01992550721 mw@meyerwilliams.com

Tax and employment

Areas where our advice solves problems and adds value
  • Checking your PAYE code
  • Putting together an attractive and tax-efficient remuneration package
  • Obtaining an HMRC reporting dispensation to cut down on paperwork and compliance costs
  • Maintaining ‘adequate’ records of mileage and expenses
  • Funding pensions
  • Rewarding performance
  • Reducing NIC costs
  • Understanding the tax and NIC costs of company cars
  • Reducing the cost of company cars, and reviewing the alternatives
  • Replacing company cars with company ‘vans’

Many people can go for years paying too much (or, perhaps more worryingly, too little) tax. PAYE aims to collect, over the course of a tax year, approximately the right amount of tax from your earnings.

Is your PAYE code correct?

Many people can go for years paying too much (or, perhaps more worryingly, too little) tax. This has not been helped by errors made by the tax authorities.

PAYE aims to collect, over the course of a tax year, approximately the right amount of tax from your earnings. This is done by the issue of one, or sometimes a series of tax codes, which are used by your employer to calculate the tax to be deducted from your earnings.

Many employees have incorrect tax codes. In particular, they may not have notified the tax office of changes in their circumstances that would affect their tax position, such as changing jobs and / or losing the benefit of a company car, or they may have started investing in a pension.

It is important that we check your PAYE code now, because it is much easier to rectify mistakes before the tax year ends. As a first step, though, look at your salary slip and see what code is currently being applied. The letter at the end of the code tells us whether your code includes one of the standard allowances, and you can see if this is right for your circumstances:

  • K you have income that is not being taxed any other way and this is worth more than your tax-free allowance
  • L includes standard tax-free personal allowance for those born after 5 April 1948
  • M marriage allowance - you have received a transfer of 10% of your partner's personal allowance 
  • N marriage allowance - you have transferred 10% of your personal allowance to your partner
  • P indicates that the employee is entitled to the lower single age allowance, i.e. an employee born between 6 April 1938 and 5 April 1948
  • S your income or pension is taxed at the Scottish rate of income tax
  • T your tax code includes other calculations to work out your personal allowance, for example it has been reduced because your estimated annual income is more than £100,000
  • OT your personal allowance has been used up, or you’ve started a new job and don’t have a form, P45, or you did not give your new employer the details they need to give you a tax code
  • BR all your income from this employment or pension is taxed at the basic rate (this rate often applies if you have more than one job or pension
  • D0 all your income from this employment or pension is taxed at the additional rate
  • NT you are not paying tax on this income
  • W1 or M1 at the end W1 (is week 1) and M1 is (month 1). This measn that your tax is based on what you are paid in the current pay period, not the whole year. 

Or you may have the letter K at the beginning of your code. This is a special tax code and means that you are paying tax on more than just your salary through PAYE. It may be that the tax due on your state pension might be collected through increasing the tax you would otherwise pay on your company pension, or you may be receiving some rental income which is being taxed through your salary rather then you paying tax at the end of the year. If you owe back tax, this can also be collected by an adjustment to your tax code. A K code applies when the adjustments made reduce your allowances to less than zero - in effect, it means that you have a 'negative' tax allowance. The maximum tax which can be deducted using a K code is 40% of your income in each month.

New category letters

If you employ someone aged over 16 but under 21 you'll have to choose 1 of the new National Insurance categories when assessing their secondary National Insurance contributions. It's the employer's responsibility to ensure the correct category letter has been applied based on the age and circumstances of the employee. The categories are:

  • M - not contracted-out standard rate contributions
  • Z - not contracted-out deferred rate contributions
  • Y - mariners not contracted-out standard rate contributions
  • P - mariners not contracted-out deferred rate contributions

Use our Payslip Calculator to check your payslip.

Cheap or interest-free loans

Where loans from an employer total more than £10,000 at any time in the year, tax is chargeable on the difference between any interest actually paid and interest calculated at the 'official' rate (currently 3%).

Your remuneration package

An attractive remuneration package can include any of the following:

  • Salary
  • Reimbursement of expenses
  • More generous expenses - business travel in first or business class, or a better quality hotel on business trips
  • Bonus or profit related award schemes
  • Share incentive arrangements
  • Pension provision
  • Childcare
  • Life assurance and/or healthcare
  • Choice of a company car or additional salary and reimbursement of car expenses for business travel in your own car
  • Mobile phone
  • Contributions to the additional costs of working at home
  • Other benefits in kind including, for example, annual parties costing not more than £150 per head for the year, or long service awards

Of course, negotiating the appropriate package is a matter for you and your employer, but you should seek our advice to ensure that your overall package is as tax and NI efficient as possible.

Expense payments

Your employer must check that any expenses he reimburses to you are deductible for tax purposes. If this is the case, then the exepnses are exempt from tax and there is nothing reported to HMRC. If expenses are paid which are in excess of the tax relief that would be available for them, your employer will either tax these amounts through the payroll or may report them on form P11D, which will result in a tax demand. 

Travel and subsistence

The rules which allow tax relief for travelling and subsistence expenses are quite complex, and subtle differences in your working arrangements can change the amounts which you are able to claim, or can be paid tax free. You will not normally be able to claim for the cost of travelling to your normal place of work, but if you have more than one place of work, sometimes travelling expenses are tax deductible when travelling to a temporary place of work for up to 24 months.

Site-based employees are able to claim a deduction for travel to and from the site at which they are working, plus subsistence costs when they stay at or near the site subject to meeting certain conditions.

Because the tax impact on your travelling expenses can be quite significant, you should ask for help if you are considering a change involving a long commute to work.

If an employee works from home for at least part of the time, he or she may be paid an expense allowance of up to £4 a week (£18 a month) by the employer without having to produce evidence of expenses.

If travelling on work, personal incidental expenses may be paid tax-free up to £5 a day in the UK or £10 a day overseas. This is designed to cover personal expenses incurred while away from home such as newspapers and laundry that may not otherwise be allowable. Employees must not charge the expenses in their hotel bills in addition to the fixed rate allowance.

Pensions

Employer contributions to your pension scheme or your own personal pension policies are not liable for tax or NICs provided they do not exceed the annual allowance. The employee's contribution attracts tax relief but not relief from national insurance.

You should be aware that while your employer can contribute to your personal pension scheme, these contributions are added to your own for the purpose of measuring your year's pension input against the annual allowance which is £40,000. Extra relief may be available dependent on your level of contributions during the last three tax years. Please ask us or your normal pension adviser for advice.

Performance related pay

Although there are no tax breaks, performance related pay and bonus schemes are incentives to many to work harder and enjoy some of the benefits of the employer's increase in profits. There can, on the other hand, be a national insurance saving for employees (not directors) if performance related pay is not included in the weekly or monthly pay, but instead paid as a one off bonus.

What is your annual fuel cost? Check out our fuel cost calculator.

The system for taxing those who use company cars has seen annual incremental increases in the cost of benefits, while maintaining the basic approach to taxing those who use a company owned vehicle. The basis of the charge is to tax a figure calculated by multiplying the car's list price by an emission-based percentage, with a 3% surcharge on diesel powered cars.

Cars emitting CO2 at a specified level are taxed on rates varying from 9% to 37% of the list price. Emissions for non-diesel driven cars from 0 to 50g/km (this band includes electric cars) are taxed at 9%, from 51-75g/km are taxed at 13% and from 76-94g/km, at 17% of list price.

Cars running solely on diesel fuel are currently subject to a 3% supplement. 

Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 37% of the car's price. These figures apply to all company cars, including second cars.

CO2 emission information

For all cars first registered from November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5).

Older cars

Cars first registered before January 1998, for which there are no reliable CO2 emissions data, are taxed according to their engine size, as follows:

Engine size (cc)    Percentage of car's price charged to tax
0 - 1400 15%
1401 - 2000 22%
2001 and more 32%

Fuel scale charges

Where the employer pays for any fuel used privately by the employee, there is an additional scale charge based on the CO- based car benefit percentage applied to a standard value of £22,600.

Employee contributions

Where the employee is required, as a condition of the car being made available, to pay for the private use of a car, the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will reduce its list price for tax purposes.

By contrast it is ‘all or nothing' for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel!

HMRC has published advisory fuel only rates which will be accepted either for employers reimbursing employees for the cost of fuel for business mileage, or for employees reimbursing employers for the cost of fuel for private mileage in a company car. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle. In this instance a higher rate per mile might be agreed due to the typically higher fuel consumption

Current mileage rates

1 December 2017

These mileage rates officially apply as of 1 December 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 21p 14p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p


1 September 2017

These mileage rates officially apply as of 1 September 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 13p 8p
Over 2000cc 21p 13p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 12p

 

1 June 2017

These mileage rates officially apply as of 1 June 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 21p 14p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p

 

1 March 2017

These mileage rates officially apply as of 1 March 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 22p 14p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p


For employees using their own transport

The approved maximum tax and national insurance free mileage allowances for employees using their own transport for business are as follows:

Flat rate First 10,000 Miles Miles over 10,000
Car or van 45p 25p
Motorcycle 24p 24p
Bicycle 20p 20p

 

 

 

 

Tax payable

These standard charges are subject to income tax at the basic, higher or additional rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.

For the benefit to be attractive, the employee must pay less in extra tax than it would cost them to run their own car out of their taxed income. These are examples of the 2017/18 tax costs to an employee of a company car:

Basic rate liability example

List Price CO2 emission g/km Tax Rate 20%
Petrol Diesel
Car
£
Fuel
£
Car
£
Fuel
£
£13,000 103 494 859 572 994
£18,000 147 1008 1266 1116 1401
£25,000 220 1850 1672 2000 1808

Higher rate liability example

List Price CO2 emission g/km Tax Rate 40%
Petrol Diesel
Car
£
Fuel
£
Car
£
Fuel
£
£13,000 103 988 1718 1144 1989
£18,000 147 2016 2531 2232 2802
£30,000 220 4440 3345 4800 3616

Additional rate liability example

List Price CO2 emission g/km Tax Rate 45%
Petrol Diesel
Car
£
Fuel
£
Car
£
Fuel
£
£13,000 103 1112 1932 1287 2239
£18,000 147 2268 2848 2511 3153
£40,000 220 6660 3763 7200 4068

Tax free benefits

  • Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

  • Pool Cars

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others.

Please note: A pool car must not normally be kept overnight at or near an employee's home.

Business use of an employee's own car

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own cars.

A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:

Cars and vans
On the first 10,000 miles in the tax year 45p per mile
On each additional mile above this 25p per mile
Motor cycles 24p per mile
Bicycles 20p per mile

It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Note that the lower rate for more than 10,000 business miles only applies to income tax. The national insurance rate remains at 45p for any number of miles.

Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D.

Passenger payments

When an employee travelling on business carries fellow employees as passengers he may be reimbursed a further 5p per passenger tax free provided the journey is a business journey in respect of the passengers. No claim can be made if the employer does not make passenger payments.

Company vans

The taxable benefit for the unrestricted use of company vans is £3,230 (with no reduction for older vans) plus a further £610 of taxable benefit if fuel is provided by the employer for private travel. Electric vans are currently taxed at 20% of the van scale rate (i.e. £646).

The tax payable on the use of a company van ranges from £129.20 up to £1,728 p.a., and the employer's Class1A NIC payable ranges from £89.15 to £529.92 p.a.

Use our calculator to check your van benefit

Tax saving check list

  • Keep adequate records of business mileage.
  • Always check your tax code to see that the correct benefit is being applied.
  • Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
  • If you have low private mileage, you may be better off if you pay for all your own private fuel.
  • If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
  • Encourage your employer to apply for a P11D dispensation.
  • If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.
  • Tax - free parking is a must!