The amount of tax paid by employees on private fuel provided with a company car is now running at a high level based on the cash equivalent of the benefit each tax year. Those with low private mileage may find it’s no longer a benefit. That’s why many employers have put in place different options, such as no longer paying for fuel with company fuel use reclaimed or continuing to pay for fuel but having employees reimburse them for private usage. That way, the employee is not liable for the private fuel tax charge, where this would in all likelihood be higher than the value of the actual fuel used. Should you want advice on policy decisions about employee fuel and the tax implications then we’d be glad to advise you.
Author Archives: Amy Thompson
Seven tax breaks to save small businesses money
Reply
Setting up a small business can be exciting. So much rides on it – your hopes, your financial security and future opportunities. Yet all the costs to make it happen and then keep it running efficiently can seem daunting. That’s why you should consider whether your small business qualifies for tax breaks that allow you to save money.
HB Accountants is experienced in advising small businesses about their tax breaks. Here are our 7 top tips for you to consider:
Spring Statement 2019
Contents
- Measures announced
- Looking ahead
- Income tax
- Making Tax Digital (MTD)
- Changes to Entrepreneurs’ Relief
- Other key changes for 2019/20
- Considering capital allowances
- What they said…
IR35 for the Private Sector
The IR35 ‘off payroll’ rules will be extended to the private sector from 6th April 2020 onwards. What exactly does this mean, and what can contractors do to prepare in advance for these legislation changes?
What will a company car cost my employees in tax?
As an employer, if you provide a company car to your employees, they must pay tax on the cash equivalent of the car provided. That’s because HMRC view an employee’s ability to use a company car as a benefit in kind which has a cash value, on top of your employee’s regular salary. The cash equivalent of using a company car is calculated by taking the list price of the car, multiplied by a certain tax percentage. This percentage depends on the amount of carbon dioxide emitted by the car, and the type of fuel it uses. This article will outline the formula for you to follow to work out the list price of the car and find the relevant tax percentage that applies. Should you want more help with company car tax then please get in touch.
Recruiting employees? Beware ‘free’ fuel benefit that isn’t free
To recruit the best talent, you need to provide an attractive pay package. For many employees having the fuel they use in their company car paid for by their employer is an attractive benefit, since they are covered for business miles and private use. But remember that changes in HMRC tax policies mean ‘free fuel’ is now taxed harder as a benefit in kind which can make it less attractive.
Key Dates for Self-Assessment Tax Returns
Self-assessment is the process by which you advise HM Revenue & Customs (HMRC) of your income, gains and relevant expenses for a tax year. HMRC will calculate your income tax bill based on the information you provide.
Non-tax-deductible expenses
If you’re running a business, it’s as important to understand the type of business expenses you cannot claim against tax as those you can. Deductible expenses are those where making a purchase is essential for your business operation. Non-tax-deductible expenses on the other hand, are those that are not necessary for the operation of your company.
With most expenses, it’s straightforward to work out whether or not they are tax-deductible, but with some expenses there are grey areas. This could mean that companies erroneously claim for expenses that aren’t deductible, and conversely, others could be not claiming for expenses that are.
Entertainment
Holding a meeting over a working lunch is a great idea in terms of client relations, but sadly, it is not a tax-deductible allowance. According to the bureaucrats, client meetings can be held without any refreshments at all, which is why refreshments are non-tax-deductible (… although try not offering your potential clients or suppliers a cup of tea and see how fast they go to the competition!)
On the other hand, when it comes to your staff, entertainment expenses are tax-deductible … but only to a point. If you spend less than £150 per employee across the entire year on staff parties (which includes food, drink, taxi fares home etc), then it is tax-deductible. But if you spend £150.01 upwards, then it counts as non-deductible. And as it’s an ‘all or nothing allowance’, meaning the entire amount is taxable – even if you only spend £150.01 – and must be declared as a staff benefit on the P11D form.
Some travel expenses
It depends how generous your company is feeling when it comes to travel expenses, but if you want to push the boat out and send your staff first class to stay in five-star hotels, you need to understand that lavish extravagances aren’t tax-deductible. Sorry. You can only claim for employees’ ‘reasonable’ expenses.
Asset depreciation
It’s a fact of life that your company vehicles, equipment and technological assets will depreciate in value as they get older. As an unavoidable consequence of usage and time, depreciation is non-tax-deductible.
However you can deduct capital allowances from your profits for various elements of your business: see the Government’s website for details, or ask us.
Building improvements
Necessary repairs to the building, plumbing or electrics are tax-deductible, but if you want to upgrade, update or rebrand the place, it’s classified as non-essential work and is therefore non-tax-deductible.
However, improvement costs will be deductible for capital gains tax purposes as enhancement expenditure when selling the asset
Legal fees
Legal fees are a complicated thing when it comes to whether or not they are tax-deductible. To be on the safe side, it’s best to check with your accountant.
We have highlighted some examples of allowable and non-allowable legal expenses:
Allowable
- Legal fees relating to debt collection
- Legal fees relating to employment matters
- Legal fees relating to disputes regarding trading matters
Non-allowable
- Legal fees relating to a company reorganisation
- Architects fees for building improvement work
- Legal fees relating to the acquisition of investment property i.e. shares in other companies
If you want help navigating through the maze of deductible and non-deductible expenses, contact us to make an appointment with one of our tax specialists.
Guide to Company Car and Van Tax
Car Tax
If an employee is provided with a car by their employer, tax is payable on the cash equivalent of the of car provided.
The cash equivalent of the company car provided is calculated by taking the list price of the car, multiplied by a certain percentage, this percentage depends on the amount of carbon dioxide emitted by the car.
The list price of the car is calculated using the following formula:
£
List price when new A
Add Accessories (over £100) B
Less: Employee contribution (max £5,000) (C)
Revised List Price D
This revised list price is then multiplied by the appropriate percentage as per the table below:
| 2017/18 | 2018/19 | 2019/20 | ||||
| g/km CO2 | Petrol % | Diesel % (+3%) | Petrol % | Diesel % (+4%) | Petrol % | Diesel % (+4%) |
| 0-50 | 9 | 12 | 13 | 17 | 16 | 20 |
| 51-75 | 13 | 16 | 16 | 20 | 19 | 23 |
| 76-94 | 17 | 20 | 19 | 23 | 22 | 26 |
| 95-99 | 18 | 21 | 20 | 24 | 23 | 27 |
| 100-104 | 19 | 22 | 21 | 25 | 24 | 28 |
| 105-109 | 20 | 23 | 22 | 26 | 25 | 20 |
| 110-114 | 21 | 24 | 23 | 27 | 26 | 30 |
| 115-119 | 22 | 25 | 24 | 28 | 27 | 31 |
| 120-124 | 23 | 26 | 25 | 29 | 28 | 32 |
| 125-129 | 24 | 27 | 26 | 30 | 29 | 33 |
| 130-134 | 25 | 28 | 27 | 31 | 30 | 34 |
| 135-139 | 26 | 29 | 28 | 32 | 31 | 35 |
| 140-144 | 27 | 30 | 29 | 33 | 32 | 36 |
| 145-149 | 28 | 31 | 30 | 34 | 33 | 37 |
| 150-154 | 29 | 32 | 31 | 35 | 34 | 37 |
| 155-159 | 30 | 33 | 32 | 36 | 35 | 37 |
| 160-164 | 31 | 34 | 33 | 37 | 36 | 37 |
| 165-169 | 32 | 35 | 34 | 37 | 37 | 37 |
| 170-174 | 33 | 36 | 35 | 37 | 37 | 37 |
| 175-179 | 34 | 37 | 36 | 37 | 37 | 37 |
| 180-184 | 35 | 37 | 37 | 37 | 37 | 37 |
| 185-189 | 36 | 37 | 37 | 37 | 37 | 37 |
| 190+ | 37 | 37 | 37 | 37 | 37 | 37 |
37% is currently the maximum percentage that can be applied to the list price of the company car to calculate the cash equivalent of the benefit.
From 2018/19 if diesel cars are RDE2 standard then no additional percentage will be added to percentage figure.
As you can see from the table above HMRC are increasing the relevant percentages up to 2019/20.
From 2020/21 the rules will be reformed, and percentages will be reduced for ultra-low emission cars, we will provide an update regarding these rules closer to the time of their introduction.
We have identified below the tax an employee provided with a company car throughout a full tax year could expect to pay on four different models of vehicles in the 2017/18, 2018/19 and 2019/20 tax years:
BMW i3:
– Fuel Type: Zero Emission
– Approximate market value: £34,075
– CO2 Emission Figure: Zero
| 2017/18 | 2018/19 | 2019/20 | |
| ‘Cash Value’ of company car as calculated using rules noted above |
£3,066.00 |
£4,429.00 |
£5,452.00 |
| Taxed @ 20% | £613.00 | £886.00 | £1,090.00 |
| Taxed @ 40% | £1,266.00 | £1,772.00 | £2,181.00 |
| Taxed @ 45% | £1,380.00 | £1,993.00 | £2,453.00 |
Audi A4 Saloon (1.4 TFSI)
– Fuel Type: Petrol
– Approximate market value: £29,180
– CO2 Emission Figure: 122g/km
| 2017/18 | 2018/19 | 2019/20 | |
| ‘Cash Value’ of company car as calculated using rules noted above |
£6,711.00 |
£7,295.00 |
£8,170.00
|
| Tax per year if pay at @ 20% | £1,342.00 | £1,459.00 | £1,634.00 |
| Tax per year if pay at @ 40% | £2,684.00 | £2,918.00 | £3,268.00 |
| Tax per year if pay at @ 45% | £3,019.00 | £3,282.00 | £3,676.00
|
Land Rover Discovery Sport (Pure 2.0 eD4 150hp (5 seat) 5d)
– Fuel Type: Diesel
– Approximate market value: £28,195
– CO2 Emission Figure: 123 g/km
| 2017/18 | 2018/19 | 2019/20 | |
| ‘Cash Value’ of company car as calculated using rules noted above |
£7,331.00 |
£8,176.00 |
£9,022.00 |
| Taxed @ 20% | £1,466.00 | £1,635.00 | £1,804.00 |
| Taxed @ 40% | £2,932.00 | £3,270.00 | £3,609.00 |
| Taxed @ 45% | £3,299.00 | £3,679.00 | £4,060.00 |
Volkswagen Passat (S TSI 1.4 125 PS 6 speed man)
- Fuel Type: Petrol
- Approximate market value: £22,025
- CO2 Emission Figure: 123 g/km
| 2017/18 | 2018/19 | 2019/20 | |
| ‘Cash Value’ of company car as calculated using rules noted above |
£5,065.00 |
£5,506.00 |
£6,167.00
|
| Taxed @ 20% | £1,013.00 | £1,101.00 | £1,233.00 |
| Taxed @ 40% | £2,026.00 | £2,202.00 | £2,467.00 |
| Taxed @ 45% | £2,279.00 | £2,478.00 | £2,775.00 |
Vans
There is an income tax charge for an employee or a director who is provided by their employer or company with a company van that is made available for private use.
There is no tax charge for employee or employer where private use is insignificant, or the van is only used privately for commuting in and out of work.
The tax charge is the employee’s marginal rate of tax (i.e. 20%, 40% or 45%) times the benefit for the year in question, as outlined in the table below:
| Year | 2017/18 | 2018/19 |
| Cash Benefit | £3,230.00 | £3,350.00 |
| Taxed @ 20% | £646.00 | £670.00 |
| Taxed @ 40% | £1,292.00 | £1,340.00 |
| Taxed @ 45% | £1,453.00 | £1,507.00 |
There are special rules for zero emissions vans, however these are beginning to be tapered down, the current cash benefit for low emission van’s is as below:
| Year | 2017/18 | 2018/19 |
| Cash Benefit | £646.00 | £1,340.00 |
| Taxed @ 20% | £129.00 | £268.00 |
| Taxed @ 40% | £258.00 | £536.00 |
| Taxed @ 45% | £291.00 | £603.00 |
By the 2022/23 tax year the van benefit charge for zero emission vans will be identical to regular vans.
What can be considered a ‘van’ for tax purposes?
These are the criteria that HMRC uses to classify a vehicle as a goods van:
– A vehicle primarily constructed for the conveyance of goods or burden;
– A gross vehicle weight, fully laden, not exceeding three and a half tonnes
The key term in this definition is “constructed.” In short, it is not the actual use of the vehicle, but the purpose for which it was constructed and sold that matters.
For a vehicle to class as a van there are certain structural criteria that should be met:
– The vehicle should have a significant load bay to carry goods such that the carrying of passengers can no longer be the main purpose;
– The load bay of the vehicle must not have windows
Double Cab pickups will qualify as a van if its cargo capacity/payload is over 1 tonne. A payload means the vehicle’s gross vehicle weight less its unoccupied kerb weight.
We have listed some of the Double Cab pickups that may qualify as a van within the above definition below:
– Volkswagen Amarok
– Nissan Navara
– Ford Ranger
– Isuzu D-Max
– Mitsubishi L200
Provision of Fuel for Employees
Employees will be taxed on fuel provided by their employers for private use. The employee will be taxed on the cash equivalent of the benefit each tax year. The fuel benefit is fixed each year, according to the table below.
| Tax Year | Fixed Figure |
| 2017/18 | £22,600.00 |
| 2018/19 | £23,400.00 |
The fuel benefit charge is calculated by taking the appropriate percentage, as worked out for car benefit purposes and multiplying by the fixed figure. The tax amount is then calculated by applying the individuals marginal rate of tax to the fuel benefit charge amount.
For example, if an employee was provided with fuel for private use for a Volkswagen Passat (as above) company car the tax would be as follows:
| Tax Year | Fixed Figure | Relevant % | Taxable Amount | 20% | 40% | 45% |
| 2017/18 | £22,600.00 | 23% | £5,198.00 | £1,040.00 | £2,079.00 | £2,339.00 |
| 2018/19 | £23,400.00 | 25% | £6,552.00 | £1,310.00 | £2,621.00 | £2,948.00 |
In the Autumn Budget 2017, the Chancellor announced that from 6 April 2018 no benefit in kind will arise where fuel is provided for an electric car.
Where an employee is provided with fuel for a van for private use the benefit charge is a flat rate each tax year as below:
| Tax Year | Fixed Figure |
| 2017/18 | £610.00 |
| Taxed @ 20% | £122.00 |
| Taxed @ 40% | £244.00 |
| Taxed @ 45% | £274.00 |
| Tax Year | Fixed Figure |
| 2018/19 | £633.00 |
| Taxed @ 20% | £127.00 |
| Taxed @ 40% | £253.00 |
| Taxed @ 45% | £285.00 |
If you would like any assistance or have any questions regarding any of the topics discussed above please do not hesitate to contact Amy Armitage (amy@hbaccountants.co.uk) or any other member of the HB Accountants team on 01992 444466.
(please note figures have been rounded to the nearest pound)
Inheritance Tax (IHT)– The Residence Nil Rate Band and Downsizing
In this tax blog, we will discuss the newly introduced (from 6th April 2017 onwards) residence nil rate band and what this will mean for our clients.
What is the Nil Rate Band?
The nil rate band, also known as the inheritance tax threshold, is the amount up to which an estate has no IHT to pay. Each person’s estate can benefit from the nil rate band.
Everyone has their own nil rate band. This means that their estate and taxable gifts are exempt from IHT up to a certain threshold – currently £325,000. Any part of the estate up to the threshold is chargeable to IHT at a rate of 0%. Any part of the estate that exceeds the nil rate band threshold is chargeable to IHT on death at 40%.
The Transferable Nil Band
It is possible for the unused proportion of the nil rate band of the first spouse or civil partner to pass away to be transferred to their survivor. This means that any part of the nil rate band that is not used when the first spouse or civil partner dies can be transferred to the surviving spouse or civil partner for use on their later death.
Where the whole amount is passed to the surviving spouse or civil partner, the nil rate band of the survivor will be worth £650,000 (2017/18). If the deceased had made other gifts out of their estate, then the proportion of the nil rate band transferable is reduced proportionately.
What is the Residence Nil Rate Band?
The residence nil rate band is an additional nil rate band, which is available where a death occurs on or after 6 April 2017 and property in the estate which has been the deceased’s private residence, is left to direct descendants.
The residence nil rate band is set at £100,000 for 2017/18, £125,000 for 2018/19, £175,000 for 2019/20, and £175,000 for 2020/21.
As with the normal nil rate band, any unused portion is transferred to a spouse or civil partner on his or her death. If the spouse or civil partner of an individual died prior to 6th April 2017, the residence nil rate band will still be able to be transferred in full to the surviving spouse or civil partner, if his/her death occurred after the 6th April 2017.
The allowance is reduced by £1 for every £2 by which the value of an individual’s estate exceeds £2 million.
Downsizing
Availability of the residence nil rate band may be preserved where a person downsizes their property on or after 8 July 2015.
If at the date of death, the estate does not qualify for the full residence nil rate band, a downsizing addition may be available if the following conditions are met:
- The deceased disposed of a former home and either downsized to a less valuable home or ceased to own a home on or after 8 July 2015
- The former home would have qualified for the RNRB;
- At least some of the estate is inherited by direct descendants.
The amount of the downsizing addition will generally be equal to the amount of the residence nil rate band that is lost because the residence no longer forms part of the estate. Assets at least equal to the residence nil rate band plus downsizing addition must be left to direct descendants.
Assistance
The HB Accountants tax team can assist you with any queries you have regarding the residence nil rate band, or any other tax questions.
Please do not hesitate to contact Amy Armitage, Tax Manager (amy@hbaccountants.co.uk), with any queries you may have or for further information regarding this topic.
