Tax where cares are are used for business and private purposes

There are a number of situations where care needs to be taken in the way in which claims are made for the business use of a vehicle, usually a car,  that has duality of use – business and personal.

Here are some of the situations to be aware of.

 

1.    If you are self-employed and your business assets include a car, you should be reducing your claim for capital allowances and running costs based on your private use of the vehicle. The percentage added back should be based on documented evidence. This usually means keeping a mileage log for at least a part of the year.

2.    If you are employed and your employer requires that you use your own vehicle for business trips there are two aspects to consider: the rate per mile you are paid (HMRC allow you to receive up to 45p per mile for the first 10,000 business miles each tax year and 25p per mile thereafter); and, the number of miles you claim. The 45p/25p rate HMRC allow is a maximum as regards being non-taxable. Employers are free to pay up to this limit without triggering benefit-in-kind issues. Again journeys should be logged and recorded to evidence the number of miles claimed.

3.    If you have the use of a company car and your employer pays for your private petrol you will be liable to a hefty benefit-in-kind charge. In other words fuel for private use is a benefit you probably do not want – because the tax charge is so high. You can eliminate this charge if you reimburse your employer for the cost of private petrol provided. Unless you do an exceptionally high amount of private motoring, then the cost of reimbursing the employer for the fuel will be much less than the tax charge created by the benefit-in-kind assessment.

 

In examples 1 and 3 above you will need to record your private mileage of the vehicle, in example 2 your business mileage. In all three you will need to provide evidence should HMRC visit and select mileage claims for audit. Generally speaking you should:

 

•         Record the postcode at the beginning and end of the journey so an accurate check can be made of mileage claimed. London to Birmingham would be too vague.

•         The business miles claimed should not be rounded.

•         Home to work mileage should be excluded.

Company cars – are they worth having?

 

Government tax policy on company cars is new heavily focused on steering people towards choosing an efficient or ‘green’ car. This doesn’t have to mean driving a Smart car! There are for instance Audi A3, BMW320d and Honda Civic models which fall into the green (sub 111 g/km) bracket.

For further details, look at :

greencarsite

vca car fuel data

What Green Car

The company claims capital allowances on the cost of the car, and the claim is now related to CO2 emission.

Above 160g/km 8% per annum (prior to April 2012 10%)

Between 111 g/km and 160 g/km 18% per annum (prior to April 20%)

Below 111 g/km 100% in year 1

The ‘benefit in kind’ personal tax paid by the employee is also varied according to the CO2 emission. Also low emission cars are liable to lower road tax.

Example

The following example compares the tax treatment of two cars purchased in April 2012. One is a diesel car (car D) with CO2 emissions of 109 g/km costing £27,500, with a petrol car (car P) costing the same amount but with CO2 emissions of 165 g/km.

 

Year ended March 31 2013

 

Company’s tax position:

 

Car D         Car P

 

Capital allowances claimable 2012/13                                     £27,500   £2,750

 

Corporation Tax relief

at small companies rate – 20%                                                               £5,500          £550

 

National Insurance at

13.8% payable on benefit-in-kind (see below)                                           £569      £911

(there is Corporation Tax relief on this)

 

 

Director’s/employee’s tax position:

Taxable benefit-in-kind

15% of cost car D and 24% for car P                                                      £4,125      £6,600

 

Tax payable assuming

40% rate applies                                                                                           £1,650      £2,640

 

 

Summary

 

The low emission diesel car saves corporation tax of £4,950 above the petrol car– this difference will even out eventually but it will take several years.

 

Employers’ National Insurance: Buying car D will save £342 each year.

 

Director/employee tax: Choosing car D will save the employee £990 each year.