What are the tax regulations for an employee receiving benefits as fuel for car, usage of van and heavy vehicles, and other beneficial loans and allowances given by the global company formation UK?

04 Jan

There are different tax regulations and tax benefits or reliefs for employees in UK and in this blog we will put some light on the tax regulations on an employee for benefits like fuel of cars, usage of van and commercial vehicles, and other beneficial loans and private usage allowance. A clear view will be given regarding the relation between taxes and benefits for an employee working for company formation London or UK.

Fuel for Cars

There is no taxable benefit where either all the fuel provided was available only for the travel purpose of business (after business registration UK), or the employee is needed to make good, and has made good, the entire cost of any fuel provided for his/her private usage.

Unlike most of the benefits, a reimbursement of only a portion of the fuel cost available for private usage does not result in the reduction of benefit. The benefit liable to tax is a percentage of a base figure. This base figure for the years of 2013 and 2014 is equal to £21,000. The percentage is the same percentage as is utilized for the calculation of the car benefit.

The reduction in the benefit of fuel is done in the same way as the benefit of car in case if the car is not available for a duration of 30 days or more.

The reduction of the fuel benefit also takes place if the private fuel is not available for a portion of the year of tax. However, if the private fuel later becomes available in the same year of tax, the reduction does not take place. For example, if the fuel is provided from April 6, 2013 to June 30, 2013, and then again from September 1, 2013 to April 5, 2014, then the reduction of the fuel benefit will not be done as the cessation was only temporary.

Vans and Heavier Commercial Vehicles

In case if a van (having normal maximum laden weight up to 3500 kg) used for company having company formation London or UK, is made available for the private usage of an employee, then there is a yearly scale charge of £3000. The ancillary benefits are covered under the scale charge such as servicing and insurance.

However, there is no benefit liable to tax in the case where an employee takes a van home (which means that the employee uses the van for traveling from home to work) but is not permitted any other private use.

In case if the employer provides fuel for private use (unrestricted), then an additional charge of fuel equal to an amount of £564 is applicable.

If a commercial vehicle having a normal maximum laden weight of over 3500 kg is made available for the private usage of an employee, but the usage of vehicle by the employee is not entirely or mainly private, then no benefit liable to tax occurs, except in the case where a driver is provided.

Mileage Allowances which are Statutory Approved

A single approved mileage allowance for the journeys of business in the personal vehicle of an employee is applicable to all cars and vans. There is no income tax applicable on the payments up to this allowance and the employers are not bound to send a report of the mileage allowances up to this amount. The allowance for the years of 2013 and 2014 is 45p per mile on the first 10,000 miles in the year of tax with each additional mile over 10,000 miles at 25p per mile. The mileage allowance approved for the employees making use of their own motor cycle is 24p per mile. As far as the employees making use of their own pedal cycle is concerned, it is 20p per mile.

If the employers make a payment of less than the statutory allowance, the employees can make a claim of the relief for tax up to that level.

The statutory allowance does not avoid the employers from making a payment of the higher rates, but income tax will have to be paid on any excess. There is a similar, yet slightly different system for NICs.

Employers have the choice of making the payments of income tax and the payments free from NIC of up to 5p per mile for each fellow employee making the same trip of business (after business name registration UK process is completed), who is carried as a passenger. If the employer does not make the payment of the employee for carrying passengers for business, the employee cannot make a claim for any relief of tax.

Beneficial Loans

The charge of taxable cheap loans is made to tax on the difference between the official interest rate and any payment of interest made by the employee.

The loans related to employment to employees (except excluded employees) and their relatives result to a benefit which is equal to:

  • Any amounts written off (until the death of the employee), and
  • The excessive interest on the basis of an official rate whose prescription has been done by the treasury, over any interest whose charge has been actually made (‘taxable cheap loan’). The interest to be paid during the year of tax but paid after the termination of the year of tax is considered, but if the determination of the benefit is done prior to the payment of such interest, then a claim should be made for its consideration to be done.

As a normal practice, the following loans are not treated as cheap loans liable to tax for the computation of the interest benefits (but are liable to tax for the purposes of charge on the loans written off).

  • A loan made by an individual in the ordinary course of the family, domestic or personal arrangements of the lender.
  • A loan on normal commercial terms made in the ordinary course of money-lending business of the employer.

Calculation of the Benefit from Interest

There exist two alternative ways for the calculation of the benefit liable to tax. The simpler average method is applied automatically unless the HMRC or the taxpayer make an election for the alternative strict method. Normally, the HMRC only elect where it seems that the exploitation of the average method is being deliberately done. In both the methods, the benefit is the interest at the official rate minus the interest to be paid.

The average method calculates the average of the balances at the start and the end of the year of tax (or the dates on which the loans were made and their discharging was done if it did not exist throughout the year of tax) and the official rate of interest is applied to this average. If the loan did not exist throughout the year of tax, then the consideration of only the number of complete months of tax (from the 6th of the month) for which it was existent, is done.

The strict method calculates the interest at the official rate on the actual outstanding amount on a daily basis.

What does the De Minimis Test states?

The taxation of the benefit is not done in the case if:

  • The sum of all the cheap loans liable to tax to the employee was not more than £5000 at any time in the year of tax, or
  • The loan is not considered as a qualifying loan and the sum of all the non-qualifying loans to the employee was not more than £5000 at any time in the year of tax.

A qualifying loan is defined as the one on which all or part of any paid interest will qualify as a deductible interest. When the threshold of £5000 is exceeded, a benefit occurs on the interest on the entire loan, not only on the excessive loan over an amount of £5000. When a loan is written off and the occurrence of a benefit is seen, there is no threshold of £5000: writing off a loan of £1 results in the benefit of a £1.

What are the Qualifying Loans?

If the entire interest to be paid on a qualifying loan is eligible for the relief of tax in the form of a deductible interest, then no taxable benefit takes place. If the interest is only partly eligible for the relief from tax, then the treatment of the employee is done in the form of receiving earnings as the actual rate is less than the official rate. Treatment is also done as making the payment of an interest equal to those earnings. This deemed paid interest may qualify as an expense of business name registration UK or as deductible interest in addition to any interest whose payment is actually made.

Other Assets made available for Private Usage

The taxation of 20% of the assets made available for the private usage can be done.

When the assets are made available to the employees or their family members or household, the benefit liable to tax is the higher of 20% of the market value when first provided as a benefit to any employee, or on the rent which is paid by the employer if higher. The charge of 20% is divided in time when the asset is provided for only a portion of the year. The reduction in the charge after any time apportionment is done by any contribution made by the employee.

Some specific assets such as the bicycles provided for journeys to work are not included. If the employee subsequently acquires the asset made available, the benefit liable to tax upon the acquisition is the greater of the current market value minus the payment of price made by the employee and the market value when first provided minus any amounts already made liable to tax (overlooking the contributions by the employee) minus the payment of the price made by the employee.

The benefits free from tax are avoided by this rule, the benefits being occurred on rapidly depreciating items through the employee buying them at their low second-hand value. An exception exists to this rule for bicycles which have been provided previously as exempt benefits. The benefit liable to tax upon acquisition is restricted to the present market value, minus the payment of the price made by the employee.

Scholarships for the Families of Employees

If some scholarships are provided to the family members of an employee by the employer having business registration UK, the employee has to make a payment of the tax on the cost until and unless the payments of the scholarship fund or scheme by reason of the employments of people are not more than 25% of its net payments.

Childcare Facility for Employees’ Children

The childcare as a workplace is an exempt benefit. The childcare supported by an employer and the vouchers of childcare are exempt to an amount of £55 per week. The maximum relief from tax is restricted to £11 per week (the equivalent of £55 * 20%).

The price for running a workplace nursery or a play scheme is considered to be an exempt benefit (without limit).

Otherwise, a specific amount of childcare is free from tax if the employer signs a contract with an approved childcarer or provides childcare vouchers to make payment to an approved childcarer. The availability of the childcare should usually be for all employees and the childcare should either be registered or approved as a home-childcare.

A limit of £55 per week is applicable to basic rate employees who make use of the childcare schemes supported by the employer or acquire the vouchers of childcare. Hence, the amount of relief from tax for a basic rate taxpayer is £55 * 20% = £11 per week.


* The email will not be published on the website.