Q: I have a company car and also get paid all my fuel costs, for both business and private mileage. How tax efficient is this?
A: When you have private use of a company car, a tax charge arises.
The amount of the charge is calculated by multiplying the list price of the car by the appropriate percentage, which is determined by the car's emissions.
Tax at the margina
l rate, i.e. 20 per cent or 40 per cent, is then applied to this figure. Therefore, the cheaper the car and lower the figure, the smaller the tax charge will be.
If your employer provides all your fuel, an additional tax charge arises. The amount of this benefit is calculated by applying the same emissions based percentage as above, and multiplying this by a fixed amount. This fixed amount is currently £16,900.
It is possible to avoid the fuel based charge if your employer only reimburses you the costs of any business mileage incurred. HM Revenue and Customs has published a set of advisory rates for these purposes. If the amount reimbursed per business mile does not exceed the advisory rates, then HMRC will accept that there is no taxable benefit to you. In order for this method to work you must ensure that accurate business mileage records are kept for each journey.
In order to decide which method you should use, it is necessary to look at the number of private miles you drive during the year. Basically, if you have low private mileage, for example less than 10,000 miles per year, the tax on any fuel benefit would probably be higher than if you were to meet the private fuel costs yourself.
Therefore, if this is the case, it makes sense to keep accurate business mileage records, as discussed above, and only be reimbursed for these business miles, to avoid any unnecessary tax charges.
On the other hand, if you drive a lot of private miles, it may be more efficient to have the fuel scale charge applied, as the taxable amount may be less than the actual private fuel costs.
It is therefore necessary to look at all the factors including the size of the car, the emissions, the fuel type and number of business and private miles before coming to a decision.
• Andrew Addie is tax director at Grant Thornton Scotland
• If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: jsalway@scotsman.com. No responsibility for loss occasioned by any person acting, or refraining from acting, as a result of these answers can be accepted by Grant Thornton or The Scotsman Publications Ltd
The full article contains 466 words and appears in The Scotsman newspaper.
