6 June 2018
We are increasingly having discussions with our motor trade clients around the provision of fuel and the risks associated with fuel that is deemed by HMRC to have been used privately. For any company car, if the revenue deem that private fuel has also been made available they will look to impose a car fuel benefit.
The numbers involved are highly significant with a fixed value of £23,400 per vehicle for the 2018/19 tax year. Picking an average company vehicle such as a BMW 320d Msport (30% vehicle benefit tax) translates to a potential charge of £2,808 per annum for the provision of fuel to a 40% tax payer. In addition, Employers National Insurance of 13.8% - £969 is payable making a total of £3,777 per annum for this particular vehicle.
Seeing the scale of these costs creates two key questions:
- If a business continues to provide a fuel card to their employee then the level of private mileage must be very significant to justify such a high tax charge.
- If no fuel card is provided, and hence the fuel benefit tax not declared, systems need to be extremely robust to ensure that there is adequate proof to HMRC that private fuel has not been provided.
Given the costs, we rarely see 1) above, but there are still certain employers who have not yet addressed this major area of potential cost saving. It is usually far more cost effective to 'buy out' any employees who retain the benefit of fuel cards resulting in a significant net benefit for both employee and employer by virtue of the tax saving.
More frequently, we are engaged to review the processes around the provision of fuel and consider the risks of not being able to satisfy HMRC that private fuel has not been provided to employees. It should be noted that it is for the employer to demonstrate to HMRC that no private fuel has been provided and not vice versa. We have seen a number of cases in recent years where HMRC have not been satisfied with the robustness of systems and controls in this area and will seek to charge the full fuel benefit even if only small amounts of private fuel have been discovered to have been provided. As noted above, this can result in assessments in excess of £3,000 per employee per annum and they may seek to impose these charges retrospectively over a number of years as well as subject them to interest and penalties. HMRC will look to the employer rather than employee to make good the tax position. We are aware of one motor group that is facing an assessment from HMRC in excess of £1m.
Common problem areas include misuse of the single company fuel card within a sales department as well as excess fuel put in vehicles for demonstration purposes and the excess enjoyed for private use by members of the sales team. There have also been cases of “static” demonstrators being taken home by employees and HMRC have techniques to detect this type of issue. In many circumstances problems arise due to ignorance or avoidance of company policy at a local level.
Solutions to the issue comprise of improving the robustness of the systems (e.g. use of proprietory software) as well as additional controls and monitoring to ensure that the business is operating within its defined policies for fuel. Looking to involve independent third parties to assist with the design and monitoring of any systems helps ensure they follow best practice as well as helping persuade HMRC that systems are robust and fit for purpose.
If you would like to discuss the implications of this blog, please contact me or your local UHY contact.
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