Employer pays for private fuel

oldwiring

A relative has private use of a double cab pick-up truck, supplied by his employer in the course of his work. As I understand it he presently gets reimbursement for fuel used for business, and so effectively pays for private use fuel. The employer is changing to a fuel card system and the relative will not be required to reimburse the employer.

What will my relative's tax liability be for the benefit of having private fuel paid for? Are there any other snags with such an arrangement?

I would think that it might affect andy tax credits as well. Is that so?

Bean_Counter

oldwiring wrote: »

What will my relative's tax liability be for the benefit of having private fuel paid for?

I am going to presume that the pick-up truck is classed as a van for tax purposes. A check on the P11D will show whether it is treated as a car or a van (depends on payload capacity and other factors.)

From April 2007 the van benefit is £3,000 per annum. Since private fuel is being provided that goes up to £3,500 per annum. At basic rate tax, the cost is £3,500 x 22% / 12 months £64 per month of additional tax payable. Of this the fuel element is £9 per month.

If the van is used entirely for commuting with only incidental private use other than that the total charge goes down to nil.

The relative should consider whether the benefit of the private use if worth the £64 per month. Perhaps they have another vehicle so don't need the truck for private use. Same goes for the fuel benefit. However at only £9 per month, it is probably worth it.

Let me know if you need more info.

oldwiring

Bean_Counter wrote: »

I am going to presume that the pick-up truck is classed as a van for tax purposes. A check on the P11D will show whether it is treated as a car or a van (depends on payload capacity and other factors.)

From April 2007 the van benefit is £3,000 per annum. Since private fuel is being provided that goes up to £3,500 per annum. At basic rate tax, the cost is £3,500 x 22% / 12 months £64 per month of additional tax payable. Of this the fuel element is £9 per month.

If the van is used entirely for commuting with only incidental private use other than that the total charge goes down to nil.

The relative should consider whether the benefit of the private use if worth the £64 per month. Perhaps they have another vehicle so don't need the truck for private use. Same goes for the fuel benefit. However at only £9 per month, it is probably worth it.

Let me know if you need more info.

Thabk you.:D Is there a definition of incidental private use?

Bean_Counter

oldwiring wrote: »

Is there a definition of incidental private use?

Try this link:

http://www.hmrc.gov.uk/manuals/eimanual/EIM22745.htm

Examples that are usually used are that if you stop for a paper on the way to work, that is insignificant. A trip to the local tip with rubbish a year is insignificant. Going to Tesco every week for the shopping is NOT insignificant.

It is also worth checking with the employer how they are going to treat it, as you don't suddenly want it appearing on the P11D in a years time.

It is also worth noting that this commuting exception also applies from 2005 / 06 onwards. Again check with the employer how this has been treated on the P11D for those years, because if there is no private use then the scale charge could be avoided for these years (albeit the scale charge is a lower rate for those years.)

Finally check the current tax code. I have seen many examples of HMRC whacking on the £3,000 tax code for the current year with no basis for doing so, apart from hoping people won't notice and they get some extra tax! Or is that too cynical!

Let me know if you have any further questions.

hopon

oldwiring wrote: »

Thabk you.:D Is there a definition of incidental private use?

There isn't a total definition but:

To escape any tax or Class 1A liability an employer must satisfy HM Revenue & Customs (HMRC) that an employee only has restricted private use of a van. What this means in practice is that there must be a clear agreement between an employer and employee that their van is provided because they need it to do their job and any private use is restricted to home to work commuting.

HMRC allows for other ‘incidental’ private use – for example, taking an old mattress or other rubbish to the tip once or twice a year; regularly making a slight detour to stop at a newsagent on the way into work; calling in at the dentist on the employee’s way home. It is not incidental if the van is used to do the supermarket shop each week; or it is taken away on a week’s holiday; or it is used outside of work for social activities; even if the overall private mileage is incidental against the van’s total business mileage for the year.

Therefore, HMRC would expect any agreement concerning the van’s use should clearly stipulate how it can be used privately. This means employers should also keep sufficient records to demonstrate that private use is restricted to home to work travel. For example, this could be records that show total mileages are reasonable in the context of a particular business.

HMRC would also expect there to be evidence that the employer expects their policy relating to private use to be adhered to – for example, that disciplinary action would follow if the employer finds the employee’s private use of their van is being abused. An employer is advised to check their policy with their PAYE tax office so both they and HMRC are happy that there are no ‘hidden’ surprises that could lead to a tax bill for employees and hefty payments of Class 1A for employers.

You can also look at the HMRC manual here