Company vs private car tax prob?

tazical

Hello- long time lurker, first time poster!

I have just inherited a small business from my parents who are now deceased. This means that I am something of a flailing newbie at tax affairs and am very much in the dark about where to find information. My accountant is baffling for Britain so I hope someone on here can clue me in with a situation I have.

One of my employees is requesting a review of his company car situation. He has a small diesel Pergeot 306 which is mainly used for business errands, around 30 miles per week or less. It is costing the business £974 per year in fuel, road tax and insurance. Of the £470 fuel cost some is private use.

My employee is requesting that he takes a wage rise of £1500 per year instead of the company car as he would prefer to use his larger private car and claim back mileage. This is fine by us, but obviously we do not want it to cost the business much more money. I estimate that if he had a wage rise we would have to pay him around £1200 pre-tax for him to get the same amount of money post-tax. Of that money he would then be using some of it for business fuel anyway, so the business would essentially be paying more tax for fuel which we already buy.

Does anyone have any idea what the most tax efficient way of doing this would be? Are there any other options for fuel allowance which mean we could pay a lower wage rise and the employee pay less tax (eg. part wage rise/part fuel card, flat rate fuel allowance, other??) Or any ideas where I can find more info apart from the IR, who were no help? It seems utterly pointless to pay the government more money for him to get the same end-wage. Any input would be appreciated!

fengirl_2

If I have understood you correctly, you are going to dispose of the company car. In this case, you would no longer bear the running costs of that vehicle, so you are saving £974pa. In addition, you would be saving the class 1a NIC's on the car benefit - without knowing the car benefit, I can't tell you how much this would be.
By paying your employee £1500pa more, you would also incur an addtional £192 in Class 1 NIC on his salary, so it would cost you £1592. If you also paid him for his business mileage at the maximum tax free rate, you could be paying him, say:
£30pw for 48 weeks @ 40p per mile = £576.
I dont think you should take into account the tax payable by the employee in these calculations as this will muddy the waters.

tazical

Thanks fengirl, I shall go back and play with my calculator some more