If you supply your employee a company vehicle, which they also use personally, this is a ‘benefit in kind’ and the employee will need to pay Tax on the value of the benefit. As an employer, you are also subject to national insurance payments.
Did you know that if you also paid for that employees personal fuel as a part of using that vehicle they are also subject to additional tax on the fuel as another benefit?
The tax charge for car fuel benefit is easily avoided with a few simple steps. However, a recent First-tier Tribunal decided that an employer’s actions weren’t sufficient to prevent it.
Company cars and fuel
Company cars need fuel but as soon as the employer pays for even £1 of fuel for an employee’s private travel the full taxable benefit will. This results in a hefty tax bill for the employee and a Class 1A NI charge for the employer.
Where the employer pays for fuel, the tax and NI charges can be avoided by the employee reimbursing the cost of any fuel they use for private journeys. The employee must show how many private miles they travel so they can work out what to reimburse.
P11D failure
Following a compliance check of a company’s records HMRC considered that the company should have reported car fuel benefit for several employees on Form P11D for more than one year. The Class 1A NI bill for this was more than £5,500 on top of which HMRC hit the firm with penalties of nearly £1,000. The company disputed the NI assessment and appealed to the First-tier Tribunal (FTT).
Agreement
The company argued that it had taken the appropriate steps to prevent the car fuel benefit charge from applying. It had agreements with its employees requiring that they each reimburse the company for the cost of fuel it paid for in respect of private travel.
Insufficient evidence
The First Tier Tribunal accepted this but the company had failed to provide HMRC with adequate records to show that the amounts reimbursed accurately represented the cost of fuel for private mileage. HMRC could not be sure that such fuel costs had been paid for by their employees rather than the employer. Therefore, the NI charge and penalties stood.
Record keeping
The case demonstrates that HMRC is prepared to attack employers which don’t ensure that their employees keep records of private journeys needed for accurately working out the amount to reimburse.
How to ensure adequate records
Your policy for employees with company cars should say that detailed mileage logs must be kept and a copy provided to you every month. There are many mileage tracking apps your employees can use to help with this.
To prevent car fuel benefit from applying, your firm’s company car policy should say that employees must reimburse you for any private mileage fuel no later than 6 July following the end of each tax year.
Instead of having to rely on your employees keeping logs of private mileage, you can get them to pay for all the fuel they put into their company cars; they then submit an expenses claim for the fuel used for business mileage. They will still need to keep mileage logs but there’s less risk of you falling foul of the car fuel benefit charge.
If you supply your employees with an benefits and are unsure what records need to be kept, and whether or not you are required to submit a P11D, please call the office on 01249 465435.
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