Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel.

HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. In this case, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding if you the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates become effective on 1 June 2018. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The rates are as follows:

Engine size	Petrol – amount per mile	LPG – amount per mile
1400cc or less	11p	7p
1401cc to 2000cc	14p	9p
Over 2000cc	22p	14p

      

Engine size	Diesel – amount per mile
1600cc or smaller	10p
1601cc to 2000cc	11p
Over 2000cc	13p

Hybrid cars are treated as either petrol or diesel cars for this purpose.

The tax benefits of driving a company car have been steadily reduced over many years. Most employers and employees are aware of the additional costs of providing company cars and the tax implications they create. However, for many employees the lure of having a company car means that this remains a very popular option.
There are some circumstances where it can be possible to offer employees car benefits that are exempt from tax.

These include:

Cars available for business journeys only

This rule has been the subject of much case law over the years, but it has generally been established that to qualify for VAT recovery the car must not be available for any private use.

This means that the car should only be available to staff during working hours for employment related duties or to travel to a temporary workplace. The business must also clearly tell their employees not to use the vehicle for private journeys and check that they don’t.

Cars adapted for an employee with a disability

These cars are exempt only for private i.e, journeys between home and work and for travel to work-related training.

Fuel paid for by employees

The fuel benefit is removed when an employee pays for all their private fuel use or if the employer pays and the employee reimburses the amount (during the tax year).

‘Pool’ cars

Employers are not required to pay or report on ‘pool’ cars. These are cars that are shared by employees for business purposes only, and normally kept on your premises. Employers must ensure the ‘pool’ car rules are properly adhered to.

Privately owned cars

Employers do not have to pay anything on cars that directors or employees own privately.

There are some simplified arrangements available to the self employed, and to some partnerships for claiming a fixed rate deduction for certain expenses where there is a mix of business and private use. The simplified expenses regime is not available to limited companies or business partnerships involving a limited company.

Simplified flat rates can be used for working from home, and for the business costs of vehicles. This method saves having to calculate the proportion of personal and business use in the home such as for utility bills.

The current monthly flat rates are based on the amount of business use of the home:

• 25 to 50 hours worked per month can claim – £10.00
• 51 to 100 hours worked per month can claim – £18.00
• 101 or more hours worked per month can claim – £26.00

Under simplified expenses, there are the following flat rates per mile available. These rates can be used instead of working out the actual costs of buying and running your vehicle, e.g. insurance, repairs, servicing, fuel.

• Cars and goods vehicles first 10,000 miles – 45p
• Cars and goods vehicles after 10,000 miles – 25p
• Motorcycles – 24p

Whilst using the flat rates is not compulsory, once a decision is made to use the simplification for a specific vehicle, this must continue to be used for a vehicle as long as that vehicle is used for business purposes.

There are also special rules for a small number of businesses that use their business premises as their home, e.g. a guesthouse or small care home. HMRC’s simplified expenses checker can be used to compare what a self-employed person can claim using simplified expenses with what they can claim, by working out the actual costs.

Employees who use their own money to buy things they need for their job, can sometimes claim tax relief for the associated costs. It is usually only possible to claim tax relief for the cost of items used solely for work.

There is no tax relief available if your employer refunds any costs in full. In addition, you cannot claim tax relief if your employer has provided you with a suitable item, but you want a different or upgraded model. For example, you are provided with a mobile phone for your work, but you want to use a newer and more advanced model and pay for this yourself.

A claim for valid purchases can be made against receipts or as a ‘flat rate deduction’. The flat rate deductions are set amounts that HMRC has agreed are typically spent each year by employees in different occupations. They range from £60 to £140 depending on listed occupations. If your occupation isn’t listed, you may still be able to claim a standard annual amount of £60 in tax relief.

This means that basic rate taxpayers can claim back £12 (20% x £60), and higher rate taxpayers £24 (40% x £60) per year and claims can usually be backdated for up to 4 years. If you work in one of the listed occupations, you could claim back even more.

Planning note

Employees may also be able to claim tax relief for using their own vehicles, travel expenses, professional fees and for buying equipment to use as part of their employment. The rules regarding what can and cannot be claimed are not straightforward. We would be happy to help you review any job related expenses and to comment on what tax relief may be available.

The settlements legislation is contained in s.624 ITTOIA 2005. The legislation seeks to ensure that where a settlor has retained an interest in property, in a settlement, that the income arising is treated as the settlor’s income for tax purposes. A settlor can be said to have retained an interest if the property or income may be applied for the benefit of the settlor, a spouse or civil partner.

In general, the settlements legislation can apply where an individual enters into an arrangement to divert income to someone else and in the process, tax is saved.

These arrangements must be:

• bounteous, or
• not commercial, or
• not at arm’s length, or
• in the case of a gift between spouses or civil partners, wholly or substantially a right to income.

Planning note

However, there are a number of everyday scenarios where the settlements legislation does not apply. In fact, after much case law in this area, HMRC has confirmed that if there is no ‘bounty’ or if the gift to a spouse or civil partner is an outright gift which is not wholly, or substantially, a right to income, then the legislation will not apply.