The Fizz! Blog

HMRC's fuel-only mileage rates - make sure you're reclaiming all the VAT you can

Taxman-approved fuel-only mileage rates changed on the 1st June.

These are the rates that HMRC are happy for employers to use a) to reimburse staff for fuel used for company business that they've paid for and put in company cars, or b) reclaim from staff the cost of company fuel they've used for their own private motoring.  But they're also the rates that businesses can use to reclaim VAT on some of the mileage allowances paid to employees and directors.

Employers can pay a mileage allowance of up to 45p a mile, tax-free, when employees use their own car for business (plus 5p a mile if they've got a colleague with them!).  That hasn't changed, it remains 45p.  You can’t reclaim VAT on all of the 45p, but you can reclaim VAT on the part that represents fuel, as long as you retain VAT receipts covering the cost.

The new list of rates is here:

https://www.gov.uk/guidance/advisory-fuel-rates

If you're VAT registered, not on the flat-rate scheme, and failing to reclaim VAT on your mileage costs at all, you should start.  You can even reclaim some of the VAT you've missed out on in the past.

There's also an advisory rate for fully electric cars, which has gone down from 9p to 8p a mile.

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Can my company get a grant towards an electric car charging point at home?

The government will provide a grant to an employer installing a charger for an electric car.  It’s only a maximum of £350 at present, and it involves filling a form and sending it to the not-always-tremendously-efficient DVLA, but every little helps.

What if you work from home, though?  Well, if your electric car is a company car, your company can definitely pay for, and save tax on, the installation of the charger there.  But you might not think it worth claiming the grant, because of the eligibility criteria.  To qualify, your home must either be a) the company’s Registered Office, which you probably don’t want, or b) registered with the council for Business Rates, which you almost certainly don’t want.  Given the modest grant and the prospect of dealing with the DVLA, you probably just want to move on!

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What can you claim for charging your electric company car at home?

Thanks to the incredibly generous tax rules that apply to them, the vast majority of new company cars now are electric.  Most of them are probably charged at home.  If you’re charging your electric company car at home, how much can you claim back from your employer to cover the cost?

HMRC’s guidance from the outset has been that you can claim back the cost of electricity relating to business miles but not private miles.  You could do that by trying to figure out the actual cost, but most normal people are going to use the shortcut of HMRC’s approved rate; 5p a mile (a recent increase from 4p a mile).  Using that kind of basis with an approved HMRC rate has always been the way it’s been done with traditional fuels.

However, a cat has recently been put amongst the pigeons.  The ICAEW has pointed out that, per the legislation, electricity *isn’t* fuel, so treating it as such is wrong.  It’s just one of the general costs of running the car.  That being the case, it’s legitimate for the employer to pay for *all* the electricity that goes into the car, not just the business part (just as it can pay for all the servicing, all the insurance and so on).  And at this moment, there seems to be general agreement that HMRC’s guidance on this is wrong.

There are a few things to say about this:

• We’re only talking about fairly modest amounts here!  A driver who was going to claim back 5p a mile for her 2,000 business miles but not her 8,000 private ones can now be reimbursed £500 by her employer, not just £100.  Nice, but not life-changing.
• Employers may not actually pay an employee the whole lot; in fact, they probably won’t on the whole.  Just because an employer *could* reimburse an employee for the cost of her private motoring doesn’t mean they will.  They’ll probably quite reasonably think that the employee can pay for their own life themselves.  Who is going to be reimbursed?  Company owners themselves, that’s who.  They’ll definitely claim as much as they can tax-free!
• It’s possible HMRC might be bloody minded and try to cling on to their guidance!  In any case, it’s pretty likely the government will legislate to close what’s perilously close to being a loophole - let’s be honest, electricity really is analogous to fuel in every way.

For now, though, the advice for directors with an electric company car is going to be - claim 5p a mile for all mileage from your company until HMRC slam the door again!

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Electric company cars - some traps to look out for!

Electric company cars have become extremely tax-efficient, and therefore extremely popular. But if you’re thinking of getting one, then there are some traps that you need to be careful to avoid:

• It’s only fully electric cars with zero emissions that are going to give you the really generous tax-efficiency. A hybrid won’t.
• The car has to be provided by the company, either via the company owning it or leasing it. It’s no good for it to be a personal lease or purchase with the company paying.
• There’s no superdeduction available on the allowance, unlike most plant and machinery bought by companies.
• The car has to be new! A second-hand car, even if fully electric, doesn’t attract full tax relief in year one. However, that could be a bit of a red herring, because…
• If you’re buying that new electric car outright, you shouldn’t be drawn in too much by the “100% tax relief in the year of purchase” aspect in any case. In the future year when you sell it or trade it in, you’ll effectively have to pay some of the tax back on whatever you sell it for (maybe at a higher rate, if you buy now when the corporation tax rate is 19% and sell in a couple of years’ time when it’s 25%!). Any asset is only going to save tax in the long run on the effective cost over its life with your company - what it buys it for minus what it sells it for. Which year or years the tax is saved may vary, but it’s just timing, you wind up saving tax on the same real cost in the end, and that's what you should focus on. That 100% relief in year one really just represents a little cashflow benefit, nothing else.

We know at some point we’re going to come across someone who - say - has taken out a Personal Contract Purchase plan in their own name, and set the direct debit up from their company bank account, thinking it’s a company car when it’s not. And we’re going to come across someone who is pleased for their company to save £15,200 when buying an £80,000 car, but is discombobulated when they trade it in for £50,000 and have to pay back £12,500 of the tax that was saved. Don’t let that be you!

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What’s the super-deduction?

If you’re in business, you’ll be used to the idea that generally you get to save tax on the whole cost of new equipment (except cars) in the year you buy it – the “Annual Investment Allowance”, which gives you a 100% deduction from profits for the cost of a laptop, van, loom or whatever. As of 1st April, companies will be able to claim a 130% deduction instead (aka the super-deduction).  

If you think about it, the government had to do it, because they've announced that the corporation tax rate will rise from 19% to 25% in April 2023.  Knowing that, companies would have delayed big investments in equipment until then, trying not to buy anything significant for a couple of years.  That’s not conducive to economic recovery.   How do you eliminate that factor from the decision-making process?  You give a 130% deduction for the next couple of years.  19% x 130% comes to 24.75%, meaning that a company that’s going to be paying tax on its profits at the new 25% rate will save more or less the same amount of corporation tax if they make the purchase between 1 April 2021 and 31 March 2023 as they will if they wait until April 2023.  The super-deduction just removes any tax incentive to delay investments.

As you’d expect, though, there are some wrinkles and things to be aware of!  Here are a few.

• The super-deduction only applies to companies, not to sole traders, partnerships or LLPs. That’s completely reasonable – that known approaching increase in the tax rate doesn’t apply to them, it only applies to limited companies.  Other businesses continue to save tax at the marginal rate of the sole trader or partner – most likely 29% or 42%.  There’s no reason for them to delay purchases, so no special incentive is needed.
• Not all companies will pay tax at a pure rate of 25% from 2023.  In fact, most won't - it's only companies with profits over £250,000 that will pay at that rate.  Companies with profits under £50,000 will still pay at 19%, so for them the super-deduction actually is a genuine boost for a couple of years.  Companies with profits between £50,000 and £250,000 will pay tax at 19% on the first £50,000 and then 26.5% on the next £200,000, so they'd still technically benefit by waiting to invest, but not by much; saving at 26.5% rather than 24.75% isn't going to make much of a difference unless the investment involved is pretty big.
• The super-deduction doesn’t apply to cars. This one is a bit more surprising.  The government is using the tax system to strongly incentivise companies to provide electric vehicles to employees.  There’s now a competing disincentive to delay purchase and provision of them until 2023.  Perhaps the government thinks that the incentives are so big that they outweigh that disincentive, or that people need to drive around and can’t just sit at home until 2023 so cars are going to be bought anyway.
• It also doesn’t apply to some other, more niche, classes of assets, like integral features in buildings, so any company looking at big levels of investment in anything other than mainstream plant and machinery should be careful (or at least be open to the possibility that it won’t all get the super-deduction).
• It doesn’t apply if you’re going to be leasing the asset out to customers (although, for companies letting out commercial property, a subsequent change of heart by HMRC means that the super-deduction is now available on certain qualifying assets of those businesses, after they were excluded in the first draft of the legislation).
• Although you save tax on 130% of the cost on the way in, if you sell the thing again before the tax rate goes up, you have to pay tax at 130% of the proceeds on the way out too. So you can’t claim 130% tax relief on something you buy and then sell it on in short order to try and craftily create a tax windfall.
• You can’t claim the super-deduction on second-hand goods – there could be quite a lot of second-hand equipment around at the moment as businesses have failed or shrunk, but those things will only save tax at the normal rate.

So, great headlines, but when you scratch the surface things aren’t quite as generous or simple as they seem!  It’s really an incentive to behave in exactly the same way as you would have done if you didn’t know corporation tax is due to rise in 2023.

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How much can I charge my client for mileage?

How much can I charge my client for mileage?

Quite often we're asked "Is the mileage rate still 45p"?  To which the answer is - 45p is still the maximum amount you can reimburse an employee tax-free for the business miles they drive in their own car in a year (for the first 10,000 miles).  But that's all it is.

People frequently have the idea that 45p is somehow the "correct" amount for mileage in absolutely any scenario.  For example, recharging mileage to a client.  There's nothing special about 45p in that context - if you can agree £45 a mile, then fine!  It'll be taxable income in your company, of course, and a cost in theirs.  In reality, 45p a mile does get used often in that context, but there's no technical reason it has to be.

www.fizzhq.com

HMRC's fuel-only mileage rates - make sure you're reclaiming all the VAT you can

Taxman-approved fuel-only mileage rates changed on the 1st December.   They've not changed much (the petrol ones haven't changed at all in fact).

These are the rates that HMRC are happy for employers to use a) to reimburse staff for fuel used for company business that they've paid for and put in company cars, or b) reclaim from staff the cost of company fuel they've used for their own private motoring.  But they're also the rates that businesses can use to reclaim VAT on some of the mileage allowances paid to employees and directors.

Employers can pay a mileage allowance of up to 45p a mile, tax-free, when employees use their own car for business (plus 5p a mile if they've got a colleague with them!).  That hasn't changed, it remains 45p.  You can’t reclaim VAT on all of the 45p, but you can reclaim VAT on the part that represents fuel, as long as you retain VAT receipts covering the cost.

The new list of rates is here:

https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

If you're VAT registered, not on the flat-rate scheme, and failing to reclaim VAT on your mileage costs at all, you should start.  You can even reclaim some of the VAT you've missed out on in the past.

www.fizzhq.com

(Electric) company cars - much more tempting from 2020

At present, although one can crunch the numbers, and occasionally it's worth doing so, advising on whether a company owner-director should get their car via their company or not is generally a pretty straightforward big picture process:

• Is it a new petrol/diesel car?  Probably not a good idea; you're unlikely to lose out materially by just getting it yourself, you might lose out materially by putting it through the company.
• Is it a used petrol/diesel car?  Virtually certain to be a terrible idea to get it through the company.
• Is it an electric car or a hybrid?  Probably not much in it, you'll be fine either way.

If you then do the maths, you're 95% likely to find that's how it turned out.  It's rare for the tax payable by the driver on the "Benefit in Kind" value of the car to merit the tax relief that the company will get on the costs.

From next year, it becomes a bit more interesting.  The first two points stand.  Over the last few years, nobody ever really lost out by owning their traditional car personally, but plenty lost out by having a used car as a company car.  The big change is with 100% electric cars.  For those, the Benefit in Kind value doesn't just decrease dramatically, it vanishes.  The driver will pay no tax at all for the privilege of using the car.  So a 100% electric car via a company suddenly becomes very compelling in many cases.  In 2021 and 2022 the Benefit in Kind rate will rise again - but only to 1% and then 2% of the list price of the car.  In practical terms, still virtually nothing.

Of course, maybe once electric cars are very widespread the tax regime will become less generous again.  But for the time being, you can expect a big spike in the proportion of electric cars sold to companies rather than their owner.

www.fizzhq.com

How cars have become like houses

15 years ago, people often used to say "I hate debt - I'd never finance anything, apart from a house of course".

Now, the same people say "I hate debt - I'd never finance anything, apart from a house or a car of course".

www.fizzhq.com

HMRC's fuel-only mileage rates updated

Taxman-approved fuel-only mileage rates changed on the 1st December.  They're almost all down a bit, since fuel's got a bit cheaper lately.

These are the rates that HMRC are happy for employers to use a) to reimburse staff for fuel used for company business that they've paid for and put in company cars, or b) reclaim from staff the cost of company fuel they've used for their own private motoring.  But they're also the rates that businesses can use to reclaim VAT on some of the mileage allowances paid to employees and directors.

Employers can pay a mileage allowance of up to 45p a mile, tax-free, when employees use their own car for business (plus 5p a mile if they've got a colleague with them!).  That hasn't changed, it remains 45p.  You can’t reclaim VAT on all of the 45p, but you can reclaim VAT on the part that represents fuel, as long as you retain VAT receipts covering the cost.

The new list of rates is here:

https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

If you're VAT registered, not on the flat-rate scheme, and failing to reclaim VAT on your mileage costs at all, you should start.  You can even reclaim some of the VAT you've missed out on in the past - get in touch with us to find out how.

www.fizzhq.com