Pay-back to save tax

At first sight, company car drivers whose private fuel costs are met by their employers may seem to be onto a good thing, but there is a nasty tax hit…

Enter, the Car Fuel Benefit charge.

Let’s say the following circumstances apply:

  • list price of your car when new was £30,000
  • your employer pays for all your private fuel
  • CO2 emissions are 147 g/km, and
  • the car has a diesel engine, 2000 cc.

 

The 2019-20 benefit in kind charge for the use of the car (this is added to your taxable income for the year) is £9,900. This would cost a standard rate taxpayer £165 a month in Income Tax.

But then the provision of private fuel would trigger an additional Car Fuel Benefit charge of £7,953. This would cost a standard rate taxpayer an extra £133 a month.

As the title of this article suggests it is possible to reimburse your employer for private fuel provided and avoid this Car Fuel Benefit charge completely. Here’s what you would need to do:

  • First of all, calculate your private mileage for the 2019-20 tax year. Estimates won’t do, you will need to create evidence, a mileage log for example.
  • Multiply this private mileage by HMRC’s Advisory Fuel Rate. The present rate per mile for a 2000 cc diesel car is 11p.

Armed with this information you can now do the sums. In the above example, if the driver’s private mileage was 5,000 miles during 2019-20, the amount that needs to be repaid to the employer is £550. That’s just £46 per month.

Which means, for an effective outlay of £550, the car driver – if a basic rate tax payer – will save £1,593 in tax (£7,953 x 20%). That’s an overall cash saving of £1,043.

If you are receiving private fuel from your employer, or indeed providing private fuel for your employees, it is well worth crunching the numbers to see if there is a cash advantage to repaying any private fuel.

There are deadlines to consider and we can help you with the math and the reporting processes required.

Final planning note for employers

The Car Fuel Benefit Charge not only creates a tax charge for the employee, it also creates a National Insurance charge for the employer. And so, allowing employees to repay their private fuel costs will also reduce your NIC costs. A classic win-win outcome.

Current Advisory Fuel Rates

To assist with your calculations, see previous article, we have reproduced below the current, HMRC Advisory Fuel Rates. They are:

These rates apply from 1 December 2019.

Engine size

Petrol – amount per mile

LPG – amount per mile

1400cc or less

12 pence

8 pence

1401cc to 2000cc

14 pence

9 pence

Over 2000cc

21 pence

14 pence

 

Engine size

Diesel – amount per mile

1600cc or less

9 pence

1601cc to 2000cc

11 pence

Over 2000cc

14 pence

 

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.

Tax Diary February/March 2020

1 February 2020 – Due date for Corporation Tax payable for the year ended 30 April 2019.

19 February 2020 – PAYE and NIC deductions due for month ended 5 February 2020. (If you pay your tax electronically the due date is 22 February 2020)

19 February 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2020.

19 February 2020 – CIS tax deducted for the month ended 5 February 2020 is payable by today.

1 March 2020 – Due date for Corporation Tax due for the year ended 31 May 2019.

2 March 2020 – Self assessment tax for 2019/19 paid after this date will incur a 5% surcharge.

19 March 2020 – PAYE and NIC deductions due for month ended 5 March 2020. (If you pay your tax electronically the due date is 22 March 2020)

19 March 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2020.

19 March 2020 – CIS tax deducted for the month ended 5 March 2020 is payable by today.

We are on your side

As we approach the end of yet another tax year it is worth reflecting on the role of HMRC in our tax affairs.

Without a doubt, HMRC, tax legislation and its application, will continue to ensure that you pay your taxes. You can rely on HMRC to pounce if they feel that you have underpaid tax. Unfortunately, they may not be so active if there are allowances and reliefs that you could claim to reduce your expose to tax.

The UK tax code, the wealth of legislation that dictates our liability to tax, is amongst the most complex in the global community. Accordingly, tax payers will rarely understand or appreciate the extent to which their activities are creating liability to tax. Unfortunately, in most cases ignorance of the law is no excuse for not complying with the law.

Without reaching a detailed and informed opinion about any significant change in our personal circumstances: our investments, pensions arrangement, business or employment situation, we run the risk that at some stage we will receive the dreaded “brown-envelope” from HMRC.

Very often it is too late to counter these after-the-fact challenges – the planning required to minimise exposure to tax has to be done before the event, before you make the changes.

Our commitment is to ensure that our clients pay just as much tax as is required by legislation, and not a penny more. We are also committed to ensuring that our services are cost effective; that the value or monetary savings we achieve exceed the investment in our time.

Please remember, if you are about to make any change in your personal or business circumstances and you are unsure if the change will impact your tax position, pick up the phone.