Fleet tax compliance: What do you need to know?
April is the month highlighted in every fleet manager’s diary each year – budget announcements, changes to taxation, introduction of legislation and the start of the new financial year. In March 2020’s Spring Budget, the Chancellor acknowledged that there would be a “significant but temporary disruption” to the UK economy, but also insisted “we will get through this together”. He couldn’t have anticipated the unprecedented events that lay ahead, but 12 months on, the fleet industry is still being impacted by the global changes and in response, the 2021 Spring budget focused on continued financial support for businesses, omitting changes to vehicle taxation. So, for fleet managers and business owners, who manage company vehicle tax compliance, there is little change.
What are the company car tax rates?
The most recent changes to company car tax rates were announced in the 2020 spring budget, which was dominated by the economic impact of coronavirus. The long-anticipated changes to benefit-in-kind (BiK) rates had been put on hold following deadlock over Brexit but were finally adopted in April 2020. For cars first registered on or after April 6, 2020, most company car rates were reduced by two percentage points and 0% BiK was introduced for battery electric vehicles. In a staged approach, it was announced that the percentages will be increased by 1% for each of the tax years 2021 to 2022 and 2022 to 2023.
What is benefit in kind and what tax implication does it have?
When an employee receives anything extra from their employee, over and above their standard contractual remuneration, this is known as benefit in kind (BiK). Use of a vehicle, fuel or associated benefits all have an equivalent cash value, which essentially needs to be treated as an enhanced salary. So, for employees who have use of a company vehicle for private purposes, BiK tax will be applicable. The value of these benefits is calculated for tax purposes and appear on an employee’s P11D form, which is a document that HMRC receive from an employer detailing any benefits given to an employee in addition to their standard salary.
For employees who are affected by BiK taxation, HMRC has created a useful tax calculator which calculates a tax implication for company car and fuel benefits.
Tax compliance & grey fleet
Management of grey fleet is one of the most challenging tasks for those involved in fleet management. Grey fleet refers to a situation where personal vehicles are used for business purposes. For most fleet managers, this usually means where an employee owns their vehicle but is expected to use it on a regular basis for business travel. The tax compliance rules change for vehicles that are operated under the grey fleet category.
For many businesses, reimbursing fuel costs for employees who use their vehicle for business purposes, is often much cheaper than the alternative of maintaining company vehicles. This is particularly the case where business travel is infrequent. However, accurate mileage tracking for employees operating under the ‘grey fleet’ banner, can result in employers overpaying for business travel and creating additional fleet management administration burden.
In recent years, statistics from HMRC show a reduction in drivers being paid BiK tax, with employees instead opting to use their own vehicles for company business to avoid that own personal tax liability.
How can telematics technology help with tax compliance?
Failure to provide information of sufficient detail or quality to support the declaration on the P11D can result in a £3000 fine for poor record keeping, a requirement to repay all taxes and national insurance owed on the van, with the further possibility of a fine of up to 100% of the amount owed. Further still, HMRC can backdate the fines, penalties and tax owed, with interest payable, for 6 years.
In order to protect the business and employees from HMRC, companies should invest in comprehensive fleet policies, review contracts where vehicles are issued and set out a well-structured and fully audit compliant system for recording of business mileage. HMRC suggest detailing the dates, start / finish locations, mileages and reasons for all business trips.
Introducing a telematics system into the fleet management strategy, can help with tax compliance. Telematics systems that use GPS tracking technology provide access to both real-time and historic vehicle utilisation data. By implementing a vehicle tracking or Telematics system, the task of sleep management can become less dependent on paper-based reports, which can often fall foul to human error. Instead, highly accurate, GPS tracking information can be used to report on both private and business mileage, and fleet managers are able to confidently manage associated tax compliance with increased efficiency and accuracy.
Without the highly automated telematics data available, fleet managers have to rely on the employees submitting milage records and expose themselves to non-compliance and legislative implications.
ABAX have developed a range of reports that can be adapted to your business. By automating the collection of required tax compliance data, the associated fleet management administration Will be significantly reduced, and more efficient processes can be put in place.
ABAX’s trip report gives a complete overview of all of the journeys that the vehicle has carried out. At a glance, you can see the number of trips per employee, per vehicle of the entire fleet within a given time period. The distance travelled is Report it on, along with actual hours each employee has spent driving. Private use of vehicles can be reported on and exception reports can be configured to allow fleet managers when agreed parameters are exceeded. This is vital in managing grey fleet compliance