(1). B There is no private use adjustment where a car is used by an employee, and, as CO2 emissions are over 50 grams per kilometre, the car will be included in the special rate pool.
(2). C Where CO2 emissions are more than 50 grams per kilometre, 15% of a car’s leasing costs are disallowed. Therefore, £2,295 (2,700 less 15%) of the leasing costs are deductible.
(3). D The rate of approved mileage allowance for the first 10,000 business miles is 45p per mile, and 25p per mile thereafter. Simone’s expense claim is therefore £5,400 ((10,000 at 45p) + (3,600 at 25p)).
(4). A The relevant percentage is 27% (16% + 11% ((110 – 55)/5)). The car was only available for two months of 2023-24, so the benefit is £851 (18,900 x 27% x 2/12).
(5). B All the input VAT of £120 (720 x 20/120) for both private and business mileage can be recovered. The private use element will be accounted for by way of the output VAT scale charge.
(6).
(a)
Company car
(1). Sammi’s marginal rate of income tax is 40%, so her additional income tax liability for 2023-24 will be £12,136 (30,340 at 40%).
(2). There are no NIC implications for Sammi.
Tutorial note: There is no fuel benefit because fuel is not provided for private journeys.
Additional director’s remuneration
(1). Sammi’s additional income tax liability for 2023-24 will be £11,200 (28,000 at 40%).
(2). The additional employee’s class 1 NIC liability will be £560 (28,000 at 2%).
Tutorial note: Sammi’s director’s remuneration exceeds the upper earnings limit of £50,270, so her additional class 1 NIC liability is at the rate of 2%.
(b)
Company car
(1). The employer’s class 1A NIC liability in respect of the car benefit will be £4,187 (30,340 at 13.8%).
(2). The car has a CO2 emission rate in excess of 50 grams per kilometre, so only £23,562 (27,720 less 15%) of the leasing costs are allowed for corporation tax purposes.
(3). Smark Ltd’s corporation tax liability will be reduced by £6,937 ((4,187 + 23,562) at 25%).
Additional director’s remuneration
(1). The employer’s class 1 NIC liability in respect of the additional director’s remuneration will be £3,864 (28,000 at 13.8%).
(2). Smark Ltd’s corporation tax liability will be reduced by £7,966 ((28,000 + 3,864) at 25%).
(c)
(1). The net of tax cost of paying additional director’s remuneration is £23,898 (28,000 + 3,864 – 7,966).
(2). This is marginally beneficial compared to the alternative of providing a company car which has a net of tax cost of £24,970 (27,720 + 4,187 – 6,937).