Posts Tagged ‘employer taxation’

Why employees prefer cash to the company car option

Thursday, April 26th, 2018

Why more employers are choosing cash over a company car

Have you ever been given the choice of receiving a company car or taking the cash equivalent? Until fairly recently, it made good financial sense for both employers and employees to take the car option.

Tax incentives were in place to make it even more attractive to select an environmentally-friendly car as the taxable Benefit In Kind (BIK) is based on the car’s CO2 emissions.

However, diesel cars were initially hit with a 3% surcharge over and above petrol equivalents, which now stands at 4% (for cars not reaching the RDE2 standard), increasing the (BIK) for the employee and National Insurance charges for the employer.

Some critics argue that it doesn’t add up, environmentally, as for years we were encouraged to buy diesel cars which produced less pollution yet now there is little financial incentive to do so compared to non-diesel alternatives.

So, the environment aside, what are the pros and cons of taking a company car as opposed to the cash?

Company car

Pros:

  • It’s often less stressful – admin is taken care of by the employer’s leasing company
  • Insurance is covered, and often breakdown costs too
  • You choose from modern cars offering the latest technology
  • No need to worry about selling the car at the end of a lease

Cons:

  • You have no asset, so receive no cash when you hand the car back
  • There are fewer car options and choices are dictated by the employer/lease company
  • If only diesel cars are available, you could be penalised by the 4% surcharge

Taking the cash

Pros:

  • You can spend it on what you like; it doesn’t have to be a car!
  • You’ll have an asset to sell and can realise some cash at the end of the car’s use
  • You’ll get far more choice over what car you can drive (although your employer may specify a ‘standard’)
  • It should work out cheaper at the moment based on current surcharges

Cons:

  • You’ll need to budget for all costs, including tax, insurance, maintenance etc
  • All admin and running of the car is your responsibility
  • You could be committed to a purchase/hire agreement if your employment comes to an end

 

Employers should also be aware that if they offer employees a choice of either cash or company car, they could be subject to Optional Remuneration rules which can further complicate issues. We are seeing more companies giving staff no choice in the matter in order to simplify and streamline their tax position.

If you would like to discuss your company’s tax position with respect to company cars, or for advice on employee benefits, please contact Helen.Sewell@curoca.co.uk or call 01527 558539. We offer a full range of personal tax and employer tax services.

company car taxation

company car taxation

Budget 2017 – employed and self employed taxes

Wednesday, March 8th, 2017

Self Employed

Making Tax Digital

Following concerns from tax professionals and taxpayers alike on the tight implementation timeframe, the government will delay the introduction of quarterly reporting for unincorporated businesses and landlords with turnover below the VAT threshold until April 2019.

In addition, the cash basis entry threshold will be increased to £150,000 and exit threshold to £300,000, and will extend the use of the cash basis to unincorporated landlords. The government will also seek to simplify the rules on capital and revenue expenditure within the cash basis, to make it easier for businesses to work out whether their expenditure is deductible for tax.

National Insurance

The government had already announced that Class 2 NICs would be abolished from April 2018. This is the fixed rate national insurance paid by the self-employed.

This measure further increased the differential between the rates of National Insurance paid by employees and that paid by the self-employed.

To help reduce the differential and to reflect more equal pension entitlement, the Chancellor announced that the main rate of Class 4 NICs will increase from 9% to 10% in April 2018, and to 11% in April 2019.

However it is worth noting that after taking into account the end of Class 2 NIC only self-employed individuals with profits above £16,250 will have to pay more NICs under the new system.

Employment

The way in which employers remunerate their staff has been under the government’s spotlight recently including particular focus centred on salary sacrifice.

The government is now looking at how to further make the tax system fairer and simpler amongst employees and employers including looking at the taxation of benefits in kind and employee expenses.

The Government will publish consultations on the following:

  • Exemptions and valuations methods used for the tax and employer NICs treatment of benefits in kind.
  • The tax treatment of employer-provided accommodation. This will include proposals for when accommodation should be exempt from tax and help for taxpayers during any transition.
  • Employee expenses: The government will look at the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.

Personal Taxation

NS&I Investment Bond

The Budget confirmed the rate on the NS&I Investment Bond announced at Autumn Statement 2016. The Investment Bond will offer a rate of 2.2% over a term of 3 years and will be available for 12 months from April 2017. The Bond will be open to everyone aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000.

ISAs

As previously announced, a new Lifetime ISA will be introduced this April. The Lifetime ISA allows adults under the age of 40 to save up to £4,000 each year and receive a bonus from the government of up to £1,000 a year on their contributions. The funds can then be withdrawn tax-free to put towards a first home or when they turn 60.

Rent a Room Relief

Individuals have seen a welcomed increase to the annual allowance from £4,250 in 2015-16 to £7,500 in the current tax year. The government will now also consult on proposals to redesign the relief, to ensure it is better targeted to support longer-term lettings. This will help to align the relief more closely with its original intended purpose to increase supply of affordable long-term lodgings.

Tax free Childcare

As previously announced the government’s new tax-free childcare scheme will be phased in from next month. The new scheme will allow eligible working parents to claim up to £2,000 per child towards the cost of childcare per year

The existing childcare vouchers scheme will start to be phased out in 2018 with no new entrants being able to join a childcare voucher scheme from April 2018. Employees who are already a member will be able to continue receiving childcare vouchers for the time being.