ATXP6 UK
Syllabus A1. Income tax A1a. Income from employment

A1a. Motor cars, Vans and private fuel benefit

Syllabus A1a)

Income from employment

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?

CO2 emissions Percentage Petrol
50g/km or less 13%
51 to 75 g/km 16%
76 to 94 g/km 19%
95 g/km 20%
> 95g/km Add an additional 1% for every complete 5g/km above 95 g/km
Maximum percentage 37%

The percentage rates are increased by 4% for diesel cars.

The maximum percentage that can be used is 37%.

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:

During 18/19 Arora plc provided the following employees with company motor cars:

  • 1) Lina was provided with a new diesel powered company car on 6 August 2018.
    The motor car has a list price of £13,500 and an official CO2 emission rate of 112 grams per kilometre.

    Lina had an accident on 01/10/2018 and was unable to use the car for 2 months until 01/12/2018, however the car was always available to her to use.

  • 2) Naina was provided with a new petrol powered company car throughout 2018/19.

    The motor car has a list price of £16,400 and an official CO2 emission rate of 177 grams per kilometre.

  • 3) Falak  was provided with a new petrol powered company car throughout 2018/19.

    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 during 2018/19 for the use of the motor car.

  • 4) Jayna was provided with a new petrol powered company car throughout 2018/19.

    The motor car had a list price of £16,000 and an official CO2 emission rate of 90 grams per kilometre.

  • 5) Saayan was provided with a new diesel car throughout 2018/19.

    The motor car had a list price of £11,000 and an official CO2 emission rate of 60 grams per kilometre.

  • Required:
    Calculate the taxable benefit for 2018/19 for Lina, Naina, Falak, Jayna and Saaya.

Solution:

1) Lina

was provided with a diesel powered company car. The CO2 emissions are 112g/km.

The CO2 emissions are above 95g/km, so the relevant percentage is 27% (20% + 4%(diesel car) + 3% (1% for every complete 5g/km above 95g/km ie 110-95 = 15 / 5 = 3%).

The CO2 emissions figure of 112 is rounded down to 110 so that it is divisible by five.

The motor car was only available for eight months of 2018/19, so the benefit is £2,430 (13,500 × 27% × 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

The CO2 emissions are above the base level figure of 95 grams per kilometre. 

The CO2 emissions figure of 177 is rounded down to 175 so that it is divisible by five.

The base level percentage of 20% is increased in 1% steps for each complete 5 grams per kilometre above the base level, so the relevant percentage is 36% (20% + 16% (175 – 95 = 80/5)). The motor car was available throughout 2018/19 so the benefit is £5,904 (16,400 × 36%).

3) Falak

The CO2 emissions are 239g/km.

The CO2 emissions are above the base level figure of 95 grams per kilometre.

The relevant percentage is 48% (20% + 28% (235 – 95 = 140/5)), but this is restricted to the maximum of 37%.

The motor car was available throughout 2018/19 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 76 grams per kilometre and 94 grams per kilometre so the relevant percentage is 19% as it is a petrol car.

The benefit is £16,000 × 19% = £3,040.

5) Saaya

The CO2 emissions are between 51 grams to 75 grams per kilometre and the relevant percentage is 20% (16% + 4% (diesel car)).

The benefit is £11,000 × 20% = £2,200

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 £23,400 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 2018/19 towards the cost of private fuel, although the actual cost of this fuel was £1,000.

Solution:

Lina

£23,400 × 27% × 8/12 = £4,212
The fuel was not available for first 4 months

Naina

£23,400 × 36% = £8,424

Falak

£23,400 × 37% = £8,658

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

Jayna

£23,400 × 19% = £4,446

Saaya

£23,400 × 20% = £4,680

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 £3,350 p.a.

  3. An additional charge is made for fuel provided for unrestricted private use equal to £633 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.

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 £3,350 per annum.

Therefore, if the van was only provided for 9 months in the tax year, then the tax charge would be £3,350 * 9/12 = £2,512.

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 £633 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  £633*9/12 = £475.

Illustration:

An employee uses his employer’s van significantly for private journeys throughout the tax year.

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

What taxable benefit would arise because of the employer paying for private fuel?

Solution:

£633