Motor cars, Vans and private fuel benefit

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Motor cars

If an employer gives an employee a motor car to use for business and private purposes, then a benefit will arise which income tax must be paid on by the employee.

  • If there is no private use of the car there is no taxable benefit

  • The benefit is a percentage of the car’s list price.

    The list price of the car will be given to you in the exam. 

    The list price includes the list price of any accessories fitted to the motor car.

    If an employee pays a capital amount towards receiving the car from the employer, then this list price will be reduced by this capital contribution. 

    The list price can be reduced by a maximum of £5,000 - even if the employee has contributed more than this, it will only be reduced by £5,000.

    For example the list price of a car is £15,000 and an employee has made a capital contribution towards it of £7,000 - the list price of the car will only reduce to £10,000 (£15,000 - £5,000). 

    Then, this list price will be multiplied by a percentage to give the amount of benefit to be taxed on.

  • How to determine the percentage?

Electric cars

A 2% applies to electric powered motor cars with zero CO2 emissions. 

For hybrid electric motor cars with CO2 emissions between 1-50 grams per kilometre, the electric range of the motor car is relevant.

Electric range
Electric range Percentage
130 miles or more 2%
70 - 129 miles 5%
40-69 miles 8%
30- 39 miles 12%
Less than 30 miles 14%
As emissions rise beyond 50 grams, the following percentages apply:
CO2 emissions Percentage Petrol
51 to 54 g/km 15%
55g 16%
Maximum percentage 37%

The base percentage of 16% rises in 1% for each 5 grams per kilometre above the base level of 55 grams per kilometre, up to a maximum of 37%.

The percentage rates are increased by 4% for diesel cars unless the diesel car in question is registered after 1 September 2017 and it meets the RDE2 standards. You will be told in the exam if the car meets the RDE2 standards.

Reductions

So far, we have calculated the benefit as:

(List price-capital contribution) * % = Car benefit

This benefit can be reduced by 2 things:

  1. Motor car is unavailable for periods of at least 30 days of the tax year 

    For example if the car was not available to the individual for one month in the tax year, then the benefit will be multiplied by 11/12 - because the car was only available for 11 months in the tax year, and

  2. Where the employee makes a contribution to the employer for the use of the motor car, this is also known as making a contribution towards the running costs of the car. 

    Note contributing towards the running costs of a car are different to the capital contribution to reduce the list price of a car. 

    For example An employer gave an employee a motor car to use for private and business purposes that had a list price of £17,000 - the employee made a capital contribution of £8,000 towards the list price. The employee also contributed £1,200 per annum towards the running costs of the car. 

    The taxable benefit would be:

    List price less capital contribution: £17,000 - £5,000 (max) = £12,000

    £12,000 * % = Benefit - £1,200 (running cost contribution). = Taxable benefit.

Pool cars

The use of a pool car does not result in a company car benefit.

A pool car is one provided for the use of any employee to use for business purposes and is kept at the business place of work.

Illustration:

Arora plc provided the following employees with company motor cars:

  • 1) Lina was provided with a new diesel powered company car on 6 August (the car does not meet the RDE2 standards).
    The motor car has a list price of £13,500 and an official CO2 emission rate of 97 grams per kilometre.

    Lina had an accident in October and was unable to use the car for 2 months, however the car was always available to her to use.

  • 2) Naina was provided with a hybrid electric company car throughout the tax year. The car had a list price of £32,200 and an official CO2 emission rate of 24 grams per kilometre and an electric range of 90 miles.

  • 3) Falak  was provided with a new petrol powered company car throughout the year.

    The motor car has a list price of £22,600 and an official CO2 emission rate of 239 grams per kilometre.

    Falak paid Arora plc £1,200 for the use of the motor car.

  • 4) Jayna was provided with a new petrol powered company car throughout the year.

    The motor car had a list price of £16,000 and an official CO2 emission rate of 52 grams per kilometre.

  • 5) Saaya was provided with a new diesel car throughout the year.

    The motor car had a list price of £11,000 and an official CO2 emission rate of 55 grams per kilometre. The car meets the RDE2 standards.

  • Required:
    Calculate the taxable benefit for Lina, Naina, Falak, Jayna and Saaya.

Solution:

1) Lina

Lina was provided with a diesel powered company car. The CO2 emissions are 97g/km.

The CO2 emissions are rounded down to 95g/km, so that it is divisible by five.
The base level percentage of 16% is increased in 1% steps for each complete 5 grams per kilometre above the base level, so the relevant percentage is 28% (16% + 4%(diesel car) + (95-55/5) 8%)

The motor car was only available for 8 months during the year, so the benefit is £2,520 (13,500 × 28% × 8/12).

Note that even if Lina was unable to use the car herself for 2 months, the fact that the car was available for her to use at all times means that the benefit will not be reduced because of these 2 months.

2) Naina

With CO2 emissions between 1-50 grams, the electric range of the motor car is relevant. This is between 70 - 129 miles, so the relevant percentage is 5%.

The motor car was available throughout the tax year so the benefit is £32,200 x 5% = £1,610

3) Falak

The CO2 emissions are 239g/km.

The CO2 emissions are above the base level figure of 55 grams per kilometre.

The relevant percentage is 52% (16% + 36% (235 – 55 = 180/5)), but this is restricted to the maximum of 37%.

The motor car was available throughout the year so the benefit is £7,162 (22,600 × 37% = 8,362 - 1,200)

The contribution by Falak towards the use of the motor car reduces the benefit.

4) Jayna

The CO2 emissions are between 51 grams per kilometre and 54 grams per kilometre so the relevant percentage is 15% as it is a petrol car.

The benefit is £16,000 × 15% = £2,400

5) Saaya

The CO2 emissions is 55g per kilometre and the relevant percentage is 16% (16% + 0% (diesel car)). (diesel car meeting the RDE2 standards does not have the 4% supplement).

The benefit is £11,000 × 16% = £1,760

Fuel provided for private use

  1. The car benefit also covers the running costs of the car BUT does not take account of fuel provided for private use.

  2. The amount of fuel benefit is computed on a base figure of £27,800 multiplied by the percentage used for calculating the car benefit.

    The fuel benefit is reduced proportionately where private use fuel is withdrawn (and not reintroduced during the year) or the car is only given part way through the tax year.

  3. No reduction is made if the employee contributes towards the cost of petrol for private use.

    If he pays for all fuel used for private motoring the charge is cancelled.

Illustration:

Calculate the fuel benefit for Lina, Naina, Falak, Jayna and Saaya assuming also that Falak pays Arora plc £600 during the year towards the cost of private fuel, although the actual cost of this fuel was £1,000.

Solution:

Lina

£27,800 × 28% × 8/12 = £5,189
The fuel was not available for first 4 months

Naina

£27,800 × 5% = £1,390

Falak

£27,800 × 37% = £10,286

There is no reduction for the contribution made by Falak since the cost of private fuel was not fully reimbursed.

Jayna

£27,800 × 15% = £4,170

Saaya

£27,800 × 16% = £4,448

Vans and heavier commercial vehicles

  1. Where an employee uses an employer’s van for journeys between home and work and other private use is insignificant there is no benefit.

  2. Where private use is not insignificant the tax charge is £3,960 p.a.

  3. An additional charge is made for fuel provided for unrestricted private use equal to £757 p.a.

  4. Both benefits are time apportioned if the van is unavailable to the employee for 30 days or more during any part of the tax year.

  5. Vans producing zero CO2 emissions (zero emission vans) have a zero benefit charge. There is also no fuel benefit for zero emission van.

Van benefit

If an employer gives an employee a van to use for private journeys, if the amount of usage is not significant, then no benefit will arise that an employee needs to pay income tax on.

However, if the private usage of the van is significant, then a benefit will arise that an employee will pay income tax on

How to calculate the money value of the benefit?

The money value is a flat tax charge of £3,960 per annum.

Therefore, if the van was only provided for 9 months in the tax year, then the tax charge would be £3,960 * 9/12 = £2,970

How to calculate the monetary value of the private fuel benefit?

If the employer also provides the employee with fuel for their private journeys, another benefit will arise that the employee must pay income tax on.

The money value is a flat tax charge of £757 per annum.

Therefore, if the fuel for private journeys were only provided for 9 months in the tax year, then the benefit for the private fuel provided would be £757 * 9/12 = £568

Illustration:

An employee is given use of his employer’s van on 01/06/2023 and uses it for a significant number of private journeys.

The employer also pays for the fuel for the employee’s private journeys.

What taxable benefit would arise in 2023/24 because of the employer paying for private fuel?

Solution:

£757 * 10/12 = £630

NotesQuizCBE