Contract car rental vs own used - TAX implications?

[pjskel]

Guys (and gals), need some help understanding the following potential situation.

Contracted employment at the moment, may become employee soon. Currently being reimbursed full amount on car rental (Mondeo - £17/day inc VAT) and fuel (diesel) by the company. Current engineers employed are in vans (£10/day inc. VAT) and looking to get out of them as they're crap! Same situation for fuel as myself.
Company car insurance with open car policy in place for us all.

Okay, so what's the options here?
Can we get the amount currently being paid out to purchase our own cars? How does this all pan out (if we can/do) with respect to personal tax allowances or company tax write off? Which works best for either company or us, or both?

I'm looking to go for a used Volvo S60 or new (ex demo S40/V50) - up to £10k the former, around £15K for the latter.
Can anyone advise please.

Thanks a million.

[Eric Mc]

Are you being taxed under PAYE or being treated as "Self Employed"?

[pjskel]

Thanks Eric - PAYE. Tax Code 489L W1, if that helps.

Should have added above, 35K miles per annum is likely to be the case.

The Vans are about £100 per week inclusive - £11.91 per day, is the correct value, not £10 as I mentioned erroneously above.
So, is this classed for them (and me) as being a company car and therefore affecting the tax I pay?
Can we get the same amount currently spent and buy our own - if yes, how does this change things for the company and ourselves regarding tax, allowances, etc.

I vaguely recall mention of a figure of 35p/mile being mentioned initially (if I had my own car available) - obviously @ 7-800 miles per week average, this is a lot less than as it stands currently. But there's been nothing further mentioned or organised (after 3 months), so I presume they're happy enough as it is, but I do feel guilty a little bit, as the other guys are hating the vans, for obvious reasons.
But, if I can get the cost down for the company to £450-500 (per month) with my own car, I'd be happy.

Cheers


>> Edited by pjskel on Friday 24th March 18:03

[Eric Mc]

Your code of 489L is the absolute standard tax coding i.e. there is no adjustment in that coding to tax you more for "Use of a Company Van".

As you are paying initially for the rental of these vans, the vans are technically yours. In other words, you are not being provided with a "Company Van". If you use your own van for business trips, the Revenue allow you to claim up to 40p per mile for each business related trip up to 10,000 Business Miles abd 25p per mile thereafter.

It appears that your employer is paying you straight reimbursements for costs actually incurred by you. The problem is that he does not know what element of your driving is private and what element is business. If he pays you this way, he needs to disclose to the Revenue the amount he has paid you on a form P11d and also show what proportion was non-business. You should pay tax on the difference. This tax would normally be collected by an adjustment to your tax code.

>> Edited by Eric Mc on Friday 24th March 18:26

[pjskel]

Thanks Eric.

Now, final Q - how does this differ and or impinge upon the employed guys who are looking out of the vans, where the vans are paid for directly (on account I presume) by the company. Where or what benefit do they receive as is or if they can opt out (so to speak)?

Thanks again

[Eric Mc]

The employees who drive around in a company owned van (and who use it for private journeys as well) are taxed on a straightforward amount of £350 to £500 per annum (depending on the van's age) - which is deducted from their PAYE Code. In April 2007 this flat rate amount is increasing to £3,000 per annum with an addition of £500 if fuel is provided.

In respect of vans, the following are NOT counted as private trips -

travelling to and from work (this is totally the opposite to most Revenue rules on private/business travel)
occasional private useage of the van (going to local tip, carrying furniture etc)

Using the van regularly for domestic duties DOES count as private useage and will trigger the tax Benefit charge.

Whether the employees can "opt out" of using a company van is nothing to do with the Revenue but more to do with the terms and conditions of their employment contracts.

At the moment, the Benefit in Kind rules on driving company vans are quite generous (and MUCH better than those for company CARS). However, as stated above, this will change dramatically on 6 April 2007.

>> Edited by Eric Mc on Saturday 25th March 10:28

[pjskel]

Cheers Eric - you're a star.
Just in case it makes a difference, the vans are not company owned, but paid for directly by the company to the rental company. Not sure if that's just me being pedantic about the right circumstances or whether an important point that changes anything you said above.
What basically I've been trying to ascertain is are we (I) better off to own our own vehicles, or is it more beneficial for the company to rent vehicles themselves for employee usage (to do our job of course) as this can be off-set against tax and VAT reclaimed.
If it's 50/50, then I'm sure the guys and myself will want to get our own cars and use them.

Thanks ever so much again for all your help and knowledge in this area.

[Eric Mc]

The Benefit in Kind rules kick in for any assets supplied by an employer which can be used personally by employees. In regards to this, the Revenue are not concerned how the employer has acquired the assets i,e whether they are owned outright, purchased using loans or HP or operated under some sort of leasing/hire rental arrangement. The key point is that the employer is supplying the asset to the employee.

If the employees actually owned the vans personally, they would be limited in the type of tax relief they could obtain personally. At best they would be able to claim up to 40p per mile for each business mile incurred (up to 10,000 business miles) and 25p per mile thereafter). If the employer pays a mileage rate less than the 40p or 25p per mile limit, the employee could claim the difference as a tax deductable expense from the Revenue. As employees, they would not be eligible for offsetting vehicle running costs or capital allowances against their income as those types of tax reliefs are generally not available to employees.

In fact, in order that they can afford to "buy" or "rent/lease" the vans, the employer would probably need to give them additional salary (usually in the form of a "Vehicle Allowance". This extra income would be taxed and NI'd as ordinary wages in the normal way.

Finally, if the vehicles are owned by the employees, the employer would not be able to claim the running costs or capitall allowances on the vehicles and neither would they be able to reclaim the VAT on the vehicle purchase or running costs.

[pjskel]

Eric,
Sorry to dredge this back up again, but looking into this more seriously now, I need to get my head around what's what.
Contrary to previously held belief, the company (Irish based) is paying €100 per week, and have offered £60 untaxed towards a car, should I not want to switch to the van.
Now that I've chased them for reimbursement of the car rental, they've realised they were paying out big time for me to have it., but that's another story for another time......maybe.
So, what I need to comprehend is the 40p and 25p 'numbers'.
Based on expected 30,000 business miles (conservative), then the total amounts to £9000. Does this mean £9000 of my salary above and beyond the first £3-4000 (which is tax free anyway, isn't it?) is also tax free?
Or does this mean I can claim £9000 back, which is taxed at what rate? Is it also NI'd as well?
Sorry if I didn't grasp it from all your replies above.

Thanks as always for you help.

[pjskel]

bumpety bump

[Eric Mc]

Sorry for not replying. I've been away all week.

How can they pay you additional income "untaxed". That is simply not possible under UK tax law. If they give you extra money to cover the cost of running a van, that additional "salary" (as this is what it really is) would be subject to tax and NI in the normal way.
Being Irish they may not be completely up to speed on UK PAYE (Ireland has its own PAYE system which will have different BIK rules to the UK).

Why are they paying you in Euros? I assume you are UK based and this wouild mean your salary varies each month purely due to currency fluctuations.

[pjskel]

They're not paying me Euros, accounts is handled by UK office.
Forget about the £60 bit, if you can enlighten me how (or the procedure for claiming) 40p and 25p allowance works, then I'll know better how to proceed with either buying my own or letting them provide the van, which I definitely don't want.
What I'm trying to understand is:

Does the company HAVE to pay me 40p per mile, then 25p after 10K?
Assuming not, then how does one reclaim the difference?
This £9000 per annum (based on 30K business miles), does that include fuel, or is that separate?
As per above. is the £9000 classed as additional salary to be taxed and NI'd or is it £9000 of my current salary that's not taxed, so I'm only receiving £1900 ish (22%) towards the running of a car?

Sorry for being so clueless about this, but never had to, nor bothered to, worry about this before. Wish I had!

Thanks as always

[Eric Mc]

I assume the £9,000 is being worked out by applying 10,000 @40p per mile and 20,000 @ 25p per mile.

This covers the ENTIRE running costs of your personal vehicle (fuel, road tax, maintenance, insurance etc).

The employer does not have to pay you these rates. In fact, most don't.

For example, if the employer pays you 25p per mile, then you are entitled to a further 15p per mile up to 10,000 busines miles. Obviously, there would be nothing further to claim beyond the 10,000 mile limit as you would have been getting the maximum allowable.

If you want to claim the "missing" 15p you need to contact your PAYE tax office. You can make a claim by completing a Self Assessment tax return for the missing amount. However, that may be excessive for a non higher rate PAYE tax payer only so phoning your tax office and explaining the situation to them might be the best option.

Don't forget, the tax office will not catually give you 15p for each mile you are claiming, butt merely 15p at whatever rate of tax you pay.

The 40p and 25p amounts are totally tax free.

[pjskel]

Thanks Eric, I think that's finally sunk in.
I think I will have a wee chat with the local Tax Office on Monday and see what' what, then I can speak with the employer and see what they're prepared to do for me and the other engineers.

Again, thanks for ALL you help in making me see the wood instead of just the trees.

[Eric Mc]

Any time

[deva link]

Couple of points:
The company isn't going to want to shower you with money - they'll be looking for something which costs them the same or less than they're currently paying.
Don't forget the cost of insurance, which for a service engineer, doing 35K/yr, may be considerable.

Just to emphasise the point on tax rebate: If the company gives you 12p per mile, then you can claim the tax back (at your highest rate) on the difference between that and 40p for the first 10K miles, and 25p for the rest. In practice, if you're paying tax at 22% then you'll get a rebate of 6.16p for 10K and 2.86p for the rest. And you don't get it until the following tax year, when you then have to claim it back.

[pjskel]

So any shortfall from the employer is via Tax rebate rather than Tax code adjustment?
Books!
So much for looking at nearly new Accords and D5 SEs.

[deva link]

pjskel said:

So any shortfall from the employer is via Tax rebate rather than Tax code adjustment?

Yes, but the main point I wanted to make is that rebates don't amount to very much.
On 35K business miles, assuming you get 12p off your employer, and you pay tax at 22%, then your *whole* rebate would be £1331, which equates to £111/mth.

Of course if your employer pays more then you lose some of the tax rebate, but you'd still be better off if you can wring a higher mileage payment out of them.

[pjskel]

Thanks - between yourself and Eric, I've now got a much greater handle on this malarky.
I think I'll be haggling for at least 30p, preferably 35p.
Given it's contract employment, there's no guarantee there'll be work for me in six months time, so I need to bear that in mind before making a major commitment.
Thanks also for confirming that the allowance covers fuel and maintenance, etc.
Insurance-wise, I might be able to avail of theirs - they'll need to check to see how their premium is affected with some of the engineers in cars rather than vans.

Again, to both of you, thanks ever so much.

[Eric Mc]

The Revenue may try to give you your "rebate" in a tax code adjustment. They are increasingly liable to handle tax over or under payments this way. If you don't want them to do this, just tell them and they are obliged by law to hive you a cheque.