The above rates may be used to calculate the amount payable for all business journeys undertaken without incurring any tax liability for the individual employee. Alternatively where all fuel is purchased by the employer the rates can be used to identify the cost of private mileage to be reimbursed to the employer so as to avoid a car fuel benefit charge arising.
Please note that the revised rates only apply in respect of business mileage undertaken in company vehicles. For non company vehicles there has been no change to the rates to 45p/25p which are applicable from 6 April 2011 to the reimbursement of business miles undertaken using an employee’s own vehicle.
Whilst writing I would remind you of the importance of maintaining full and accurate records of mileage undertaken (whether in company cars or employee owned cars) where business mileage is reimbursed using a rate per mile allowance. VAT input tax is recoverable (on the fair proportion of mileage allowances which relates to fuel in respect of which the petrol/diesel rates in the table above may be used) subject to a VAT invoice(s) being held which must equal or exceed the value of the business mileage reimbursement, and the date on the invoice(s) must correspond with the dates covered by any claim. It is recommended that you advise your employees that all mileage/fuel claims must be supported by VAT invoices.
VAT Fuel Scale Charge – CO2 Basis – Company Car Users
The fuel scale charge for calculating VAT due where fuel is provided for private journeys in a company car and VAT input tax thereon is reclaimed is calculated by reference to the CO2 rating of the vehicle. It should be noted that to opt out of declaring output tax on he Fuel Scale Charge basis for VAT purposes either detailed records of business/non business mileage must be kept and VAT input tax only claimed on business miles or, in the absence of such records, VAT input tax cannot be recovered on any motor fuel, including that purchased for vehicles (including commercial vehicles) used exclusively for business purposes.
For those who elect to use the Fuel Scale Charge basis to account for VAT on non business mileage where input tax thereon is reclaimed, note that the 20% VAT fraction of 1/6 is applied to the annual, quarterly or monthly scale charge as appropriate to calculate the VAT due in respect of each company car provided where fuel is also provided for private journeys.
Van and Van Fuel Benefits
The van benefit charges apply to anyone who has use of a company van and is deemed to have private use (see below) of that van during the fiscal year for 2015/16. There is a flat rate benefit charge on £3,150 per annum per van, irrespective of the age of the van. There are no reductions pro rata if the van is not provided for the whole tax year and on a just and reasonable basis if more than one employee is entitled to use the van for private purposes. There is also the fuel benefit of £594 per annum (2015/16) if fuel is provided for a van and there is private use. Furthermore the employer will have a Class 1A National Insurance liability on all taxable benefits arising.
The above however is mitigated in many cases by the more generous definition of private use now in force. The legislation states that where the van is used ‘mainly for the purposes of business travel’, then there may be no taxable benefit whatsoever (please note this more generous rule does not apply to cars where a tax charge arises if the car is available for private use and also does not apply to vans not provided mainly for business purposes) providing there is no, or only insignificant, private use. Commuting to and from work is ignored for this test, as is other insignificant private use.
Insignificant private use is defined as the van being used privately for a few days at most in the whole year, insignificant in quality (i.e. a short private journey to drop off a quantity of rubbish at the tip, or a slight deviation to drop a child off at school), intermittent and irregular (a detour to call at the dentist on the way home) and very much the exception to the normal pattern of use of the van. Usage that would not count as insignificant includes where the employee uses the van for a holiday, to go shopping every week, private use for a continuous period of time, such as a week, or using the van outside of work for social activities.
Where appropriate, it is suggested, for the avoidance of doubt and to support any contention that there is no taxable private use, that there is a clause in the employee’s contract of employment to expressly prohibit the use of the van for private use, other than commuting to and from work. Additionally, a record of mileage should be kept for all employees having the use of a van for business purposes only so as to be able to demonstrate that all mileage or almost all mileage undertaken is for business purposes (including home to work and insignificant private use).
It is also worth noting that any significant private use, even for a few days, invalidates the exemption for the whole year, and the full annual benefits charge as described above will apply. No reimbursement for actual private use can negate the private use tax charge. Any contribution would only be offset against the full annual charge. However, the fuel benefit charge can be eliminated by a full reimbursement of all private motoring fuel costs in the year so that where the (more than insignificant) private mileage is low reimbursement is likely to be cheaper than the tax due on the van fuel benefit.
One other point to consider is the definition of a van, especially in the context of double cabs and other hybrids. This is a complex area and depends on the make and model of the specific vehicle but broadly a van is a vehicle of less than 3500 kg of a construction designed primarily for the conveyance of goods or burden (rather than people). Note that it is the purpose for which the vehicle is designed which is important (actual usage is irrelevant). Also note that HMRC generally accept double cab pick ups with a pay load of one tonne or more as vans and apparently the Land Rover Defender 110 with blanked out windows behind the second row of seats is also classified as a van (note that the category under which a vehicle is registered for road tax is likely to be accepted as evidence of its status, i.e. categories TC48, 49, 59 are cars whereas categories TC36 and 39 are light goods vehicles).
Please contact us in our Weston-super-Mare office for further information.