SHOULD EMPLOYEES REIMBURSE THEIR EMPLOYER FOR PRIVATE FUEL?

Where the employer provides an employee with a company car there may be an additional benefit in kind on the provision of fuel for private journeys which needs to be reported on form P11d.

This additional benefit is based on a notional list price for the vehicle of £25,300 for 2022/23 which applies irrespective of the original list price of the vehicle normally used to compute the taxable benefit. That figure is then multiplied by the CO2/km percentage for that vehicle.

For example, the Range Rover Evoke S AWD Automatic MHEV has a current list price of £41,245. The CO2 emissions data on the Land Rover website is 168g/km for this vehicle. which means that the fuel benefit is 37% multiplied by £25,300 = £9,361.   For a higher rate taxpayer that would result in a tax liability of £3,744. That would be an awful lot of fuel! In addition, the employer would have a Class 1A national insurance liability of £1,360 (14.53% for 2022/23).   Provided private fuel is fully reimbursed, the fuel benefit does not apply. This is an all or nothing benefit and unless there is full reimbursement there is an additional taxable benefit. The deadline for reimbursing private fuel is 6 July 2023 for the 2022/23 tax year.

ADVISORY FUEL RATE FOR COMPANY CARS

The table below sets out the HMRC advisory reimbursement rates for employees' private mileage using their company car from 1 June 2023. Where full reimbursement is made there is no taxable fuel benefit.

You can continue to use the previous rates for up to 1 month from the date the new rates apply (where there has been a change the previous rate is shown in brackets).  Note that for hybrid cars you must use the petrol or diesel rate and for fully electric cars the rate is 9p (8p) per mile.   

USE OF HMRC ADVISORY RATES FOR VAT PURPOSES

Where employers reimburse their employees for using their own cars for business journeys the tax – free reimbursement rate continues to be 45p for the first 10,000 business miles and 25p a mile thereafter.  There is also an additional 5p per mile per passenger. These rates have not increased for about 10 years!

Provided the employee provides a fuel receipt from the filling station the employer is able to reclaim input VAT on a portion of the amount reimbursed to the employee. The input VAT is 1/6^th of the advisory fuel rate for the employee’s vehicle. For a 2200cc diesel car the input VAT would be 3.3p per mile based on 20p.

2022/23 EMPLOYMENT-RELATED SECURITIES RETURNS DUE BY 6 JULY

The deadline for reporting shares and securities and share options issued to employees for 2022/23 is 6 July 2023. This is the same as the deadline for reporting expenses and benefits provided to employees on form P11d for 2022/23.

Employers must submit their employment related securities annual returns online and attach the appropriate spreadsheet template if they have something to report. HMRC provide templates on their website that may be downloaded in order that the information may be entered and uploaded. Note that there are different templates for each of the four tax-advantaged employee share schemes – Company Share Option Plan (CSOP), Enterprise Management Incentives (EMI), Save and You Earn (SAYE) share options and Share Incentive Plans (SIP). In addition, spreadsheet 42 should be used to report any other employment-related securities (non-tax-advantaged) issued to employees and directors.

HMRC OFFICIAL RATE OF INTEREST ONLY 2.25%

HMRC have announced that the official rate of interest will increase from 2% to 2.25% on 6 April 2023. The official rate of interest is used to calculate the income tax charge on the benefit of employment related loans and the taxable benefit of some employment related living accommodation. These rates used to fluctuate in line with the base rate, but in recent years HMRC has fixed the rate for the whole tax year.   For those employers including beneficial loans on form P11d for 2022/23 the average official rate to be used is 2%. The charge applies where the amount of the loan exceeds £10,000.

So, should directors and shareholders take advantage of this lower rate?

The HMRC rate of interest on beneficial loans looks very attractive compared to the Bank of England Base rate of 4.5% and much higher rates charged by banks for unsecured loans.  Where loans are made to directors and shareholders of a company there is potentially a special tax charge on the company for any loan still outstanding 9 months after the end of the accounting period. The charge is currently 33.75%, the same as the higher rate of tax on dividend income. This tax charge is only repaid to the company when the loan is repaid or written off.

DIARY OF MAIN TAX EVENTS - June & July 2023

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Content accurate as of 30 May 2023