HM Revenue & Customs (HMRC) now changes every quarter, the rates at which motor vehicle travel costs for small businesses may be paid for motor vehicles provided by an employer, but where fuel is paid for by the directors/employees personally.
The rates are designed to reflect changes in petrol and diesel costs. The applicable rates from 6 April 2024 are set out below:
Vehicle Engine Size
- Up to 1400cc: Petrol – 143.4p , Diesel – 149.1p
- 1401cc – 2000cc: Petrol – 143.4p , Diesel – 149.1p
- Over 2000cc: Petrol – 143.p , Diesel – 149.1p
Note: 1600cc applies for diesel cars .
These rates may be used to calculate the amount payable for all business journeys undertaken without incurring any tax liability on the individual employee.
Alternatively, where all fuel is purchased by the employer, the rates can be used to identify the cost of private mileage to be reimbursed to the employer to avoid a company car fuel benefit charge arising.
Please note that the revised rates only apply in respect of business mileage in company vehicles. For non-company vehicles, vehicle travel costs has been a change from 6 April 2024 in the 45p/25p rates which applies to the reimbursement of business miles undertaken using an employee’s vehicle.
See Our Packages
Importance of Accurate Mileage Records
Whilst writing, I would remind you of the importance of maintaining full and accurate records of mileage undertaken (whether in company cars or employee-owned cars) where business mileage is reimbursed using a rate per mile allowance.
VAT input tax is recoverable (on the fair proportion of mileage allowances that relate to fuel, in respect of which the petrol/diesel rates in the table above may be used), subject to a VAT invoice(s) held, which must equal or exceed the value of the business mileage reimbursement.
The date on the invoice(s) must correspond with the dates covered by any claim. It is recommended that you tell your employees that all mileage/fuel claims must be supported by VAT invoices.
VAT Fuel Scale Charge – CO₂ Basis – Company Car Users
HMRC has changed the fuel scale charge for calculating VAT due where fuel is provided for private journeys in a company car, from the engine size and fuel type system to a charge based on the CO₂ rating of the vehicle.
The new system, mirroring that used for direct taxation, now has 22 bands with 5g/km increments.
Apart from the change to a CO₂ basis, the system operates in the same way. The table used for the new system has recently been updated (for VAT periods commencing) and a copy is attached for your information.
Note that the current 20% VAT fraction of 1/6 is applied to the annual, quarterly, or monthly scale charge as appropriate to calculate the VAT due in respect of each company car provided where fuel is also provided for private journeys.
Van Fuel Benefits
The taxable benefits arising in respect of vans (vehicle travel costs) increased for employees who use a company van for private use from 6 April 2024. From the same date, a £757 fuel benefit charge was also introduced where fuel is provided for a company van and there is private use.
However the definition of private use has been made much more generous.
The van benefit charges apply to anyone who has use of a company van and is deemed to have private use (see below) of that van during the fiscal year.
From 6 April 2024, there is a flat rate benefit charge of £3,960 per annum per van, irrespective of the age of the van, with reductions pro-rata if the van is not provided for the whole tax year and on a just and reasonable basis if more than one employee is entitled to use the van for private purposes.
There is also the fuel benefit of £757 per annum if fuel is provided for a van and there is private use. Furthermore, the employer will have a Class 1a National Insurance liability on all taxable benefits arising.
For Business Travel
The above, however, is often mitigated by the more generous definition of private use now in force. The legislation states that where the van is used ‘for business travel,’ then there may be no taxable benefit whatsoever.
Please note this more generous rule does not apply to company cars where a tax charge arises if the car is available for private use and also does not apply to vans not provided for business purposes, provided there is no, or only insignificant, private use.
Commuting to and from work is ignored for this test, as is other insignificant private use.
Insignificant private use is defined as the van being used for a few days at most in the whole year, insignificant in quality (e.g., a short private journey to drop off a quantity of rubbish at the tip, or a slight deviation to drop a child off at school), intermittent and irregular (e.g., a detour to call at the dentist on the way home), and very much the exception to the normal pattern of use of the van.
Usage of Van
Usage that would not count as insignificant includes where the employee uses the van for a holiday, to go shopping every week, private use for a continuous period, such as a week, or using the van outside of work for social activities.
Where appropriate, it is suggested, for the avoidance of doubt and to support any contention that there is no taxable private use, that there is a clause in the employee’s contract of employment to prohibit the use of the van for private use, other than commuting to and from work.
Additionally, a record of mileage should be kept for all employees having the use of a van for business purposes only to be able to show that all mileage or almost all mileage undertaken is for business purposes (including home to work and insignificant private use).
It is also worth noting that any significant private use, even for a few days, invalidates the exemption for the whole year, and the full £3,960 annual benefits charge will apply. No reimbursement for actual private use can negate the private use tax charge.
Any contribution would only offset the full annual charge. However, the £757 fuel benefit can be eliminated by a full reimbursement of all private motoring fuel costs in the year so that where the (more than insignificant) private mileage is low, reimbursement is likely to be cheaper than the tax due on the £757 van fuel benefit.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
Definition of a Van
One other point to consider is the definition of a van, especially in the context of double cabs and other hybrids. This is a complex area and depends on the make and model of the specific vehicle.
A van is a vehicle of less than 3500 kg of construction designed for the conveyance of goods or burdens (rather than people). Note that it is the purpose for which the vehicle is designed that is important (actual usage is irrelevant).
Also, note that HMRC generally accepts double-cab pickups with a payload of 1ton or more as vans, and the Land Rover Defender 110 with blanked-out windows behind the second row of seats is also classified as a van.
Note that the category under which a vehicle is registered for road tax is likely to be accepted as evidence of its status, i.e., categories TC48, 49, and 59 are cars, whereas categories TC36 and 39 are light goods vehicles.
Disclaimer: All the information provided in this article on Motor Vehicle Travel Costs For Small Businesses, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
