualitative rather than a quantitative test. It does not refer to the actual private mileage, rather the private element in the context of the journey as a whole. For example, if an employee is required to make a long business journey and takes the car home the previous evening in order to get an early start, the private use comprising the journey from work to home the previous evening would be regarded as ‘merely incidental’. The car is taken home to facilitate the business journey the following day.

Kept overnight at employee’s homes – the 60% test

For a car to meet the definition of a pool car, it must not normally be kept overnight at employees’ homes. In deciding whether this test is met, HMRC apply a rule of thumb – as long as the total number of nights on which a car is taken home by employees, for whatever reason, is less than 60% of the total number of nights in the period, HMRC accept that the condition is met.

When a benefit in kind tax charge arises

If the car does not meet the definition of a pool car and is made available for the employee’s private use, a tax charge will arise under the company car tax rules.

Partner note: ITEPA 2003, s. 167.

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Tax aspects of using a work’s van

If an employee is able to use a work’s van for private use, which generally includes home-to-work travel, there will be a taxable benefit and a subsequent tax charge.

From 6 April 2019, the flat-rate van benefit charge has risen from £3,350 to £3,430, representing a small increase in real terms to a basic rate taxpayer of £16 a year.

If an employer also provides the employee with fuel for private use, then a tax charge on the provision of fuel will also arise based on an annual fixed rate. For 2019/20 the flat-rate van fuel benefit charge has been increased from £633 to £655, so there is an increase in real terms to a basic rate taxpayer of just £4.40.

What is a van?

To qualify as a van, a vehicle must be:

  • a mechanically propelled road vehicle; and
  • of a construction primarily suited for the conveyance of goods or burden of any description; and
  • of a ‘design weight’ which does not exceed 3,500kg; but
  • not a motorcycle as defined in the Road Traffic Act 1988, s. 185(1). Broadly, this means that it must have at least four wheels.

The design weight of a vehicle, also known as the ‘manufacturer’s plated weight’, is normally shown on a plate attached to the vehicle. What it means is the maximum weight which the vehicle is designed or adapted not to exceed when in normal use and travelling on the road laden.

Human beings are not ‘goods or burden of any description’ so a vehicle designed to carry people (such as a minibus) will not be a van for these purposes.

Private use

A charge to income tax will generally arise if a company van is made available, by reason of the employment, to an employee or to a member of his or her family or household for private non-business-related use. It must be made available without a transfer of ownership from the employer to the employee.

There are three types of journeys that are classed as non-taxable business use:

  • business journeys – journeys the employee makes in the course of carrying out the duties of their employment
  • ordinary commuting – travel to and from home to a place of work
  • insignificant private use beyond ordinary commuting – for example making a slight detour to purchase a sandwich for lunch

Pool vans

Broadly, vans used as pool vans that meet the following criteria will not attract a benefit-in-kind tax charge:

  • the van is used by more than one employee
  • the van is not ordinarily used by one employee to the exclusion of others
  • the van is not normally kept at or near employees’ homes
  • it is used only for business journeys (A limited amount of incidental private use is allowed. For example, commuting home with the van to allow an early start to a business journey the next morning)

Given that these rules provide a total exemption from any tax charge, it is not surprising that HMRC apply them very strictly.

Tax charge

The benefit charge applies regardless of the employee’s earnings rate but may be proportionately reduced if the van is only available for part of a tax year, and/or by any payments made by the employee for private use.

For 2019/20, a basic rate taxpayer will pay £686 for the use of a work’s van (£3,430 x 20%). For a higher rate taxpayer, the cost will be £1,372.

If fuel is also provided for private use, for 2019/20, a basic rate taxpayer will additional tax of £131 (£655 x 20%), and a higher rate taxpayer will pay £262.

Tax is normally collected through the employee’s Pay As You Earn (PAYE) tax code.

Partner Note: ITEPA 203, ss 154-159; FA 2016, s 11; EIM22701ff