The annual benefit in kind scale charge that applies where there is private use of an employer provided van increased from £500 to £3,000 on 6 April 2007. The old £500 benefit also covered the provision of free fuel for private as well as business motoring but this is now charged for separately with a further benefit in kind of £500. The reduced benefit of £350 for older vehicles no longer applies.
No benefit in kind charge arises if there is restricted private use of the van. This means that the only private use allowed is for ordinary commuting, which is to and from work. Any other private use must be insignificant, eg an occasional trip to the tip.
To qualify for no benefit in kind charge an employer’s policy restricting the private use should be set out in writing, communicated and re-inforced periodically. We also strongly suggest that a mileage log be maintained and subjected to regular review to ensure that it can be demonstrated that the employer’s policy is being adhered to.
Where the employer has not put a policy in place to restrict the private use of the vehicle it is still possible to take action for the future. Otherwise, the employer’s Class 1A National Insurance Contributions (NIC) payable at 12.8% on the value of most benefits in kind will increase significantly as will the employees’ personal tax liabilities. The employees who have the use of the vans should have received new tax codes for 2007/08 showing the increase in the value of the benefit with the result that their tax code will have dropped significantly.
If you are yet to be convinced, the following example may help.
| Example An employee has unrestricted use of a van which is five years old. He is provided with all the fuel for the vehicle both for business and private use. 2006/07 Employee’s tax - £350 x 22% = £77 Employer’s NIC - £350 x 12.8% = £45 TOTAL TAX AND NIC FOR 2006/07 £122 2007/08 Based on the new van benefit and fuel charges of £3,000 and £500 Employee’s tax - £3,500 x 22% = £770 Employer’s NIC - £3,500 x 12.8% = £448 TOTAL TAX AND NIC FOR 2007/08 £1,218 Unless the employer can demonstrate that they have enforced the policy of restricting the private use, then costs for both employers and employees will have increased between six and ten-fold. Given that the scale charge has increased significantly, we expect HMRC compliance officers to pay increasing attention to this in forthcoming years. |