Tax and Cars - Smarter Fleets Save Money
VAT rises at the beginning of 2011 together with fuel price fluctuations make it ever more difficult to forecast fleet cost: benefit ratios. In the race to reduce overheads to keep businesses profitable, the vehicle fleet has to be a starting point. What can employers do to reduce costs both to themselves and to their driver workforce? Our experienced tax team has some suggestions.
Go electric!
Or at the very least, go hybrid! The lack of emissions is definitely the way to go for the future, due to ever more punitive tax charges. Investing in new technology not only improves your balance sheet, but helps the economy and is an excellent way of demonstrating Corporate Social Responsibility.
Take a smarter driving training course
The energy saving trust provides fuel efficient driver training and many employees may be surprised at the amount of fuel they can save, as well as maintenance and repair costs. Why should employees care about this? Everyone should care about incurring unnecessary costs these days – it could mean saving their own jobs in the longer term.
Renew your fleet with low CO2 cars
If going electric doesn’t rev your engine, the latest innovations now pay dividends in that there are a whole host of cars out there which are less than 160g/km. Typically, lower CO2 emissions cars average a much higher mpg, resulting in lower benefit in kind tax, attracting higher capital allowances and for leased cars, lower corporation tax restrictions on lease contract rental costs for cars with emissions ratings of 160g/km or less. For purchased cars, a handy 20% writing down allowance is available if the car is between 110 and 160g/km. If an employer purchases a new car, which is less than 110g/km then a 100% first year capital allowance can be claimed.
Audit your drivers’ mileage records and associated expenses properly
It is vital that your employees maintain accurate mileage logs and do not undertake unnecessary journeys in their cars and vans. Can they use other means to have a meeting, such as video conferencing, Skype or conference calling? Can they organise their diaries better to get the most meetings out of one journey?
Reviewing records regularly can add logistical clarity, reduce fraudulent claims and keep you on the right side of the taxman.
Ensure your drivers’ mileage records allow you to reclaim all the VAT on their business fuel costs
Employees should maintain comprehensive business mileage logs and keep all receipts for fuel, whether they are driving company or private cars. This will ensure the company can claim back all the VAT. Without receipts, the VAT reclaim can be disallowed by HMRC. That said, businesses need to be aware that private use entails a VAT cost for the employer in the form of a Fuel Scale Charge. Lower emission cars will reduce this charge.
Set up a salary sacrifice scheme for company car drivers
This tax year saw NI rise to 13.8% for employers. If your fleet drivers take a low emission car by way of exchanging it for gross salary, significant NI savings can be made. Employees can save money in comparison to leasing or purchasing a similar car in their own right. The car still needs to be declared on a P11D, but the net effect to the employee can be as much as £1,000 in some cases.
VAT is usually not recoverable on the purchase of company cars for employees. Leasing, however, allows 50% recovery of the VAT charged on the leasing payment. Despite recent uncertainty, HMRC has confirmed that in both instances there should be no VAT charge on the salary sacrificed by the employee.
If you have any queries about VAT or salary sacrifice please contact Lynn Gemmell, Director of VAT Services or Justine Riccomini, Employment Tax Senior Manager on 0131 558 5800.