Company Cars - A Taxable Benefit?
Traditionally providing a company car was a very tax effective form of remuneration, although changes over the years have eroded this advantage by increasing the tax liability.
How is the employee taxed on their company car?
An employee with a company car is treated as having received a monetary amount equivalent to the provision of the car. This taxable benefit is added to income and taxed accordingly. Usually the recipient's tax code includes the taxable benefit and the tax is collected monthly. Any additional tax is calculated after the end of the tax year.
The taxable amount is calculated as a percentage of the manufacturer's list price on the day before the car was first registered. It is not based on the actual cost, even if the car is purchased second hand. Any excess over £80,000 is ignored.
For cars that are fifteen years old or more at the end of the tax year, the benefit is based on the market value of the car, if this exceeds £15,000. Again, any excess over £80,000 is ignored.
The percentage applied to the list price is graduated according to the level of the car's carbon dioxide (CO2 ) emissions. The charge builds up from 15% of the car's list price, at CO2 emissions of 155g/km, in 1% steps for every additional 5g/km over 140g/km. Diesel cars are subject to a 3% supplement in recognition of their higher emissions of pollutants that damage local air quality. The maximum benefit is 35% of the list price.
For example, a company car with a list price of £15,000 and CO2 emissions of 205g/km gives a benefit of £3,750, being 25% of the list price.
All cars that do not have an approved CO2 figure have their tax charge based on the engine size:
Engine size |
Pre 1.1.98
% of list price |
1.1.98 onwards
% of list price |
up to 1,400cc |
15 |
15 |
1,401 to 2,000cc |
22 |
25 |
Over 2,000cc |
32 |
35 |
No cylinder capacity |
32 |
35 |
How does the employer report the tax on a company car?
Details should be included on the employee's P11d. Certain lower paid employees (broadly those under £8,500 pa inclusive of benefits) are excluded from the P11d net and the company car may not be taxable on them.
During the year, returns of changes to company cars must be returned on form P46 (Car) within 28 days of each quarter end.
Where employers have reclaimed input VAT on fuel provided free to employees for private use, output VAT should be accounted for on scale rates. The quarterly rates of output tax for accounting periods are:
Engine capacity |
Petrol (£) |
Diesel (£) |
1,400cc or less |
34.55 |
32.27 |
1,401 to 2,000cc |
43.63 |
32.17 |
Over 2,000cc |
64.34 |
40.65 |
Where an employer purchases a car to be used as a company car the input VAT is not reclaimable. If it is leased then 50% of the VAT charged on the rental payments can be reclaimed.
The national insurance liability is called Class 1A and is paid by the employer. It is payable by 19 July following the end of the tax year. The rate of NIC is the rate for the year in which the benefit arises (12.8% for 2004/05), not the rate for the year in which the liability is paid.
If you would like to find out more information on how expenses can help with your employee benefits issues, simply call the expenses team on 01522 881300 or click here. Any information Software Europe provides concerning deduction of tax is subject to the approval of your local VAT office. Your local VAT office contact details will be listed in the telephone book under HM Customs & Excise .
TOP
Immediate saving of 18% on direct spend with expenses
Company Profile
WYKO Industrial Services is the leading supplier of industrial products and services in the UK. With an unrivalled network of distribution branches and regional repair workshops with 24 hour emergency coverage, WYKO is able to provide a localised service on stocked products including bearings, belts, chains, gearboxes, electric motors, pneumatics, hydraulics, seals, fasteners and fixings, adhesives, lubricants, couplings, motion control products , wheels and castors, inverters and pumps.
The workshop facilities meanwhile are able to carry out cost effective repairs to pumps, gearboxes, industrial electronic equipment and energy efficient rewinds to electric motors along with comprehensive electro-mechanical refurbishment facilities and predictive and preventative maintenance.
WYKO's “Repair or Replace” service ensures that customers receive the most cost effective solution to suit their maintenance planning. Whether the maintenance is geared to breakdown, planned or predictive methodology, WYKO offers logistical support, technical back up and innovative products.
What was the problem?
WYKO has in the region of 2,600 employees of which around 700 regularly claim expenses via a manual paper based system. WYKO needed a solution the totally removed the existing paper based system, reduced the administration burden of processing employee expenses and encouraged policy compliance across the board.
WYKO needed to be able to analyse their £1.5 million annual expenses spend in much greater detail with the aim of achieving a 10% reduction through a rigid approval system, increased management of vehicle mileage and an maximisation of VAT reclamation.
Why expenses?
From the initial demonstration by Software Europe, WYKO recognised the simplicity of the system for all users (claimants, line managers and accounts personnel) and the minimal requirement for employee training during role out.
expenses was competitively priced, easy to install and came with an unrivalled commitment to customer service from the expenses team.
Results & the Future:
WYKO underwent system implementation to over 750+ users in January 2005 and immediately saw a reduction in employee expenses spend of 18%. There was a huge fall away of paperwork hitting head office, with zero postage across the group.
Compliance to company policy has been increased from 58% to 89% and much more accountability for authorisation has been applied.
Mileage claims are now under control. WYKO's total employee expenses spend is fully analysable and, as an added bonus, WYKO are now also using expenses to administer and manage branch petty cash.
If you would like to find out more about how expenses can save your organisation time and money, simply call the expenses team on 01522 881300 or click here
TOP
See your potential savings with expenses
Without a comprehensive EMA system, companies do not have the ability to proactively manage, or have the facility to be able to review policy simply. By being able to understand data, your organisation will succeed in identifying the need to introduce new and effective policies for cost reduction and optimisation.
Software Europe has identified several areas where better management can bring savings to UK businesses:
- Policy Management
- Processing Costs
- VAT recovery
Policy Management
Implementing EMA naturally decreases the cost of claims by 15%, as employees are more vigilant and management is more effectively controlled.
Assuming the average monthly expense claim is £200, this 15% saving would equate to £360 per employee per year.
No. of Claimants |
Average monthly employee claim) |
Total cost to your organisation year 1 |
1 |
£200 |
£360 |
500 |
£200 |
£180,000 |
1,000 |
£200 |
£360,000 |
5,000 |
£200 |
£1,800,000 |
10,000 |
£200 |
£3,600,000 |
20,000 |
£200 |
£7,200,000 |
25,000 |
£200 |
£9,000,000 |
30,000 |
£200 |
£10,800,000 |
Processing Costs
Looking at timesavings alone - around 80% of the overall cost to your organisation - provides a compelling return on investment for EMA.
Based on the average annual costs of those involved in the expense process:
- expenses will save 1/280 th of the time of an expense claiming employee. Assuming the average cost of an expense claiming employee is £30,000 a year this will save £107 per year per claimant.
- expenses will save 1/840 th of the time of an expenses approving employee. Assuming the average cost of a line manager is £45,000 a year, this will save £53 per year per claimant.
- expenses will save 1/560 th of the time of an expenses processing employee. Assuming the average cost of an accounts clerk is £30,000, this will save £53 per year per claimant.
No. of claimants |
Average annual cost of time processing claims |
Total cost to your organisation year 1 |
1 |
£213 |
£213 |
500 |
£213 |
£106,500 |
1,000 |
£213 |
£213,000 |
5,000 |
£213 |
£1,065,000 |
10,000 |
£213 |
£2,130,000 |
20,000 |
£213 |
£4,260,000 |
25,000 |
£213 |
£5,325,000 |
30,000 |
£213 |
£6,390,000 |
VAT Recovery
Many companies do not maximise on the opportunity to reclaim VAT back. Introducing expenses will ensure all complicated rules are adhered to and the maximum VAT is reclaimed with minimum effort. Assuming the average monthly claim is £200 around 50% of that claim is VATable, but a manual system will miss 20% of this. For most organisations this is a sizeable loss:
No. of claimants |
Average monthly employee claim |
Total VAT lost to your organisation year 1 |
1 |
£200 |
£35 |
500 |
£200 |
£17,500 |
1,000 |
£200 |
£35,000 |
5,000 |
£200 |
£175,000 |
10,000 |
£200 |
£350,000 |
20,000 |
£200 |
£700,000 |
25,000 |
£200 |
£875,000 |
30,000 |
£200 |
£1,050,000 |
Potential year 1 savings to your organisation
No. of claimants |
Total saving to your organisation year 1 |
1 |
£608 |
500 |
£304,000 |
1,000 |
£608,000 |
5,000 |
£3,040,000 |
10,000 |
£6,080,000 |
20,000 |
£12,160,000 |
25,000 |
£15,200,000 |
30,000 |
£18,240,000 |
If you have any questions regarding how your organisation can achieve these cost savings, or on how these calculations are made, not hesitate to call the expenses team on 01522 881300 or click here
Hotel ratings added to expenses
With expenses new hotel review system everyone can enjoy and utilise the experience of others. This rating system will help you to book the best accommodation for your business trips based on price, location and facilities .
Pooling together knowledge from across the country you are able to see the best places to stay and the rating and comments section helps you to decide which hotel is right for you.
There is an option to add your own hotels and share your own valued opinion with other expenses users. Users can find this unique feature under the information header; currently you can search for hotels via County/City with plans in motion to enhance this search feature and sort options, i.e. price and rating.
To find out more information about expenses, please call a member of our expenses team on 01522 881300. Alternatively you can request a quick demonstration by clicking here
employee expenses news is the expenses newsletter!
To unsubscribe click here
If you have been forwarded employee expenses news by a colleague, and would like free subscription click here
www.expenses-software.com
|