TAX GUIDE. Light commercial vehicles//

Transcription

1 TAX GUIDE Light commercial vehicles//

2 2 Tax Guide// CONTENTS 1. VEHICLE CLASSIFICATION 2. VEHICLE USAGE 3. REPORTING REQUIREMENTS 4. MILEAGE RECORDS 5. THE COST OF GETTING IT WRONG 6. THE SOLUTIONS 7. THE ABAX SOLUTION 8. SUMMARY 9. APPENDICES 1. VEHICLE CLASSIFICATION 1.1. GOVERNING BODIES Compliant usage of vehicles within the workplace is governed by different bodies in accordance with the categorisation of the vehicle. Cars and light commercial vehicles, typically vans, are regulated in accordance with taxation policies set out by the HM Revenue & Customs (HMRC). Commercial vehicles, generally Heavy Goods Vehicles (HGV s), are managed in accordance with Driver and Vehicles Standards Agency (DVSA formally VOSA) LIGHT COMMERCIAL VEHICLES Light commercial vehicles and cars have very different tax policies and must be treated separately. Light commercial vehicles, hereafter referred to as vans, generally consist of vans, car-derived vans and some dual-cab pickup trucks. Classifying a pickuptruck as a van, will have favourable tax implications for the business and employee. To find a full list of vehicle classification see Appendix A.

3 4 Tax Guide// VEHICLE USAGE 2.1. TAXABLE BENEFITS As with most tools supplied by a company for business use, there may be a situation where the employee can use the tool supplied outside of the work environment for private matters. Where vehicles are concerned, this private use becomes a taxable benefit. Effectively, if a van is provided to an employee and significant private mileage is driven, the business is paying for this. While a business may view this in isolation as an expense to the company, we have a situation where a company is reclaiming business VAT, for what are in-fact private matters. The employee has received a benefit CALCULATING THE BENEFIT The benefit-in-kind (BIK) is the monetary value that HMRC place on the benefit received by the employee (including Directors). The value of any benefits are declared on the employee s P11D. For a van made available for private use by the employee, the BIK value is 3,350 (tax year 2018/19). A further fuel benefit-in-kind (FBIK) charge is added if the business pays for the employee s private fuel, bringing the total to 3,983. In summary, if a business provides a company van with free private fuel, HMRC say that the cash equivalent value to the employee is 3,983. The employee will pay income tax against the benefit value and the company will pay National Insurance Contributions (NIC s) and the cost of fuel. BIK AND FBIK CHARGES Van used for private trips: 3,350 Fuel used for private trips: 633 Total taxable benefit: 3,983 COST TO EMPLOYEE Basic rate tax payer: per annum (20% x 3,983) Higher rate tax payer: 1, per annum (40% x 3,983) COST TO EMPLOYER NIC s: per annum (13.8% x 3,983) Private fuel: Variable

4 6 Tax Guide// AVOIDING BENEFIT TAXATION There are a number of conditions in which no BIK value is applied (see Appendix B). Where no benefit value is generated, the individual pays no taxes and the company has no requirement to pay the NIC s. The company does not have to report or pay anything to HMRC if the van is used in one of the ways outlined within the following sections Business travel and commuting No BIK is declared if only business trips and commuting are completed in the van. A business trip is: Made as part of work (e.g. an engineer travelling between appointments) To a temporary workplace Insignificant private trips (e.g. making a slight detour to pick up a newspaper on the way to work.) A commute is: A trip made to and from home to a permanent workplace REDUCING THE BENEFIT Sometimes it is not possible to avoid a benefit entirely; however, reductions can be made: Vans used for private journeys The standard BIK value of 3,350 is reduced if: Your employee can not use the van for 30 days in a row Your employee pays you to privately use the van (See 2.4.4) Other employees use the van - divide 3,350 by the number of employees Van fuel used for private journeys The standard FBIK value of 633 can be reduced if: The employee can not use the van for 30 days in a row Your employee pays you back for all their private fuel You stopped providing fuel during the tax year Pool vans The van will not require reporting if it satisfies all of the following: Available for use and used by more than 1 employee Available to each employee because they need it to do their job Not ordinarily used by 1 employee to the exclusion of others Not normally kept at or near employees homes Used only for business trips - limited private use is allowed if it is incidental to a business trip. e.g. driving home to allow an early start the next day Zero emission vans You need to report the zero emission van on the P11D at 20% of 3,350, which is Payments for private use The amount chargeable for each employee is reduced pound for pound by the amount which the employee is required to pay, and actually pays, for private use of the van. This adjustment is made after any reduction arising from shared use of the van. The payment for private use must be paid within the relevant tax year before it can be deducted.

5 8 Tax Guide// REPORTING REQUIREMENTS 3.1. FULLY EXPENSED Fully expensed (also known as fuel benefit) is the general term used to describe the situation when a business provides a company vehicle and free private fuel to the employee. The business is required to add the value of the benefit s granted to the employee s P11D. The necessary tax and NIC deductions will then be made through payroll. If a van is on a fully expensed system no mileage records are required REDUCED OR NIL-BENEFIT When the usage of the van results in a nil-benefit the P11D is submitted with a 0 value. HMRC recommends the company outline terms and conditions on which the van is made available, and use mileage records to support only business trips, commuting and insignificant private trips have taken place. More details regarding mileage records are found in Section Where a nil return is made, it will be necessary to demonstrate that the necessary conditions have been complied with in practice as well as in theory. Useful information will include the terms and conditions on which the van is made available to the employee and mileage records showing actual use INSIGNIFICANT PRIVATE USE Examples of insignificant private use 14.6 Examples of insignificant private use are an employee who (using the van): Takes an old mattress or other rubbish to the tip once or twice a year Regularly makes a slight detour to stop at a newsagent on the way to work Calls at the dentist on the way home Examples of significant private use 14.7 Examples of use which is not insignificant are an employee who: Uses the van to do the supermarket shopping each week Takes the van away on a week s holiday Uses the van outside of work for social activities (All extracts are taken directly from Appendix C: 480 (2017) Expenses and Benefits: A tax guide) 14.5 The word insignificant is not defined, so takes its normal meaning of too small or unimportant to be worth consideration (New Oxford English Dictionary). Private use is to be considered insignificant if it is: Insignificant in quantity in the tax year as a whole (that is, a few days at most) Insignificant in quality (for example, a week s exclusive private use is clearly not insignificant) Intermittent and irregular Very much the exception in terms of the pattern of use of that van by that employee (or their family or household) in that tax year

6 10 Tax Guide// MILEAGE RECORDS One of the biggest frustrations is HMRC s inability to clearly define what information should be detailed on mileage records. Nowhere in their guides or on their website is there a clear breakdown. Many turn to the internet and find differing advice from various accountants, but still no link back to HMRC WHAT DO HMRC REQUIRE ON MILEAGE RECORDS 480 (2017) Expenses and Benefits: A tax guide (Apendix C) provides useful background information to the wider legislative area but gives no recommendation as to what to include in a mileage claim. Working directly with clients has allowed ABAX to be in regular contact with companies undertaking business record checks from which, HMRC outlines the following: To avoid a fuel benefit charge, complete and accurate mileage records must be kept, it is suggested the following details are recorded within these records: The date Where the journey commenced The place/companies visited Where the journey ends The start and closing mileage Total business miles Further feedback from numerous customers has suggested that postcode information is also required for each trip. It is not sufficient to show private mileage only, as this cannot be checked DIGITAL MILEAGE RECORDS Businesses are taking advantage of technology to improve efficiency, reduce costs and stay tax compliant. One of these improvements is digital mileage records. A digital mileage claim works in the same way as a manual mileage record, except now information is collected automatically and accurately via a device with GPS recording capabilities. Using a digital mileage claim allows the recording of driving records with minimal administration and 100% accuracy. This reduces unnecessary paper work and protects both the business and employee from the tax authorities due to inaccurate or incomplete mileage claim records. Furthermore, if HMRC query any trip it can be verified by the business using a GPS location overlay with a map.

7 12 Tax Guide// NON-COMPLIANT MILEAGE RECORD - EXAMPLE NON-COMPLIANT MILEAGE RECORD - EXAMPLE 2 At first sight, example 2 is a better illustration of a mileage record. However, the trip distances are rounded to the nearest whole number, no postcodes have been given and if Google Maps is used to verify the distance of the trips, all are drastically over estimated. This would be questioned by HMRC. Additionally, the record requires substantial administration. Example 1 is a typically bad example of a mileage record. There are no individual journey details, starting or finishing locations or details of places visited. Mileages are also clearly rounded up or estimated as all end in 0. The driver has listed no private mileage but we have no odometer reading to verify the total mileage driven. In this example, the business would need to have extraordinary good internal job sheets to have the remotest chance of verifying to HMRC that this claim was accurate.

8 14 Tax Guide// THE COST OF GETTING IT WRONG Should it be found that the business is not in compliance with HMRC s guidelines, the total cost in penalties can be up to 34,000, per vehicle. Both the employer and employee can recieve a penalty. The penalties are backdated for 6 years and calculated against unpaid tax and NIC s. Penalties typically occur, when a private benefit has been discovered and not reported or the business simply does not have adequate mileage records to support the nilbenefit declared PENALTIES HMRC s complicated process for assigning penalties is found in the document Compliance checks: penalties for inaccuracies in returns or documents - CC/FS7a (see Appendix D). An example of a penalty is outlined opposite PENALTY RANGE The penalty percentage falls into one of six ranges. The range it falls into depends on the type of behaviour and whether it was a prompted or unprompted disclosure. The following table shows the six penalty ranges: Type of behaviour Unprompted disclosure Prompted disclosure Careless 0% to 30% 15% to 30% Deliberate 20% to 70% 35% to 70% Deliberate and concealed 30% to 100% 50% to 100% PENALTY EXAMPLE: An employee driving a company van is a 40% tax payer. A nil-benefit has been declared to the HMRC and no mileage records have been kept. Evidence of deliberate private usage exists. Potential penalty to the employer: 18,000 Incorrect P11D - 3,000 x 6 years 3, NIC underpayment x 6 years 3, % fine x 6 years 24, Total Potential penalty to the employee: 9, Unpaid BIK tax - 1, x 6 years 9, Total Depending on the severity of the inaccuracies and prompted or unprompted disclosure, HMRC will then apply a penalty severity factor. In this example, 70% penalty would be likely. In this case the inaccuracies relating to the single vehicle could result in the following penalty: Potential penalty from HMRC: 17, Paid by employer (70% of 24,955.80) 6, Paid by employee (70% of 9,559.20) 24, Total

9 16 Tax Guide// THE SOLUTIONS It is possible to run a cost-effective, efficient and compliant fleet through implementing the best strategy to suit the business needs. A business should detail their strategy in a driver policy and enforce it with mileage records where applicable. There are 3 strategies applied by fleets that reduce the risk of tax penalties to virtually nil FULLY EXPENSED Go fully expensed with the fleet. By assigning each van and fuel card to a specific driver as a BIK, all taxes are paid. As the business and employee pay tax and NIC s for private usage, there is not an area of noncompliant usage for HMRC to investigate. The employee will also see the van as a benefit away from work which they can use privately. This will result in their personal vehicle and fuel costs. However, there are negatives to consider. Firstly, tax is now payable by the employer and employee. (See calculations in section 2.2.) Secondly, the vehicle is likely to be driven for private purposes. The business must now pay for additional fuel, costs attributed to wear and tear and excess mileage charges if the van is leased NO POSSIBILITY FOR PRIVATE MILEAGE Take away the possibility for private use. Some companies will insist that all commercial vehicles stay on-site when not in use. This ensures that vans are only available to employees during work hours. They effectively become a pool fleet. This can be difficult to manage in many organisations. It is simply not cost or time effective to route employee s into a head office at the start and end of each day. Although HMRC might be satisfied in principle that measures are in place to limit the usage to business purposes only, they can still request for proof that this is actually adhered to by way of mileage records NIL-BENEFIT AND DOCUMENT MILEAGE Declare a nil-benefit and document vehicle usage. A thorough driver policy will explain what compliant usage is in respect of BIK. Drivers must understand what is and is not liable to tax. This policy goes halfway to meeting HMRC s requirement and ensuring that neither the employee or business will have to pay tax against the provision of the vehicle. Keeping and internally auditing mileage records will allow the business to demonstrate that their tax-free driver policy is adhered to. Mileage records are common place, more so with company cars, but traditionally have their drawbacks. Employees often see them as a monthly chore and underestimate their importance and links to personal tax. Late returns, retrospective completion, rounding up or estimating mileage are all reasons why HMRC are so successful at opening up cases in this field. Moreover, without a strong verification and audit method, it becomes easy for claims to be inaccurate or falsified THE ABAX SOLUTION No one solution will satisfy all companies. However, ABAX see that the majority of company supplied vans will go home each day with the driver and nil benefit is declared. Most companies should require their drivers to be filling out daily mileage records. At the end of the financial year, will you be able to demonstrate with a good degree of accuracy that no significant private mileage has occurred? Can you account for every trip driven and reconcile this to each vehicle s odometer? Can you easily file, find and administrate mileage records for each van? ABAX customers can!

10 18 Tax Guide// THE ABAX SOLUTION 8. SUMMARY ABAX s mission statement says that we are a problem solver for people who use a vehicle at work. Our products therefore must fulfil this clear requirement TRIPLOG Triplog is a product designed to automatically record all of the mileage driven by an employee in their company van. In having this tool, the driver helps ensure that their mileage records meet the requirements set by HMRC. The business can therefore document to the tax authorities, as legally required, that vehicle usage is compliant with the nil-benefit being declared. One problem. One solution. If you have made it to the end of this document, well done! There is a lot of detailed information put forward by HMRC into a topic that most of us overlook. You will have noticed that there is no single solution that suits every company. What to do next? ABAX have been providing businesses with tools to make themselves tax compliant. TO BOOK AT FREE CONSULTATION, CONTACT US NOW ON: or info@abax.co.uk 7.2. TRIPLOG VERSUS TRACKING Triplog differs from tracking. Tracking is a term understood by most, but with quite negative connotations. The reason being is that tracking does not set out to solve a singular problem. It looks to solve problems that may exist surrounding the way the fleet is driven. With a vast array of data being collected, management will find something to investigate and rectify. It is the Big Brother effect. Naturally some cynicism is applied above. However, it is a concern that we still hear a lot from drivers who feel that they are being tracked. Something will be used against me In providing a clear solution to an employee problem, the business should be bestowed as a hero, not the villain. 9. APPENDIX A. HM Revenue and Customs: car derived vans and combi vans B. Expenses and benefits: company vans and fuel C. 480 (2017) Expenses and Benefits: A tax guide D. Compliance checks - CC/FS7a. Penalties for inaccuracies in returns and documents

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