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Employees Company Cars Taxation

26 - 11 - 2021

Employees being provided with company cars for personal use are taxed based on a Benefit In Kind (BIK) value. There are two possible BIK values; one for the provision of the car; and one for the provision of the fuel. Since 06 April 2020 we have seen the UK government introduce some tax exemptions for electric and ultra low emission vehicles (ULEV’s) as they encourage the use of electric vehicles.

Do I need to pay personal tax, if I only use the vehicle for business use?

If your employer provides the vehicle and you only use it for business use with no private use then you will not be assessed to a Benefit In Kind (BIK).

The legislation does allow for insignificant private use but this has never been defined.

 

How is the car value assessed?

 

The value of the car is the original list price, including any extras, plus delivery and VAT. The car value is not what the business paid for it or the market value at time of purchase.

 

Does it matter when the car is registered?

 

Yes. The vehicle registration date is important in determining the percentage BIK applicable to the value.

 

Will the CO2 emissions make a difference to the Benefit in Kind?

 

Yes. The CO2 emission is important in determining the percentage BIK applicable to the value. The lower the CO2 emission the lower the BIK percentage applicable.

 

Will the fuel type make a difference to the tax?

 

Yes. You will need to know what type of fuel the vehicle uses. The BIK percentage applicable will be affected by the fuel type.

 

How is the BIK calculated?

 

The BIK calculation is:            Vehicle Value X the BIK percentage banding = BIK Value

 

What tax do I pay on the BIK Value?

 

The amount of tax the employee pays depends on the rate of income tax that they pay. The BIK Value is added to the taxable income for the tax year as though it was received in cash and taxed accordingly.

 

Do I have to pay tax for a whole tax year if I only have the vehicle part way through a year?

 

No. The BIK value will be time apportioned depending on how many days it was available to you as the employee during the tax year.

 

How is the fuel BIK assessed?

 

If the business provides all of the fuel including fuel used for private journeys there will be a BIK assessment to tax. The assessment is based on the BIK percentage, as calculated above, multiplied by £24,600 for the tax year 2021/2022. Please note the value is determined by the government and can change each tax year.

 

What if I want to pay for my private fuel?

 

You have 2 options:

1. You pay for all fuel. You then charge the company for any business mileage that you do at the HMRC approved company car mileage rates. The Company Car Mileage rates are lower than if you use your personal car as the employer is paying all of the running costs. The approved mileage rates are issued every quarter to take into account any fluctuations in costs.

2. You make a contribution for fuel to your employer. Any contribution will be deducted from your vehicle BIK charge not from your fuel benefit.

 

Are electric cars taxed differently?

No the same rules apply to electric cars. However the BIK percentages are lower to encourage the use of electric vehicles. Please see our Advice Note on Electric Cars.

 

What if I have a van supplied by my employer?

 

There is no BIK if the van is only used for business journeys or as a pool van. A pool van should be kept at the business premises and must be made available and used by more than one employee. Vans used for “insignificant” private journeys are exempt from reporting.

 

What if I use the van for private use?

 

The BIK value for the van in the 2021/2022 tax year is fixed at £3,500. The amount can be reduced where:

 The employee cannot use the van for 30 days in a row;

 The employee pays the employer to use the van privately;

 Other employees use the van.

 

What happens if the van is a zero emission van?

 

The van would still need to be reported to HMRC but the BIK percentage would be 0% giving a BIK Value of £0.

 

What if I use the van for private use and my employer pays for all the fuel?

 

As well as the BIK value of £3,500 for the 2021/2022 tax year there will also be a fuel BIK value of £669.

The amount can be reduced where:

 The employee cannot use the van for 30 days in a row;

 The employee pays the employer back for all their private fuel. The employee would need to keep records to prove this and calculate the relevant amount;

 The employer stopped providing fuel during the year.

 

 f you would like to discuss any of the issues noted above or need an estimate of a particular vehicles Benefit In Kind Value please contactus@foremansllp.com: 

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Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage