insideKENT Magazine Issue 82 - January 2019 | Page 141

BUSINESS When is a benefit not a benefit? by Rick Schofield, partner at Wilkins Kennedy Ashford THE IDEA OF BEING PROVIDED WITH A BRAND NEW CAR, COURTESY OF A COMPANY, WITH NO INITIAL COSTS OR MAINTENANCE TO WORRY ABOUT WOULD SEEM LIKE A NO-BRAINER. HOWEVER, YOU COULD BE PAYING MORE THAN YOU THINK. A company car provided to an individual, which can also be used for private mileage, is considered by HMRC to be a Benefit in Kind (BIK). As such, the car and its associated costs will be subject to a tax charge, based on the CO2 emissions produced by the vehicle and the list price. VAT and delivery should be included in that list price, as well as any accessories that have been added. The CO2 emissions determine a percentage based on whether a vehicle is considered to have high or low emissions. This ranges from 13% for 2018/19 up to a maximum of 37% – so the lower the emissions, the lower the percentage. Whilst diesels emit lower levels of CO2, they can emit higher levels of other pollutants such as nitrous oxide which has led to an introduction of a diesel surcharge of 3%. The list price is then multiplied by this percentage to ascertain the BIK value. In order to determine how much tax you’ll pay, simply multiply the BIK value by your tax rate of either basic rate (20%), higher rate (40%) or additional rate (45%). Why would a company car benefit me? In addition to the tax due on the benefit of the car itself, if your employer pays for the fuel and permits you to use this for private mileage, there’ll be an additional tax charge. This is calculated using a fixed sum of £23,400 (for 2018/19) and multiplying the same percentage figure as determined by the CO2 emissions in the car benefit calculation. This can prove expensive if you don’t clock up many private miles. Based on fuel costs set down in HMRC’s Fuel Advisory Rates (June 2018), a higher rate tax payer would need to drive on average over 19,000 private miles before it became cost effective to have company provided fuel. This would be in a mid-range, mid-market car, such as a Ford Focus. If you drive a more executive car, such as an Audi, you might find you need to drive a whopping 26,300 miles to make it worthwhile. So unless you use your company car for a lot of private miles, it may be worth making sure you make good any private mileage costs using HMRC’s Fuel Advisory Rates. Of course, an accurate mileage log would need to be kept to evidence this. When is a benefit not a benefit? When it costs you more than it’s worth. If you’re offered a company car or your current car is up for renewal, it’s definitely worth doing your sums to make sure it makes financial sense, especially giving consideration to the rate increases already in place for next few years. Contact Wilkins Kennedy’s offices in Ashford, Canterbury, Maidstone, Orpington and Sandwich for more information. Local offices: Ashford: 01233 629 255 / Canterbury: 01227 454 861 Maidstone: 01622 690 666 / Orpington: 01689 827 505 Sandwich: 01304 249 997 What are the options? 1. Change to an Ultra Low Emission Vehicle (ULEV) – Cars that are entirely electric attract a mere 2% rate. 2. Use your own vehicle if you don’t travel many miles for business. If you drive your own vehicle for business purpose, HMRC permit reimbursement at 45p per mile without a charge to tax for the first 10,000 business miles per year. 3. Take a cash allowance – although cash payments will be subjected to tax and NI through the payroll so the amount your employer agrees to pay will be reduced by these deductions but it may still be a viable option. [email protected] www.wilkinskennedy.com wilkinskennedy 141