Business use of employees cars

Many employers pay their employees a monthly car allowance to compensate them for the business use of their private vehicles. In most cases this car allowance is treated as remuneration and is subject to PAYE and National Insurance deductions.

Additionally, employers may also pay a nominal amount per mile as a contribution to fuel costs.

Employers are entitled to pay their employees a tax free mileage allowance for the business use of their private vehicles. The rates are:

·         45p per mile for the first 10,000 miles in any tax year, and

·         25p per mile for any additional use.

In a recently decided case, an employer that paid less than the 45p (25p) tax free rates, was enabled to deduct the difference between the actual rate paid and tax free rates available, from the monthly car allowance, before working out any employer’s or employee’s National Insurance Contributions due on the monthly car allowance.

If the amount being paid for business use of fuel is nominal, this can make quite a difference to National Insurance Contributions that are due.

Employers reading this article, whose circumstances match the following criteria, may be able to claim refunds for overpayment of past NIC deducted from car allowance payments. The outcome of such claims will depend on how closely their circumstances mirror the decided case mentioned above, and HMRC’s interpretation of the ruling:

The criteria are:

·     You pay or have paid employees a regular car allowance.

·     You have also paid nominal mileage rates to cover business related fuel costs, below

      the current tax free rates of 45p (25p) per mile.

Please note that in the decided case discussed the allowance was only paid to employees travelling more than 2,500 business miles each year though the mileage rate they received was correspondingly reduced to 12p per mile from 40p. It was thus aimed at compensating those incurring additional costs for using their cars substantially for business purposes.

The End of Private Residence Elections?

At present taxpayers, who own more than one property used as residences by them, can make a formal election to determine which of their properties should be considered their private residence for tax purposes.

The election needs to be based on the facts – how has each property been used as a private residence - and HMRC has a right to challenge an election if it looks as if the taxpayer has never really taken up residence in a property and is simply trying to obtain a tax advantage.

HMRC is presently consulting on a range of issues that affect owners of residential property in the UK. One of the changes they have under consideration is to scrap the present right to make an election, and to give HMRC the right to determine private residence status based on “demonstrable” evidence.

If this change is enacted it could take effect from as early as April 2015.

Home owners with more than one property should consider their options now.