Vehicle Benefits In Kind Breakdown

If your company provides vehicles or fuel to its employees or directors, these could be classed as Benefits In Kind (BIKs).

BIKs are defined as an item of monetary value provided by a business that is not “wholly, exclusively, and necessary” to perform their duties. This essentially means that the item is also used outside of work. Examples include private healthcare and company cars.

Using this definition, if you have received a vehicle through a company and use it for personal mileage it will be a BIK. If the fuel costs are covered by the employer this is also a BIK.

Calculating Employee Benefits In Kind for Vehicles

When it comes to vehicles, the way the BIK tax owed by employees is calculated depends on the type of vehicle. Recent legislation changes to how vehicles are classified should be considered when assessing how you account for new vehicles.

Vans

Benefits for vans are calculated as flat rates which are multiplied by the individual’s tax band. For 2023/24, the annual Van Benefit charge is £3,960, whilst the Fuel Benefit Charge is £757.

A basic rate (20%) taxpayer would owe:

Van Benefit Charge = 3960*20% = £792

Van Fuel Benefit Charge = 757*20% = £151.40

Total Tax Owed = £943.40

Cars

Calculating the BIK for cars is more complicated as you must use a BIK percentage. This percentage is based on the vehicle’s CO2 emissions (or electric range for hybrid vehicles). The percentage may increase by 4% for diesel cars if they do not meet RDE2 standards. The BIK percentages have been frozen until the 2024/25 tax year.

To calculate the BIK tax on a car, you multiply the list price or P11D value of the car by the BIK percentage, then multiply again by your tax band. The Fuel Benefit for cars is calculated by multiplying the Car Fuel Benefit Multiplier by the BIK percentage, then multiplying again by your tax band. The multiplier for 2023/24 is £27,800. This is set by HMRC for each tax year.

Example

You are a basic rate taxpayer, who had received a non-RDE2 compliant diesel car from your company with a list price of £17,000 and CO2 emissions of 117 g/km. The tax you would pay is as follows:

BIK % = 28+4 = 32%

Annual Benefit In Kind (BIK) Tax = 17000*32%*20% = £1,088

Car Fuel Benefit Charge = £27,800*32%*20% = £1,779.20

Total Tax Owed = £2867.20

Paying for Benefits In Kind – Employers

BIKs are filed by employers using P11D forms. This will account for the benefit by increasing the individual’s salary. Employers will pay a National Insurance Contribution of 13.8% on the value of the BIK. The total BIKs per tax year must be reported by employers using a P11D(b) form, which summarises the benefits provided to all employees during the period. This must be submitted by 6th July following the period. For example, the P11D(b) form for the 2023/24 tax year must be submitted by 6th July 2024.

Paying for Benefits In Kind – Employees

Employees will likely pay for BIKs through their tax code. HMRC will amend the employee’s tax code to allow the tax owed to be deducted from their wages. It can, however, take time for the P11D submission to be processed and therefore you may receive a notice stating you have underpaid your tax for the year. HMRC will collect the due tax via an updated tax code in a future tax year, or by issuing a simple assessment which allows the tax to be paid in one lump sum.

If you have any further questions about how Benefits In Kind apply to your business, or you are unsure of how they affect your tax, contact us for guidance.

Double Cab Pickups – Benefit In Kind Changes

Update – Government U-Turn

On 19th February 2024, 1 week after the classification criteria was updated, HMRC announced a full U-turn on the treatment of double cab pickups. It has been decided that they will now continue to use the payload system to classify vehicles, as explained in our “How Were Double Cab Pickups Treated Previously?” section. This has occurred due to push back from the motor industry over the significant increase in tax the change would have caused for most double cab pickup owners.

Changes to the tax treatment of double cab pickups have recently been announced by the government. This will change how benefit-in-kind tax is calculated for these vehicles if owned by your company. These changes will be introduced to remove a loophole which allowed them to be accounted for as vans rather than company cars. The tax paid on vans is usually lower than the tax paid on cars.

How Will Double Cab Pickups be Accounted for?

For vehicles ordered on or after 1st July 2024, new criteria will dictate that almost all double cab pickups will be classed as cars. This is due to the new legislation used to determine how a vehicle should be classified.

 If a vehicle’s primary suitability is construction, it will be classed as a van. This means that the vehicle must only be used for transporting goods. As double cab pickups can transport both goods and passengers, they cannot be classed as vans and must be treated as cars.

Vehicles that are already on fleet or have been ordered prior to 1st July will be treated as they were until 5th April 2028.

How Were Double Cab Pickups Treated Previously?

The old criteria that were used to decide whether a vehicle was a car or van was dependent on payload. A vehicles payload is usually given in the manufacturer’s manual and is equal to the gross weight minus the unoccupied kerb weight.

Vehicles with a payload under 1 tonne would be classed as cars, whilst those which are 1 tonne or over would be classed as vans.

Double cab pickups are much heavier than standard cars; they would almost always meet the old van criteria.

Will All Double Cab Pickups be Classed as Cars?

Not necessarily. Within the legislation, the government have included exceptions which could allow double cab pickups to be classed as vans. This is dependent on whether modifications have been made to the vehicle.

The modifications must be “sufficiently permanent & substantial in scale”. Examples provided include replacement of the rear side windows (either with metal panels or fibreglass) or welding a new load base.

Defining whether a modification can fit the criteria can be difficult. For example, removal of the rear seats of a double cab pickup would only be classed as substantial if all the related fittings are also removed. The easiest way to check that the modification is substantial is if it could be easily reversed. If so, the changes cannot be used to justify the van classification.

How does the Benefit in Kind Differ?

A benefit in kind (BIK) is defined as goods and services received by employees or directors from a company which are not included in their salary. An example of a BIK is a company vehicle. The method of taxing these BIKs is dependent on the type of vehicle they are classed as.

Vans use a flat rate to calculate the tax owed. On the other hand, the tax owed on cars is dependent on the CO2 emissions and list price of the vehicle. Please see our Vehicle Benefit In Kind Breakdown for more information on how it is calculated.

Example

The tax owed by a basic rate (20%) taxpayer on a petrol-powered double cab pickup with a list price of £20,000 and CO2 emissions of 170 g/km would be calculated as follows if it was classed as a car:

BIK% = 37%

BIK Tax = 20000*37%*20% = £1,480

Fuel Benefit Tax = 27800*37%*20% = £2057.20

Total tax owed = £3,537.20.

The calculation for the same vehicle if classed as a van is as follows:

BIK Tax = 3960*20% = £792

Fuel Benefit Tax = £757*20% = £151.40

Total tax owed = £943.40

You would have to pay £2,593.80 more if the vehicle was classed as a car. As double cab pickups tend to have both high list prices and high emissions, the tax owed will almost always be higher when classed as a car.

If you are unsure about how these changes could affect you, or you have any other queries about tax, please contact us

Self-Assessment – How to Pay

With the deadline for Self-Assessment approaching, it’s important to know both how to make your payments, and when to pay them.

What is Self-Assessment?

The self-assessment allows HMRC to collect income tax. Untaxed income must be included on a self-assessment. It will cover a tax year. Tax years run from 6th April to 5th April in the following year.

Who Needs to Complete a Self-Assessment?

You will need to complete a self-assessment if you have income that needs to be taxed. Examples of individuals who need to submit a tax return include:

  • Those with untaxed income.
  • Sole traders who have earned more than £1,000 during the tax year.
  • Directors who have drawn dividends during the tax year.
  • Those receiving income from rental properties.
  • Those with a taxable income of over £100,000.
  • Those who must pay the High Income Child Benefit Charge.

If you are unsure whether you will need to submit a tax return, you can check here.

What are the Self-Assessment Deadlines?

It is important that your self-assessment is submitted on time to avoid penalties. The deadlines are as follows:

  • Notifying HMRC that you need to submit a tax return – 5th October.
  • Paper tax return submissions – 31st October.
  • • Online tax return submissions – 31st January.
  • Payment Deadline – 31st January.

Each of these deadlines relate to the following tax year. For example, if you started renting a property in May 2023, you would need to submit a 2023-24 self-assessment. You would need to notify HMRC of this by 5th October 2024. If you were to submit a paper return for this period you must do so before 31st October 2024, or 31st January 2025 if it was submitted online. Your tax return payment must be made by 31st January 2025.

How Do I Pay my Self-Assessment Tax Bill?

There are a variety of methods which can be used to pay HMRC. These include Direct Debit, Faster Payments, CHAPS, and by Cheque. HMRC provide a breakdown of how each payment method works, and what information you will need to make them. You can find this information here.

When paying your tax bill, you should include a specific payment reference. This will be your 10-digit Unique Taxpayer Reference (UTR), followed by the letter “K”. If the wrong reference number is used it can lead to payment delays. You can find your UTR number on your HMRC online account or letters you receive from HMRC.

Paying via Tax Code

If eligible, you can pay your self-assessment tax code using your PAYE tax code. This means that the tax you owe will be automatically collected from your salary like your usual tax deductions. This can only be done if you meet the following criteria:

  • Your total tax bill is less than £3,000.
  • You already pay tax through PAYE.
  • Your self-assessment was submitted before 31st October by post/30th December online.

You can’t pay using your tax code if your taxable income does not meet the PAYE threshold, if you would be paying more than 50% of your taxable income in tax, or you would be paying more than twice your usual tax deduction.

If you meet all the criteria, HMRC will automatically collect the tax through your tax code unless specified on your tax return.

Budget Payment Plan

A Budget Payment Plan can be set up with HMRC to make payments towards the tax bill throughout the year. You can choose how much you pay and how often (e.g. weekly or monthly). The amount paid through the plan will be deducted from your next tax bill. If the payments do not cover the bill in full, you will pay the remainder by the deadline on 31st January. If you have overpaid, you can request a refund.

You can only set up a Budget Payment Plan if your self-assessment payments are up to date. You can check whether you are eligible here.

What are Payments on Account?

Payments on account are advance payments which are made towards your tax bill. You will make two payments a year, each being half of the tax bill from the previous year’s tax return. These payments are due by midnight on 31st January and 31st July. If, at the year end, your tax bill is greater than the sum of the payments made, you must pay the difference by 31st January the following year. This is known as the balancing payment.

For example, if your tax bill for the 2022-23 tax year was £2,500, and the sum of the payments on account came to £2,000 in 2022, the payment you would make on 31st January 2024 would be £1,750. This is made up of:

  • £500 for the balancing payment for the 2022-23 tax year.
  • £1,250 for the first payment on account for the 2023-24 tax year.

Please note that Payments on Account do not include capital gains or student loan payments. These will always be included as a balancing payment.

If you know that your tax bill will be less than in the previous year (i.e. you are now renting out one property rather than two), you can apply to reduce your payments on account. This can be done online via the Government Gateway or by post. You can find more information about this here.

What Penalties can be Issued for Self-Assessments?

The penalties HMRC can issue for self-assessments fall into two categories: late filing and late payment. Both types of penalty can be incurred at the same time.

A late filing penalty of £100 will be charged if the submission is 1 day late. Further penalties will be applied after:

PeriodPenalty Applied
3 months£10 per day, for a maximum of 90 days
6 monthsThe greater of 5% of the tax owed or £300
12 monthsThe greater of 5% of the tax owed or £300

For late payments, the penalties will be applied after:

PeriodPenalty Applied
30 days5% of the tax owed
6 monthsFurther 5% of the tax owed
12 monthsFurther 5% of the tax owed

If you receive a penalty which you disagree with you can appeal this with HMRC. Appeals must be made within 30 days of the penalty notice date and can be filed either online using a Government Gateway account or by post using an SA370 form. You can find more information about both methods here.

What Happens if I Over/Underpay?

No matter which payment method you use, if you overpay your tax bill, you will receive a refund from HMRC. If you have underpaid, interest will be charged. You will be able to track if your payments have been received on your HMRC online account.

If you have any further questions about paying your Self-Assessment tax bill, please contact us.

Autumn Statement 2023

On 22nd November 2023, the Chancellor of the Exchequer, Jeremy Hunt, set out the UK Government’s plans for the country’s economic growth in the 2023 Autumn Statement. This blog will outline the effects of these announcements on the public.

Growth, Inflation & GDP

It has been announced that forecasts produced by the Office for Budget Responsibility (OBR) show that the UK economy will grow by 0.6% this year and is now 1.8% larger than it was pre-pandemic. This is despite predictions in March that it would shrink by 0.2%. The rate of growth predicted earlier this year, however, was higher, meaning that the current forecast sees only a 0.6% improvement in growth for 2027 when compared with the March projections.

Inflation is currently at 4.6% and it is expected to fall to 2.8% by the end of 2024. A target of 2% has been set for 2025.

The Autumn Statement shows that GDP is expected to rise over the next four years, reaching 2% in 2027.

National Living Wage

From April 2024, the National Living Wage will increase to £11.44 per hour. This is a 9.8% increase from the current rate of £10.42. It is important to note that from April 2024, the rate bracket for ages 21-22 will be scrapped; workers aged 21 and over will be entitled to the National Living Wage.

Rates for the 2024 National Minimum Wage (workers aged 20 and under) are as follows:

  • Under 18s and apprentice rates – £6.40 per hour
  • 18–20 year-olds – £8.60 per hour

Please note that the apprentice rate only applies during the first year of the apprenticeship if the apprentice is aged 19 or over.

Employee National Insurance

Starting on 6th January 2024, Employee National Insurance will be cut to 10%. This is a 2% decrease from the current rate of NI. On an average salary of £35,000 a year, there will be a saving of £450. The government believes that decreasing employment taxes will increase employment rates as a higher net wage acts as an incentive to find work.

Taxing the Self-Employed

Self-Employed individuals currently pay Class 2 National Insurance at £3.45 per week (if your profits are over £12,570) and Class 4 National Insurance at 9% on profits between £12,570 and £50,270. The Chancellor has announced a reform for how the self employed are taxed. This means that, from April 2024, the Class 4 NI rate will be reduced to 8%. Class 2 NI will be abolished.

Pensions

In line with the pensions triple lock, the state pension will increase by 8.5% to £221.20 per week.

A call for evidence has been launched by the government relating to a “lifetime provider model” of pension schemes. This would allow contributions to be paid into an existing scheme when changing employers, rather than having several “small pot” pensions.

Benefits & Back to Work Scheme

It has been announced that Universal Credit and other benefits will be increasing by 6.7% from April 2024. This is in line with the September 2023 inflation figure.

£1.3 billion is set to be invested over the next five years to help those with health conditions find work. A new “Back to Work” scheme will also be introduced which will implement mandatory work placement for claimants who have been unemployed for 18 months. If this is not engaged with the claimant may have their benefits claim closed.

Full Expensing

Full expensing is a form of relief which allows businesses to claim 100% of capital allowances on investments in qualifying fixed assets. This was originally intended to cease in March 2026; however, it has been announced today that it will now be implemented permanently.

Research and Development

The Research and Development Expenditure and SME relief schemes will be merged in an effort to simplify tax. The tax rate applied to losses will be reduced to 19%. This will apply to R&D expenditure incurred during accounting periods beginning on or after 1st April 2024.

Additional Announcements

The following information has also been announced within the Autumn Statement:

  • The local housing allowance, which has been frozen for three years, will increase, being raised to the 30th percentile of local market rents.
  • The Small Business Procurement Act means that 30-day payment terms will now apply throughout the subcontract chain.
  • The small business multiplier has been frozen for another year. It has remained at 49.9 pence since the 2020-21 tax year.
  • Business rates relief for hospitality, retail and leisure has been extended for another year.
  • Alcohol duty will be frozen until August 2024.
  • Tobacco duty will increase from 22nd November 2023.
  • A further four investment zones will be introduced. These will be in the East Midlands, West Midlands, Greater Manchester and Wrexham, Wales. They hope to increase employment in those areas.
  • Increased funding has been proposed for apprenticeships, technology and AI development, and regeneration projects.
  • £4.5 billion has been proposed for supporting companies on the approach to the Net Zero deadline over the next 5 years.

If you have any concerns regarding the changes set out in the Autumn Statement and how they could impact you and your business, do not hesitate to contact us. You can find our contact information here.

VAT Penalties and Interest Charges

On 1st January 2023, changes were made to fines for late VAT filing and payments. Previously, the default VAT surcharge system was in place. This system meant that you would be fined a percentage of the VAT owed. This started at 2%, then increasing to 5%, 10%, and 15% every time a payment or VAT return was missed.

The new system implements a point system for late submissions, as well as new penalties and interest charges on late payments.

Late Filing Points System

The late filing point system works on the basis that every time VAT is submitted late, you will receive a penalty point. Once the penalty Point threshold is reached, a £200 penalty is applied. A further £200 penalty is issued for every late submission whilst at the threshold. The threshold is dependent on how frequently you submit your VAT return:

Accounting PeriodPenalty Points Threshold
Annually2
Quarterly4
Monthly5

HMRC will adjust both the threshold and the points you have been issued if you change your accounting period.

The penalty rules do not apply to the first VAT return, final VAT return, or one-off returns which cover a period other than those listed in the table above.

HMRC will issue a penalty decision letter to your registered business address if a penalty or penalty point has been given. This letter will offer a review with HMRC where you will be able to appeal the penalty. Also, penalties can be checked, and reviews can be requested through your VAT online account.

Late Payment Penalties

Late payment penalties have been introduced and can apply to any VAT that has not been paid in full by the due date. This is excluding payments on account and annual accounting scheme installments.  The penalty you will receive is dependent on both the number of days that the payment is overdue, and if it is your first penalty:

First Late Payment PenaltySecond Late Payment Penalty
Payments up to 15 days overdueNoneNone
Payments 16-30 days overdue2% of the VAT owed at day 15None
Payments 31 days or more overdue2% of what was outstanding at day 15.
Plus 2% of what is still outstanding at day 30.
Daily rate of 4% per year on the outstanding balance.
This is charged from day 31 until the outstanding balance is paid in full.

A period of familiarisation has been implemented until 31/12/2023. This means that first late penalties will not take effect if a payment is made within 30 days of the payment due date.

Much like the late filing penalties, HMRC will notify you of a late payment penalty via a penalty decision letter and details of the penalty will be available through your VAT online account.

Late Payment Interest

Late payment interest will now be applied from the first day that a VAT payment is overdue until the day it is paid in full. The interest rate directly correlates with the Bank of England’s base rate. It is calculated as the base rate plus 2.50%. This means that the current interest rate is 7.75%.

Payments that are subject to interest include:

  • VAT Returns
  • Corrections and Amendments
  • HMRC VAT Assessments
  • Missed Payments on Account
  • Late payment penalties
  • Late submission penalties

If interest is being applied to an amount which should be paid in installments, the interest will be charged on the outstanding balance until the tax has been paid in full.

Unfortunately, HMRC does not have an appeals process for late payment interest. However, you can object to the interest for a variety of reasons, such as, you believe HMRC has caused a mistake or there has been any unreasonable delay, you dispute the relevant date or effective date of payment, or you are questioning the legislation. It is important to note that interest objections can only be accepted if the tax relating to the interest has been fully paid. To discuss interest objections with HMRC, contact the VAT General Inquiries Helpline.

VAT Repayment Interest

On the other hand, if you are owed a VAT repayment from HMRC will also be applied. Like the late payment interest, the interest rate is dependent on the Bank of England’s base rate. It is calculated as the base rate minus 1%; the rate is currently 4.25%. Interest will not be applied on early payments or payments made in error (such as paying £2,500 instead of £250).

If the VAT has already been paid to HMRC, the repayment interest is calculated from the later date of either when the VAT was paid or the payment deadline for the period.

If the VAT has not been paid to HMRC, the repayment interest is calculated from the day after the later date of either the payment deadline or when the VAT was submitted.

HMRC will only pay repayment interest if there are no outstanding VAT returns. Because of this, the interest will only be paid from the date that all outstanding VAT returns are received.

The end date for the interest will be when HMRC repays the VAT, or it is set off against a different VAT return. It can also be set off against other types of tax you may owe.

If You Cannot Pay

If you are aware that you will not be able to pay your VAT in full by a deadline, call HMRC’s Payment Support Service for guidance. They have a specific line relating to VAT payments. One option they may propose is a payment plan. You can find out what you will be asked during the set up process, or if you can set up a payment plan online, here. Setting up a payment plan could lead to penalties being reduced.

HMRC offer a flexible plan known as a Time to Pay arrangement which will cover any penalties and interest that has been applied. If this arrangement is put in place before a penalty deadline, the penalties will not be applied. However, if you do not adhere to the conditions of the arrangement and it is cancelled, the penalties will be applied. You can find out more about Time to Pay here.

Contact Us

If you require our services for VAT, or have any further questions regarding your accounts, please do not hesitate to contact us.