We recently spoke to Duncan Mitchell of CED Accountancy Services about employer provided cars. The tax and national insurance effects impact the employer as well as an employee or director who has an employer provided car.
Duncan explained “An employer provided car results in a benefit to an employee or director upon which income tax is payable. The employer will suffer a Class 1A National Insurance Contribution (NIC) charge at 13.8% of the amount which is assessed as a benefit on the employee.
The amount of the benefit rises each year and the increases should be considered before a car is purchased by the employer. For most cars, we have got used to the amounts increasing by 1% each year but, from 6 April 2015, the amounts will increase by 2% each year.
Also the current cap on the percentage charge, currently 35%, will increase to 37% in 2015”
We reproduce a table that Duncan gave me illustrating his point:
A car was purchased for use by a director on 6 April 2013. A car is normally kept for four years before it is replaced. The CO2 emissions are 130 gm/km and the list price is £30,000. If the car is a petrol car, the benefit on the director (and the income tax cost) and the NIC cost on the company are:
Tax year Benefit Tax Employer
% £ (at 40%) NIC
2013/14 18 5,400 2,160 745
2014/15 19 5,700 2,280 787
2015/16 21 6,300 2,520 869
2016/17 23 6,900 2,760 952
Duncan explained that “The future increases may affect a decision as to when to replace a car. One of the reasons for the annual increase in the percentages is the work undertaken by car manufacturers to lower the polluting effects of a car which means lower carbon dioxide emissions. So, an equivalent new car purchased after April 2015 may have a lower tax cost if the CO2 emissions for that type of car have fallen significantly. Or you may decide that private ownership by an employee of a car would be a better option. Some research on the different types of car may well be worthwhile, Hybrid and electric cars tend to be tax efficient, and even high end marques such as Porsche and BMW have cars which demonstrate attractive tax efficiencies”
Duncan then spoke about the car fuel benefit
“For most businesses and employees it is not beneficial to have private fuel paid for by the employer. The CO2 emission percentage is applied to a set figure. The figure for 2014/15 is £21,700.
It is therefore, in many cases, better for the employer to pay only for the business mileage.
There are two ways to achieve this. The employee can claim a mileage allowance from their employer for business travel or the business pays for all the fuel with the employee subsequently making good the whole of the cost of the private fuel provided. Both methods are based on HMRC issued rates although they are different rates and often confused.
The requirement to reimburse in full for private fuel has caught many employers out when HMRC have conducted an Employer Compliance visit”
Duncan Mitchell is a director at CEDAS (www.cedas.co.uk) . You can call him on 01327 358866.
Driving at work is one of the most dangerous activities as a quarter of all vehicle mileage travelled annually on UK roads is for work purposes and a third of all crashes involve a vehicle that is being used for work. Every week around 200 road deaths and serious injuries involve drivers who are at work. Corporate manslaughter law that was implemented in 2008, dictates that an employer can be held responsible for the actions of their employees whilst driving at work. A company can be prosecuted and face huge fines if they have done nothing to reduce liabilities, therefore, there are certain steps that need to be taken and possible financial costs. This week (17-11 November) is Road Safety Week http://www.roadsafetyweek.org.uk/ so in this blog we provide some employer tips for driving at work and managing the HR issues.
Driving at Work Policy
An employer should have a driving at work policy and procedure in place that is well communicated to staff. This should entail the employer explaining all the details either on a 1:1 or group basis and ideally having the employees sign a paper document to show agreement which is then held on file. The policy should contain clauses on licence checking, safety, breakdowns, use of mobile phones, driver breaks, training, maintenance, accidents, fines and disqualifications, smoking and mobile phones. A list of authorised drivers should also be held to include company vehicle drivers and employees who drive their own car on company business.
An employer should check the validity of licences on a regular basis by taking a photocopy to be held on the personnel file. How regular that can be is up to the employer’s judgement but ideally at least once a year. If an employee provides a copy of a clean licence, an annual check should suffice. However, if the licence shows quite a few points then an employer may need to check more regularly. It is very easy to rack up additional points particularly with driver who has a careless history. If the employee is disqualified from driving they will not be insured. If they have an accident whilst driving a company vehicle the company is liable and not the insurance company. If a disqualified employee drives their own vehicle on company business and has an accident if a claim is progressed in the civil courts the employer may be pursued. The employer may, therefore, incur financial costs.
It may be quite onerous to check the validity of licences with regular photocoping, however, it is essential for an employer to do so to reduce liability. An alternative to checking and photocopying licences is to use form D888/1 to gain written permission from the employee to contact the DVLA about licence validity and driver entitlement. The form is sent off with a £5 fee – https://www.gov.uk/government/publications/d8881-request-by-a-company-about-driver-entitlement
It is important for employers to take ownership of this process. An employer can not guarantee that an employee will tell them if they have been fined, endorsed or disqualified particularly if their job might be on the line. Whilst the matter may be dealt with using the disciplinary procedure should untoward behaviour come to light, the repercussions for the company are much wider.
For employees that drive their own car on company business copies of MOT, tax and insurance documentation should be photocopies annually and held on file.
Fit and Safe to Drive
Employees should be requested to inform their line manager if they are fined, endorsed or disqualified. Failure to do so should result in use of the disciplinary procedure. They should be fit to drive, wearing prescribed glasses or contact lenses as appropriate. Employers can offer to pay for employees eye tests and contribute to glasses if they are essential drivers. Eye tests can be organised on an annual basis. Employees should take care when taking any prescribed drugs that may affect their ability to drive and should inform their line manager of any medication that may cause them to be at risk.
Company vehicles should be regularly maintained with responsibilities assigned to key members of staff. This should include servicing, MOTs, documentation updating and essential checks for drivers before starting a journey. Employees should be well aware of how to deal with a breakdown and who to contact within the company should this happen.
If an employee is involved in an accident in a company vehicle many employers require the employee to pay the insurance excess. This can be made a contractual obligation. Employees should take responsibility for any fines, traffic offences or other breaches of the law committed when driving.
To reduce liability an employer can provide safety and efficiency training. The Energy Trust holds a list of driver trainers who can deliver often 100% funded sessions on site. If done on an annual basis employees are educated in how to drive safely.
Tool box talks are also another way to educate drivers with short timely sessions that focus the mind on awareness related to speed, braking and motorway safety for example.
Providing training reflects well on a company’s reputation and keeps costs down.
Workers have won a groundbreaking case at the Employment Appeal Tribunal to include overtime in holiday pay.
This means all people working voluntary overtime could claim for additional holiday pay. Currently, only basic pay counts when calculating holiday pay.
The details of the ruling, particularly on whether claims can be backdated, have yet to be released.
The ruling could be appealed to the Court of Appeal, meaning a final decision may be years away.
The ruling has widespread implications for all companies paying overtime to their staff.
The government estimates that one-sixth of the 30.8 million people in work get paid overtime. This means around five million workers could be entitled to more holiday pay.
The coalition and business groups had argued strongly that overtime should not be included in holiday pay calculations.
If claims can be backdated, businesses stand to lose billions of pounds, some estimates suggest.
“Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to,” said Howard Beckett of Unite.
“This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order.”