Car and Fuel Benefits through Payroll
If a company provides a car or fuel for private use then the employee is receiving a benefit, and this benefit needs to be reported to HMRC either through a P11D or via the payroll. Reporting a car either through a P11D or via payroll is not completely straightforward and care does need to be taken.
Payroll the Car and Fuel Benefits
The advantage of processing the car and fuel benefits through payroll is that there are no P11Ds to complete and pro rata calculations are potentially more straightforward.
The employee tax code should increase, as the tax on account portion is removed, but this does not always happen straightaway. There may also be an initial increase in tax on the payslips if an employee owes underpaid tax from a previous year. For these reasons there can an increase in work for the HR and finance teams when a company first launched with benefits through the payroll.
Fuel benefit can be reduced or removed if an employee pays for their own private fuel. The employee could just buy their own private fuel, but you would potentially need to be able to prove the employee has covered the full cost of their private miles
HMRC has published Advisory Fuel Rates that can be used, and where used properly there would be no benefit to report to HMRC. Some care needs to be taken, and there are different rates for business miles in private vehicles and private miles in company cars where there is company fuel for instance.
Changes for April 2019
There is a supplement for diesel cars, but there is an exemption available for cars manufactured after September 2018. Cars that meet the lower levels of Nitrogen Oxide (NOx) emissions permitted with the Euro standard 6d, will qualify for the exemption.
At the moment there are two categories of fuel, so diesel and other, but from April there will be the third – Diesel cars meeting Euro standard 6d.
If you do not currently process benefits through the payroll you need to register with HMRC in the tax year prior, so register now if you wish to start in April. For help with P11Ds see here.