An employer at times has to add car allowance to employment package for new employees.Puting car benefit into consideration when providing your employee with a company car is important.The employer could reduce the tax paid by providing the right car.
Impact of Car benefit to employees and employers
When an employee presents a vehicle to an employee for private use, benefit in kind will arise.The impact of this is that the employee would pay income tax on the benefit. The employer would also pay Class 1A national insurance contributions for the benefit.
The conditions for Car benefit to arise for an employee
- The company provided a car to the individual as a reason for employment.
- A benefit in kind will also arise when a vehicle is has been provided to a family member of the employee.The employee would pay tax on the benefit.
- The ownership of the car would not be passed to the employee while it’s made available.
How to calculate Car benefit
Two significant components can be when calculating which are the listed price and the emissions.
The list price plus any cost of accessories would be the base cost to be used.
- When the employee contributes to the capital of the car, it reduces the list price. The employee can provide a lump sum or monthly. The maximum amount that can be allowed is £5000.
- The percentage of the emission for the car would then be applied to the listed price/adjusted price.
- Emission applied depends on if the car is diesel or petrol. The Petrol gets 5 % extra added to the percentage.
- If the car were unavailable during the year or at least continuous 30days, the car benefit would reduce.
How to reduce Car benefit and tax
- When choosing the cars to provide to your employees, it is advisable to get low emission cars.These vehicles would reduce the national insurance paid by the company and tax paid by the employee.
- When the employee contributes monthly to the car, it reduces the benefit, thereby saving tax.
- Petrol car emission is usually 5% less than the diesel one.
How the employee pays tax on Car benefit
Employees usually submit self-assessment return to declare the benefit in kind provided on the P11d.The employee would then pay tax on this benefit, or HMRC would reduce their tax code.
The introduction of the personal tax account enables the employee to adjust their tax code.This can be done at the start of the tax year to ensure the tax is when the benefit is enjoyed.
The employer can also inform the HMRC from the beginning of the tax year of the car benefit of the employee.
When the employer pays for the Car benefit
The due date for payment for Class 1A national insurance is 19th of July following the tax year or 22 July when paid online.
Conclusion on Car benefit on cars.
To calculate your car benefit using HMRC kindly http://www.gov.uk/calculate-tax-on-company-cars
To learn more about saving Value added tax on company cars kindly click on https://ronzlaccountants.co.uk/2016/03/24/vat-advice /.
For further advice on keeping on pay lower tax on cars, kindly contact us.