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Company Car vs Mileage Allowance

Where an employee is required to travel in the course of his or her duties, many employers supply a company car, and make arrangements for reimbursement of fuel costs. This leaves the employee with taxable benefits, and unless accurate figures for these benefits have been included in his or her PAYE code from inception, quite possibly an underpayment at the end of the tax year. The benefits are calculated by reference to carbon dioxide emission, and are increasing year by year. Add to this the fact that, while these benefits are free from National Insurance in the employee’s hands, the employer must pay Class 1A National Insurance on them at the year’s end, and also the level of compliance involved in the correct completion of forms P11D, and notifying the Inland Revenue of any new cars when supplied, and this can become a minefield!


	Company Car vs Mileage Allowance Where an employee is required to travel in the course of his or her duties, many employers supply a company car, and make arrangements for reimbursement of fuel costs. This leaves the employee with taxable benefits, and unless accurate figures for these benefits have been included in his or her PAYE code from inception, quite possibly an underpayment at the end of the tax year. The benefits are calculated by reference to carbon dioxide emission, and are increasing year by year. Add to this the fact that, while these benefits are free from National Insurance in the employee’s hands, the employer must pay Class 1A National Insurance on them at the year’s end, and also the level of compliance involved in the correct completion of forms P11D, and notifying the Inland Revenue of any new cars when supplied, and this can become a minefield!
	However, if the employee has his or her own car, the Revenue allows the employer to reimburse him for business mileage at comparatively generous rates (40p per mile for the first 10,000 business miles per annum, 25p per mile thereafter), and provided that these rates are not exceeded, not only is there no tax or National Insurance, but the amounts do not need to be reported to them. (In addition to this, the employer can make a partial VAT reclaim on the payments, although the amount varies depending on the car’s engine size, and the type of fuel.) This alternative may be worth considering. Acorn ’s tip: A closer assessment of the cost and benefits of your company cars may be a worthwhile exercise, to see whether there is a cheaper and more tax/NI efficient alternative.