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New Year's resolution - cut your fuel tax benefit

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The New Year is often a time to reflect and consider what things to change. The economy may improve during 2014, but the Chancellor's austerity measures continue so many will look to cut their costs, including tax bills. One New Year's resolution to consider is to cancel the benefit of car fuel on company car benefits (often known as 'fully-expensed cars').

The taxation of company cars has changed every year for decades and most employees or directors have reviewed their tax position from time to time. However, it is still surprising how many people continue with fully-expensed cars without weighing up the alternative. It may be the case that a company car is a better option than a personally-owned car but it does not follow that the same applies to car fuel. To consider the financial benefit one needs to know the kind of company car being used and the non-business mileage travelled in the tax year. So, I got out my calculator and looked at a couple of examples based on the annual car fuel scale rate of £21,100 for 2013/14:

Upper range company car

Vixen drives a 2011 Jaguar S type 2.7L diesel saloon that achieves 36mpg & 208 CO2g/km. She lives 15 miles from her workplace and drives 14,000 non-business miles each year. The car fuel scale rate for Vixen is based on 35% for CO2 emissions of 208 (33% plus a 3% supplement for diesel capped at 35% maximum) is £7,385 (£21,100 x 35%). Vixen has a salary of £75,000 and is liable to income tax at the rate of 40% on her other income, so is paying income tax of £2,954 on the car fuel benefit.

If Vixen chooses to opt out of taking the car fuel benefit and pay for all her own fuel she can currently buy diesel at 1.35p/litre (£6.14 per gallon). So her cost of private fuel is £2,388 (14,000 miles at 36 miles/gallon times £6.14 per gallon.

Clearly Vixen would be £566 better off if she bought her own private fuel rather than suffering the car fuel benefit. The employer also saves class1A NICs of £1,019 if Vixen opts out of the benefit.

Mid-range company car

Rudolph drives a 2013 Ford Focus 2.0L petrol 5-door that achieves 40mpg & 169 CO2g/km. He lives 30 miles from his workplace and drives 15,000 non-business miles each year. The car fuel scale rate for Rudolph is based on 25% for CO2 emissions of 134 is £5,275 (£21,100 x 25%).  Rudolph has a salary of £50,000 and is liable to income tax at the rate of 40% on other income, so is paying income tax of £2,110 on the car fuel benefit.

If Rudolph chooses to opt out of taking the car fuel benefit and pay for all his own fuel he can currently buy petrol at 1.25p/litre (£5.69 per gallon). So his cost of private fuel is £2,134 (15,000 miles at 40 miles/gallon times £5.69 per gallon.

On that basis, Rudolph is just about better off (£24) sticking with the car fuel benefit for 2013/14, although the employer is also paying class 1A NICs of £728! If the car fuel scale rate is increased by 2.5% for inflation in 2014/15 tax year that will be about £21,600. If the car and cost of fuel remain the same in that year then the tax cost (£2,160) will then exceed the fuel cost by £50.

'Opting out' of taking the car fuel benefit requires agreement with the employer and proper documentation. As ever with such matters, "you pays your money and you takes your choice".

Happy New year everyone!

As with all such tax situations, advice should also be sought before proceeding.  For further details call Alan Boby on 01295 250401 or email aboby@ellacotts.co.uk

Alan Boby

Ellacotts LLP"

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