Company cars and fuel during COVID-19

19th May 2020

If you are an employee with a company car, and maybe fuel provided, it is worthwhile considering giving up the car, or fuel, during the current pandemic if you are working from home or furloughed.

 

A company car benefit in kind (BIK) is a set amount based on the list price and emissions regardless of the amount of usage.  If you are not currently not using the car then it may be worthwhile giving up the car in the short term to reduce the tax you are paying, the BIK can be reduced for periods of unavailability.

 

Unfortunately this is easier said than done, if a car is “available” then a benefit in kind will arise, merely not using the car will not reduce the benefit; if the car is on your drive and you have the keys you will have a BIK.  HMRC has confirmed that returning the car keys to the employer will be sufficient to demonstrate the car is unavailable, which could be an option, or, if possible, move the car to a company depot/car park so it is completely unavailable to you.  I also recommend a written declaration signed by both parties is in place to confirm the car is withdrawn and unavailable.  Of course personal circumstances may mean you need the car even if for short journeys and this is not an option.  Note that to be “unavailable” for tax purposes the period has to be at least 30 days.

 

However stopping the fuel benefit, if you have one, is likely more worthwhile if you are spending very little on fuel at the moment.  Again the private fuel BIK is not based on the miles travelled it is a set amount based on emissions.  A private fuel BIK is ‘all or nothing’, if there is just 1 private mile paid for by your employer a fuel BIK will arise.  However it should be possible for an employer to stop paying for fuel and request you reimburse any fuel costs since 6 April 2020.  A written agreement signed by both parties also needs to be in place to confirm the requirement to repay the fuel.  Strictly such an agreement should  ideally be in place before the start of the tax year, but you would hope HMRC would relax this stance in the circumstances.  A word of warning though, if fuel is stopped and reinstated later in the tax year the BIK will arise for the whole tax year, so if it is stopped that will have to continue to at least 5 April 2022.

 

If a BIK is stopped then the company will also reduce their Class 1A NIC liability.  HMRC would need to be advised of any changes to ensure tax codes are updated to see the immediate tax reduction of any income tax changes.

 

Comparing the tax savings and checking the appropriate paperwork and procedures are in place is recommended.  Do contact us if you require any further information.



 
Other items in Blogs
 
Jodie Pheby
22nd July 2021 Accounts Basis Period Reform – Consultation

Under current rules, businesses draw up annual accounts to the same date each year. The profit/loss for the tax year is usually the profit/loss for the year to the accounting date – called the basis period.  Tax is paid on profits earned in the basis period ending in the tax year in question.   However,…

Read More »

Nick Edgley
15th July 2021 31st July: Can your tax payment be reduced?

Many taxpayers who are required to file a self-assessment tax return to HM Revenue & Customs should now be preparing for their next tax payment which is due by 31 July. The amount payable is the second payment-on-account for the 2020/21 tax year and is automatically calculated as half of the total tax liability for…

Read More »

Ian Piper
6th July 2021 30-Sep-21: End of most COVID support measures for SME’s

When COVID directly impacted upon the UK in Spring 2020, the Government introduced a range of measures specifically targeted to help businesses survive the expected period of financial strain. Such businesses, that are still here, should now be planning ahead for when this support is gradually unwound: 21-Jun-21 Deadline for arranging with HMRC when to…

Read More »

Megan Turner
5th July 2021 Charity annual returns

The charity annual return service is now available for 2021 and can be found on the link below. https://apps.charitycommission.gov.uk/   Charities need to submit their annual return within 10 months of the financial year end.   Dependant on the level of income, the annual return has different requirements; Income under £10,000 It is only the…

Read More »

Bethan Hassey
1st July 2021 Changes to the reduced rate of VAT for hospitality, holiday accommodation and attractions

  In July 2020 the government announced that VAT registered business who operate in the hospitality and tourism industry could use a temporary 5% reduced rate of VAT on certain supplies compared to the standard 20%. The objective of this legislation was to support businesses in this sector during the Coronavirus pandemic and assist with…

Read More »

Thomas Nicholls
15th June 2021 Tax on Cryptocurrency does not have to be cryptic

Within the last 10 years the cryptocurrency scene has exploded from the first decentralised cryptocurrency, Bitcoin, being created back in 2009 to now more than 4,000 different cryptocurrencies being in existence with a total market cap value of over £1trillion.   This has led to the creation of the Cryptoassets Taskforce which was announced back…

Read More »