Tax may still wipe out petrol perk
S S writes: Several years ago my business partner and I stopped taking car
fuel benefit because it was no longer tax efficient for us, although we kept
our company cars. The cost of fuel has increased significantly and so we are
drawing more salary from the company to cover our personal costs. Would it
be worth reinstating the car fuel benefit?
Employees have to pay tax when fuel is provided for private mileage, writes
Jon Sutcliffe, partner at Kingston Smith LLP. It is more expensive than
providing additional salary in many cases, but this will depend on the car
and on how many private miles you drive.
To see what is best in your circumstances, you should work out how much tax
you will have to pay for the fuel benefit and how much petrol you are likley
to use for private mileage.
The car fuel benefit for 2008-9 is based on a set amount of £16,900. The car
benefit carbon-dioxide emissions percentage is applied to this to arrive at
the value of the benefit. For example, a BMW 320D is a relatively
low-emissions vehicle with an 18% car benefit charge. The car fuel benefit
on which you would pay tax is £16,900 at 18% = £3,042. For a 40% tax payer,
the personal tax liability on this is £1,216.80. For a similar tax cost, a
company could give you a bonus of £3,042, which is likely to leave you with
far more cash in your pocket than you spend on fuel for private journeys.
If the company is able to recover Vat, the net amount that can be recovered by
the company should be taken into account. Payment of dividend instead of
salary may also change the National Insurance position. Be sure, however,
that you understand what private mileage includes — your home-to-work
mileage is generally considered private mileage.
There are non-tax factors to consider that can change the position for some.
While the fuel benefit may be expensive, it can cut the record keeping
demanded of the driver. If no private fuel is provided, detailed records of
business mileage are needed for the company to reimburse the business fuel
costs to the individual.
If you wish to return to having fuel provided by the company, you should
complete form P46(car) and return it to HM Revenue & Customs within 28
days of the payroll quarter in which you make the change.
Responsibilities of an employer
H F writes: Last year I set up my own website, maintained by myself and
friends. The project has been a success and is turning into a profitable
business. I have decided to set up my own business and will employ my five
friends to help me manage and expand the website. Do my friends become
employees and, if so, what are my legal responsibilities?
Congratulations on setting up your own business, writes Peter Done, managing
director of Peninsula.
When someone begins to work for you, you will become their employer and you
need to register as an employer with HM Revenue & Customs (HMRC), so
check the requirements at its website hmrc.gov.uk/paye/
intro-register.htm. If someone who works for you says he is
self-employed you must check that this is accurate.
There are many legal responsibilities for an employer, including issuing a
written statement of employment within two months of the date that someone
starts working for you.
Initially, a contract of employment exists as soon as your employee starts
work and, by doing so, proves that he or she fully accepts the terms and
conditions offered. By law you need to provide employees who work for a
month or more with a written statement setting out the main particulars of
employment. The written statement should include essential information
including the names of both employer and employee; the date when employment
began; salary details; place of work; hours and holiday entitlement. A legal
adviser should check to ensure all the key aspects are covered.
You must also think about disciplinary and grievance procedures, which should
be detailed in your statement or included in separate documentation that is
readily available for inspection by anyone you employ.
There is no legal requirement for employees to sign their written statement.
However, those asked to sign are more likely to have read and understood the
contents.
Growing your business and employing staff can be exciting but it is important
to ensure that you follow the correct procedures. There are many
responsibilities that fall on the shoulders of employers and a host of
pitfalls await those who are unwary. If in doubt, obtain legal advice.
Kingston Smith LLP, the chartered accountant, and Peninsula, the
employment-law firm, can advise owner-managers on their problems.
Send questions to The Business Doctor, The Sunday Times, 1 Pennington
Street, London E98 1ST, or fax to 020 7782 5765. Advice is given without legal
responsibility.
