ACFO Midlands Region

26 September 2012John Messore

DirectorInnovation Professional Services Limited – employee benefits and pensions specialists

Market leader in car and fuel taxation Contact john.messore@innovationllp.com

07884006164

Innovation • Tax and employee benefit specialists• All partners trained with the Big 4 Accountants• Two partners sit on the Institute of Tax Technical

Subcommittees• Our business grew 60% last year and 90% this year• Recently nominated for the third year running as

the best tax consultancy team in the UK• Mostly work on a no win no fee basis and only

charge a % of employer saving after it is secured

AGENDA

• Introduction• 16 WAYS FOR FLEET MANAGERS TO SAVE

£500-£3,000 A CAR AND BENEFIT STAFF BY UP TO £3,000 EACH WITHOUT ANY ADITIONAL ADMIN

• Let’s keep it interactive – questions as we go; show of hands to see what is most relevant

HMRC statistics on cars, fuel and vans

Numbers (000s) 2004/5 2005/6 2006/7 2007/8 2008/9 10/11

Car 1200 1140 1160 1120 1080 950

Fuel 410 380 360 340 310 240

Vans 300 170 130 70 90 60

Van Fuel 40 40 40

Taxable value £millions

Car 4250 4130 4030 4060 3920 3630

Fuel 1140 1050 970 900 830 800

Vans 110 60 50 170 180 160

Van Fuel 20 20 20

1. Mileage tracking

• We have our own mileage capture / audit system • Free to clients• Very low cost to non tax clients• Very easy to use from any computer I-phone or smart

phone• Reduces employee ‘fraud’• Full audit service is available• Whole range of very useful management information• Can be used to facilitate some of the schemes and cost

savings on the following pages

2. Cash or car?

• Previous trend towards ECOS or PCP • Companies are now moving the other way • Salary sacrifices for a 2nd or 3rd family car• Why pay 40% or 50% tax on cash when you can pay 5%

or 10% tax on a car?• Be careful however as some cars taxed now at 10% will

be taxed at 15% in 2012/13 due to realignment of the CO2 bandings

• Innovation offers a free review of which option is best

3. Free Fuel

• Very few companies now offer this less, than 10%

• Incredibly tax inefficient• Companies should buy it out!• 2 ways to buy-out:

– Innovation way– Wrong way

Free Fuel net benefit – BMW 525TDi (1998-2011)

Private miles 14,000 14ppm

Year ended Fuel BIK £ Car BIK Tax £ Cost of fuel £ Effective Tax Rate Net Benefit £

1998 1,490 6,750 596 1,402 42.51% 806

1999 1,890 6,750 756 1,445 52.31% 689

2000 2,270 6,750 908 1,490 60.94% 582

2001 3,200 6,750 1,280 1,536 83.33% 256

2002 3,600 6,750 1,440 1,584 90.93% 144

2003 4,200 5,670 1,680 1,633 102.90% -47

2004 3,168 5,940 1,267 1,683 75.29% 416

2005 3,312 6,210 1,325 1,735 76.35% 410

2006 3,456 6,480 1,382 1,789 77.28% 406

2007 3,744 7,020 1,498 1,844 81.21% 347

2008 3,888 7,290 1,555 1,901 81.80% 346

2009 4,732 7,560 1,893 1,960 96.58% 67

2010 4,732 7,560 1,893 2,000 94.65% 107

2011 5,220 7,830 2,088 2,040 102.35% -48

For 50% (60%) Higher Rate Taxpayer 5,220 2,610 2,040 127.94% -570 (-1,092)

Taxable benefit (£) for cars and fuel 1998-2011 (£14,000 Ford Focus)

Car v Fuel P11D

0

1000

2000

3000

4000

5000

6000

1 2 3 4 5 6 7 8 9 10 11 12 13 14Last 14 years

P11D

valu

e

FuelBIK £CarBIK £

Fuel Buyout! • With fuel being taxed on an arbitrary figure of £20,200

why not consider a buy-out? • Innovation has developed a process to buy out free fuel

whilst still letting employees keep and use a fuel card for both business and private journeys in exactly the same way as now – but with an incentive to drive fewer miles or more economically (green agenda)

• Employees are kept neutral in every single respect but some employees could end up better off by around £300-£600 now and £2,000 - £3,000 in 2013

• Employer saves £1,000 per employee, p.a.

Company cars - Advisory Fuel Rates from 1 September 2012

Engine size Petrol LPG1400cc or less 15p 10p1401cc to 2000cc 18p 12pOver 2000cc 26p 17pEngine size Diesel1600cc or less 12p1601cc to 2000cc 15pOver 2000cc 18pPetrol hybrid cars are treated as petrol cars for this purpose.

These rates apply to all journeys on or after 1 September 2012 until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.

4. Total People Ltd v HMRC • Recent case said you can treat a car allowance payment

as being made up of two elements:– A tax free business mileage top up payment taking

you up from say 12 ppm to 45 ppm– A balancing payment, taxable as now

• Case also said you can go back 6 years to recover overpaid employer NIC in prior years. (NIC on the difference between AFR and AMAPS rates x number of business miles)

• Worth c. £1,000 NIC a head on average to the company

Cheshire Employer and Skills Development v HMRC

• HMRC appealed and won their appeal this summer, but….• See my articles in Taxation, Fleet-World and Fleet-News.• Judge got it wrong. He based his judgement on a piece of

legislation that wasn’t even being argued about.• CE&SD are appealing so Watch this space.• You can still save money going forward by changing what

you do.• Above case was just about the past! WORTH YOU

PUTTING IN A PROTECTIVE CLAIM IF NOT ALREADY DONE SO.

5. Business mileage optimiser – CFO ©• Split your car allowance going forward into two

elements– a tax free business mileage top-up and– a balancing taxable amount

• Typically save about £200 NIC for the employer and about £600 Tax and NIC for the employees, p.a.

• This is the basic principle behind ECOS or PCP schemes but you don’t need to be doing either of those schemes to still take advantage of the same tax savings for staff on a normal car allowance.

Business mileage optimiser – CFO ©

Before After

£ £

Car allowance taxable

Save tax and

33 ppm NIC on difference

Mileage tax free 12ppm

6. AMAPS and NIC

• New AMAPS rates permit 45 ppm upto 10,000 business miles p.a.

• After 10,000 business miles, you can pay tax free up to 25ppm BUT you can still pay up to 45ppm NIC free

• By toping up current AFR or AMAPS mileage payments combined with a salary sacrifice you can make incremental NIC savings

• Why not squeeze every last penny?

Example CAR FUEL OPTIMISER, CFO ©         Below 10,000 miles Above 10,000 miles Total

Total business miles p.a. 4,000 4,000 - 4,000

Rate of reimbursement at ppm 11  

Monthly Allowance 500  

Annual allowance 6,000  

Number of staff 1,000  

Extra tax free / NIC mileage that you could pay at ppm 34 14 ppm

Extra tax free & NIC free payments you could make 1,360 - 1,360

Extra NIC free but taxable payment you can make at ppm 20 ppm

Extra NIC free but taxable payment you can make Equates to no. of staff - -

% who are Basic Rate 500 50 1,360

% who are Higher Rate 500 50  

   

New Annual Car Allowance is split:  

Extra mileage TAX AND NIC FREE 1,360  

Extra mileage NIC FREE -  

Paid as now (negative denotes salary sacrifice) 4,640  

  6,000

Aggregate Annual Savings

Employer NIC saving at 13.8% Per head £188 £187,680   

Employee saving at 20 + 12% Basic Rate £435 £217,600

Employee saving at 40 + 2% Higher Rate £571 £285,600

  Total saving £690,880               

7. Antique Buildings v HMRC Mixed use assets

• A case was recently lost by HMRC who said they are not appealing

• They conceded the law was flawed• Previously they had maintained that if an asset or benefit

was part business / part private then the whole amount should go on the P11D (on which 13.8% Class 1A NIC is paid by the employer)

• And the employee should claim personal tax relief for the business element on their own tax return

• This was held to be wrong

Antique Buildings v HMRC Mixed use assets

• Consider a fuel card provided to staff with their own car• Can one just declare the private element on the P11D?• Indeed can one go further and top up the cost of fuel for

business motoring to 45ppm and reduce the private cost accordingly?

• At around 25% business usage it should therefore be possible to pay no tax at all on the fuel card even though 75% of the cost was for private motoring

• It is worth obtaining specialist advice on this

8. Gurney (H M Inspector of Taxes) v Richards, 1989

• Case concerned a Fire Engineer driving a car with flashing blue lights and always on call.4 May, 1983 - 17 February, 1984 Rover 2.3 litre18 February, 1984 - 20 May, 1984 Morris Marina 1.7 litre21 May, 1984 to May, 1986 Ford Cortina Estate 2.0 litreMay, 1986 Ford Sierra 2.0 litre

• Question - Was the vehicle one commonly used as a private car?

• Held that cars were not suitable for normal private use and so NO car benefit in kind existed and not taxable as a company car

Gurney (H M Inspector of Taxes) v Richards, 1989 cont’d

• HMRC have now carved out cars with flashing blue lights saying these are tax exempt

• Judge made no mention of the colour of lights

• So what if you have a fleet of highway maintenance cars with flashing orange lights?

• Why pay tax on a car benefit if don’t need to?• It will all of course turn on the particular facts

9. Car Benefit In KindWhitby & Ball (Branall Ltd) 2009

• Company leased cars.• On-leased to employees who paid commercial

lease cost.• No P11D benefit reported.• Unfortunately – but not unexpectedly they lost• Deduction available against P11D benefit based

on what employees actually contributed / paid the company.

10. Is car available for private use?

• If car not used privately - but still available then a car benefit exists e.g. £25,000 list price x 20% CO2 = £5,000 benefit.

• Only exception is where it is available for part year or not available for 30 days or more.

• If car NOT available (and not used privately) then there is no P11D benefit.

• We have helped a number of companies to successfully argue that a car was not available for private use.

11. Lorry and van drivers (mobile employees)

• In April 2009 HMRC introduced Benchmark Scale Rates• Drivers who are away on business can claim £5 or £10

tax free subsistence per day (and also £5 for breakfast for an early start and £15 tax free for an evening , late finish) provided they satisfy certain conditions – being away from home or their normal workplace for more

than 5 or 10 continuous hours respectively and – incurring a cost on a meal

• By combining payment of such tax free allowances with a salary sacrifice it is possible to save c. £500 per annum per driver

Per Diems, Benchmark Scale Rates Benchmark Scale Rate Salary Sacrifice Scheme

Employee split

Number of days p.a. on the road assuming 47 working weeks

Basic rate taxpayers with qualifying days

Higher rate taxpayers with qualifying days

Tax free amount payable per annum at £10 or £5

Tax free amount payable per annum at £10 or £5

Total field based employees 5000 Basic Rate Higher Rate

% spending more than 10 hours a day away from home 10 500 223 250 250 558,125 558,125 % spending more than 5 hours a day away from home 85 4250 223 2,125 2,125 2,372,031 2,372,031 Balance below 5 hours a day 5 250 - - Total staff 100   5000   2,375 2,375 2,930,156 2,930,156

TotalPercentage of staff who are Basic rate taxpayers (earnings over £40k p.a.) 50

Employer NIC saving 404,362 404,362 £808,723

Percentage of staff who are Higher rate taxpayers (earnings over £40k p.a.) 50

Employee savings NIC 351,619 58,603 £410,222Employee tax saving 586,031 1,172,063 £1,758,094

Percentage of days per annum on the road or field based 95 937,650 1,230,666 £2,168,316

Total tax/NIC saving 1,342,012 1,635,027 £2,977,039

Percentage of staff falling out under 2 year rule, i.e. on same site for more than 24 months. 0

Benefit passed to employer 656,355 861,466 £1,517,821

How much of employee saving kept by employee 30 Total Employer saving p.a. 1,060,717 1,265,828 £2,326,544Savings kept by employees p.a. 281,295 369,200 £650,495

Basic Rate Higher Rate

Employee average savings per head (extra take home pay) 113 148

12. Vans

• Van benefit in kind is now £3,000 and van fuel is £550• Recently a company with a £35 million turnover was

fined £1.35 million back tax and NIC because they had no controls around vans and could not prove there was no private use

• Armed with this success HMRC have issued a 4 page – 35 question questionnaire for their Inspectors– We can provide free copies on request

• It is however possible to still permit private use in certain circumstances and still avoid tax altogether

13. VAT recovery through AFR• VAT can be recovered on the fuel element of any business

mileage claim• As AFR rates increase it is an opportunity to recover more VAT

on business mileage• One company recently successfully submitted a back claim for

£300,000 in VAT on business mileage expenditure • Contrary to popular belief you do not necessarily need a full

VAT invoices to support VAT recovery. • HMRC manuals simply say you need to have ‘evidence’• On VAT don’t forget Output VAT scale charge on free fuel• 50% lease restriction on cars and• 50% on vans

14. Business mileage definitions – home to office deduction

• Are your staff deducting home to office before making a business mileage claim?

• If so they can still obtain tax relief on that through self assessment

• Better still pay it via a salary sacrifice and – Employee receives tax ‘refund’ earlier– They also get the benefit of NIC relief– Employer saves 13.8% NIC

15. Capital V Revenue contributions

• Taking a revenue contribution rather than capital can lead to significant savings

• We recently saved a client £50,000 in Class 1A NIC along though chance corridor conversation

16. VAT recovery on short term contract hire

• VAT recoverable in full if car is meant for business use primarily

• Not replacing a genuine company car.

Summary - £ savings

1. User friendly on-line business mileage tracking2. Cash or cars, £1,000 a head3. Fuel buy out, £1,000 a head 4. NIC relief prior years – protective claim, £1,000 p.p.5. Sweat business miles AMAPS v AFR, £1,000 total saving

going forward (employer + employee)6. Sweat NIC on above7. Mixed use assets – P11D Class 1A savings £00s per head8. Specialist vehicles (orange flashing lights) £2,000 per

vehicle.

Summary - £ savings

9. Cars leased to staff10. Is the car used privately at all? Saving £000’s11. All staff - tax free subsistence, £500 p.a. p.p.12. Vans – avoiding penal penalties / tax £000s13. Maximize VAT recovery on business miles £100-£200 p.p.14. Home to office commute deductions, a few £100 each (employer and employee)15. Capital v Revenue contributions (£100’s)16. VAT on short term hires

Disclaimer

• The preceding slides form a high level view and should not be acted on in isolation without taking specialist advice and all tax planning and mitigation ultimately will turn on the facts of any particular matter