{"id":664,"date":"2017-06-06T00:00:00","date_gmt":"2017-06-06T00:00:00","guid":{"rendered":"https:\/\/slacc.co.uk\/index.php\/the-hidden-tax-on-car-benefits-for-employers\/"},"modified":"2017-06-06T00:00:00","modified_gmt":"2017-06-06T00:00:00","slug":"the-hidden-tax-on-car-benefits-for-employers","status":"publish","type":"post","link":"https:\/\/slacc.co.uk\/index.php\/the-hidden-tax-on-car-benefits-for-employers\/","title":{"rendered":"The hidden tax on car benefits for employers"},"content":{"rendered":"<p>Businesses that provide employees with taxable benefits: company cars, health insurance and so on, will be aware that a benefit in kind charge is added to the employee&rsquo;s income and subjected to an income tax charge the same as their salary.<\/p>\n<p>Employers will also be aware that the cumulative sum of all the taxable benefits of their employees are subjected to an employers&rsquo; National Insurance charge &ndash; at present, this Class 1A charge amounts to 13.8% of all taxable benefits provided.<\/p>\n<p>Which means the true cash cost of providing &pound;10,000 of taxable benefits is &pound;11,380.<\/p>\n<p>Unfortunately, some benefits are not based on an identifiable cost, but on a scale rate applied by HMRC. Of particular concern are car and car fuel benefits for the use of company cars.<\/p>\n<p>Consider Thrifty Ltd, who provide a second hand Toyota to Jane, a salesperson. The annual cost to the company is calculated as:<\/p>\n<ul>\n<li>Fuel &pound;200 per month, of which &pound;25 covers private fuel.<\/li>\n<li>A further &pound;100 per month to cover insurance, repairs, and road tax, and<\/li>\n<li>The car was purchased for &pound;12,000 second hand &ndash; and is expected to be worth &pound;4,000 after 4 years &ndash; and so the expected annual depreciation amounts to &pound;2,000. The cost of the car when new was &pound;19,000.<\/li>\n<\/ul>\n<p>The company consider the overall, annual cost of &pound;5,600, including depreciation, to be acceptable.<\/p>\n<p>The CO2 rating of the car is 122 g\/km, and Jane&rsquo;s annual benefit in kind charge for 2016-17 is (&pound;19,000 x 21%) &pound;3,990. The 21% is the scale rate applied by HMRC to cars with a CO2 rating between 120 &ndash; 124 g\/km). Not bad, Jane is only being taxed on &pound;3,990 when the underlying cost of the car for 2016-17 was &pound;5,600.<\/p>\n<p>Unfortunately, this is not the complete story. The company pays for all of Jane&rsquo;s fuel, including fuel for private use. This means the car fuel benefit charge applies and this is based on the formula &#8211; &pound;22,200 x 21% &#8211; &pound;4,662.<\/p>\n<p>Therefore, Jane&rsquo;s total car and car fuel benefits amount to &pound;8,652 (&pound;3,990   &pound;4,662), when the underlying cost to her employer is just &pound;5,600, and Thrifty Ltd will have to stump up &pound;1,194 in Class 1A NIC, increasing the annual cost of providing the car to &pound;6,794. The true rate of NIC payable is therefore 21.3% (&pound;1,194\/&pound;5,600*100).<\/p>\n<p>In this particular case, Jane would be advised to pay Thrifty Ltd the &pound;25 a month to cover her private fuel. At a stroke this would mean the car fuel benefit would no longer apply, and reduce her taxable benefits for the use of the car from &pound;8,652 to &pound;3,990. As a bonus, the company Class 1A NIC would also reduce, from &pound;1,194 to &pound;551. As the true cost of the car is still &pound;5,600, this reduces the effective NIC charge to 9.8% (&pound;551\/&pound;5,600*100).<\/p>\n<p>We are happy to discuss this conundrum with readers who feel they could benefit from advice in this area.<\/p>\n<!-- -->","protected":false},"excerpt":{"rendered":"<p>Businesses that provide employees with taxable benefits: company cars, health insurance and so on, will be aware that a benefit in kind charge is added to the employee&rsquo;s income and subjected to an income tax charge the same as their salary. Employers will also be aware that the cumulative sum of all the taxable benefits [&hellip;]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[1],"tags":[],"class_list":["post-664","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/664","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/comments?post=664"}],"version-history":[{"count":0,"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/664\/revisions"}],"wp:attachment":[{"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/media?parent=664"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/categories?post=664"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/slacc.co.uk\/index.php\/wp-json\/wp\/v2\/tags?post=664"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}