HMRC released new rates for
business mileage for company cars effective from 1st December 2009. Interestingly enough, the AMAP’s rates
that many of us claim (approved mileage allowance payments) remain unchanged since
2002.
When the AMAP rates were set at 40p for the
first 10,000 miles reducing to 25p per mile thereafter, petrol was an average
of 44% cheaper than it is of today. And
not only have fuel prices gone through the roof; this also has a knock on
effect to most other related costs including servicing and insurance.
Many business owners and accountant’s
advice alike, would be to “steer away
from having company cars”, but in view of today’s economic climate and
spiralling fuel costs surely a small amount of time making the comparisons has
got to be time well spent. As with any
business decision, re-evaluations should be made periodically taking market
changes into consideration.
For the basis of this example we are going
to assume that Joe Bloggs sells his 1.6L car to his company for a value of
£15,000. Joe has no ‘extras’ added to
the car. The company pays for all the
petrol and private mileage of 3000 miles is paid back by Joe to the company
under official HMRC
advisory fuel rates. He drives
10,000 business miles a year. The
figures we have used are for illustration of the example only and by no means
represent true costs.
Cost of car is £15,000 with CO2 emissions 183g/km rounded down to 180 = 25%
Benefit in kind charge calculation (BIK) =
£15,000 x 25% = £3750
| Cost to employee | 20% tax payer | 40% tax payer |
| Tax on £3750 | £750 | £1500 |
| Class 1a NICs at 12.8% | £480 | £480 |
| Total tax and NICs | £1,230 | £1,980 |
So, Joe would pay either £1230 or £1980
benefit in kind charge for the use of his ‘company car’ according to what tax
bracket he falls into. He has not
incurred a charge for petrol costs as he has personally paid for all personal
mileage at a rate of 14p per mile back to the company.
Let’s assume that these are the annual cost
for the car being a company car or privately owned:
| Expense | Company | Private |
| Tax, Insurance and Service | £900 | £900 |
| Petrol 10,000 + 3,000 miles @ 14p | £1,500 | £1,920 |
| Depreciation | £3,000 | £3,000 |
| AMAP's rebate | | (£4,000) |
| Total cost | £5,400 | £1,820 |
Corporation tax payable @21% saved is £1,134
If the car had been privately owned it
would have cost Joe £5,820 to run less £4,000 in mileage under the Approved
Mileage Allowance Payments (AMAP’s - 40p for the first 10,000 then 25p thereafter)
therefore a net cost of £1,820.
If the car was sold to the company it will
have cost Joe only his personal miles of £420 plus the benefit in kind charge
of either £1,230 (totalling £1,650) or £1,980 (totalling £2,400). Not forgetting, he ‘receives’ £15,000 tax free
for selling the car to the business, a saving of £3,000 for a 20% tax payer and
£6,000 for a 40% tax payer.
Considerations to make:
- The costs of either a company or private car show little
difference
- Would Joe be better off having the £15,000 as tax free money in
his pocket or DLA?
- The company can claim tax relief on the depreciation, Joe
cannot
- Actual mileage will make a difference to the calculation
- Claiming petrol receipts as opposed to HMRC mileage rates will
add a significant cost to the benefit in kind charge
- Will fuel prices rocket again and the AMAPs rate remain
unchanged?
- Joe pays the costs from his already taxed income
- The company pays the costs from pre-taxed profits
- If the car is owned by the company the insurance needs to be in
that name
To summarise, it would appear that every
situation is unique has to be calculated on it’s own merit, there is no set
answer, but the AMAP’s rates which are unchanged for seven years do not provide
adequate cover for running costs; and fuel costs continue to rise.