Benefits, expenses and pay – what you need to know now
In the wake of the recent Budget, here’s a timely reminder of the changes to the tax treatment of employee benefits, expenses and pay for future years. In the case of car benefits, these go all the way forward to April 2017.
Cars Currently, the percentage used to calculate a company car benefit is 5% of the car’s retail list price when new for CO2 emissions up to 75g/km, 10% between 76g/km and 99g/km, then it rises from 11% to a maximum of 35% for emissions of 220g/km or more. A 3% supplement applies to diesel cars. There is no benefit for zero-emission cars. Over the next four years these factors will all change:
2013/14: 1% increase for emissions between 95g/km and 219g/km.
2014/15: 1% increase for emissions between 76g/km and 214g/km.
2015/16: The special treatment of low-emission cars will cease. The percentage will be 13% for emissions up to 94g/km, then rising from 14% to a maximum of 37% for emissions of 210g/km or more.
2016/17: The charge will be a percentage of 15% for emissions up to 94g/km, then rising from 16% to a maximum of 37% for emissions of 200g/km or more. The 3% diesel car supplement will cease.
Fuel There is a taxable benefit if an employee has a company car and is provided with fuel for private use and does not fully reimburse the employer for the costs. The car benefit percentage is multiplied by a fixed amount, which has increased from £18,800 to £20,200 in 2012/13; so it may no longer be worthwhile for an employee to receive private fuel. There are several online calculators that can check the breakeven point. For example, the breakeven point for a higher rate taxpayer with a Ford Focus 1.6 hatchback is at just over 10,000 private miles. In many cases, it will be beneficial to offer employees an additional salary alternative.
Smart phones An employee can be provided with one tax-free mobile telephone, and HMRC now concedes that this exemption includes BlackBerrys, iPhones and other smart phones. Other devices, such as tablets and laptops, may have telephone functionality but are still excluded. If you have paid tax and class 1A national insurance contributions (NICs) in respect of the provision of smart phones, you can backdate any tax repayment claims to 2007/08.
Advisory fuel rates An employee can claim the actual cost of fuel used in a company car for business trips; but it is often easier and more convenient to use the HMRC advisory fuel rates. The current rates until 31 August 2012 are:
| Engine size | Petrol | LPG |
| 1,400cc or less | 15p | 11p |
| 1,401cc to 2,000cc | 18p | 13p |
| Over 2,000cc | 26p | 19p |
| Engine size | Diesel |
| 1,600cc or less | 12p |
| 1,601cc to 2,000cc | 15p |
| Over 2,000cc | 18p |
The rates will be reviewed on 1 September, and for September either the current or new rates can be used.
IR35 and non-executive directors The March Budget included a proposal that office holders and controlling persons integral to the running of an organisation must have PAYE and NICs deducted at source by the organisation by which they are engaged. There will be consultation followed by legislation in the Finance Act 2013. This appears to be in response to the Ed Lester affair. The chief executive of the Student Loans Company was paid through his personal service company rather than as an employee.
The change should not affect genuine freelance workers and contractors. But the tax position can be quite complex where non-executive directors are paid through personal service companies, and such arrangements should be reviewed in light of the proposal.
Enterprise management incentive (EMI) and entrepreneurs’ relief (ER) The 5% shareholding requirement to qualify for ER will be removed where an employee acquires shares on the exercise of EMI options. The relaxation will apply to options exercised after 5 April 2012, although the legislation on this will be in the Finance Act 2013. The requirement to hold shares for 12 months after exercising the EMI options means that the change may be of little benefit for many employees.