If you incur expenses in doing your job, you may be able to claim tax relief. While the rules governing the availability of relief are strict, the process for claiming relief where it is available is relatively straightforward.

Availability of tax relief

Expenses that may qualify for tax relief include travel expenses incurred in relation to business travel, mileage allowances if you use your own car for business journeys, the cost of professional fees or subscriptions and the additional costs of working at home. However, it should be noted that the rules are strict and where a deduction is not granted by a specific provision, the general rule only permits a deduction for expenses incurred wholly, exclusively and necessarily in the performance of the duties of your employment.

Claiming relief  

If you are eligible to claim tax relief for employment expenses, there are various ways in which this can be done.

Route 1: Claim online

You may be able to claim online.

Before making a claim, you can check whether you can use the online service by using the tool which can be found at www.tax.service.gov.uk/claim-tax-relief-expenses. You cannot make a claim online if:

• you are making the claim on behalf of someone else;
• you complete a self-assessment tax return;
• you are claiming tax relief for expenses of more than £2,500; or
• you are making a claim for more than five different jobs.

If you are eligible to use the online claim service, you will need to include all the expenses that you want to claim for the relevant tax year. The total shown on the summary page will be used to work out the tax relief to which you are entitled.

The online service is available on the Gov.uk website at www.gov.uk/guidance/claim-income-tax-relief-for-your-employment-expenses-p87.

Route 2: Postal claim

You must make a claim by post if you are claiming on behalf of someone else or you are claiming relief for expenses for more than five jobs. Postal claims are only accepted on form P87, which is available to download on the Gov.uk website at www.gov.uk/government/publications/claim-income-tax-relief-for-your-employment-expenses-by-post.

It should be noted that the following information is mandatory, and the form will be rejected if it is not included:

• all section 1 information with the exception of title and contact phone number;
• the employer’s PAYE reference in section 2; and
• the type of industry in respect of which expenses are being claimed in section 2.

Route 3: Telephone claims

A claim can be made by phone (0300 200 3300) if a claim has been made in previous years for the same expense type and your total expenses are either less than £1,000 or less than £2,500 for professional fees and subscriptions.

Claims cannot be made by phone for expenses incurred as a result of working from home.

Route 4: Self-assessment tax return

If you complete a self-assessment tax return, you should claim relief for employment expenses in the employment pages of your tax return.

Trivial benefits have their own tax exemption, which if used wisely can be used to treat employees. The exemption can also be used by personal and family companies as part of a tax-efficient profit extraction strategy.

Nature of the exemption

The exemption applies if all of the following conditions are met:

1. The cost of providing the benefit does not exceed £50.
2. The benefit is not cash or a cash voucher.
3. The employee is not contractually entitled to the benefit.
4. The benefit is not provided in recognition of particular services.

Where the benefit is provided to a group of employees and it is impracticable to work out the cost of providing the benefit to each individual employee, the average cost can be used instead. To fall within the terms of the exemption, this should not exceed £50.

The exemption can be used to give employees Christmas or birthday gifts or treats unrelated to their performance.

There are, however, a number of traps to be wary of.

Trap 1: Close company trap

If the employer is a close company, the total value of tax-free trivial benefits that can be provided to a director or other office holder (or a member of their family or household) is capped at £300 a year. Otherwise there is no limit on the number of tax-free trivial benefits that can be provided in the tax year.

Trap 2: Reward for services trap

The exemption does not apply if the benefit is a reward for services. This means that it does not apply to a gift given to an employee for working later or for going above and beyond what is expected to deliver an excellent service to a client. This restriction also means that it cannot be used to shelter a taxi home when an employee works late and the journey is not covered by the separate exemption for late night taxis. In each case, the benefit is a reward for services and does not pass the trivial benefit test.

Trap 3: Contractual entitlement trap

The exemption does not apply if the employee has a contractual right to the benefit. This includes a right to expect it based on employer behaviour. Here, HMRC have previously used the (somewhat ridiculous) example of employees being given a cream cake every Friday to argue that their provision falls outside the trivial benefit exemption; employees have the expectation that they will receive a cake each Friday and as such the provision will fail the ‘no contractual entitlement’ test. While this may be an extreme example, it is probably wise to vary benefits provided under the terms of the exemption to avoid a potential challenge from HMRC. However, HMRC guidance instructs HMRC staff not to challenge a gift such as a birthday or Christmas gift simply because it is provided every year. They also accept that the provision of free tea and coffee is within the exemption.

Trap 4: The gift card trap

The trivial benefit exemption only applies if the cost of the benefit does not exceed £50. Caution needs to be exercised if the benefit is provided via an app or the employee is given a gift card, which is topped up periodically. Here the cost is the total cost for the tax year, rather than that each time the app or gift card is used, and where this exceeds £50 for the tax year, the exemption will not apply. For example, if an employee is given access to an app that allows them to order a free bunch of flowers costing £30 each month, the exemption will not apply despite the fact that each bunch of flowers costs less than £50 as the cost of using the app is £360 for the tax year. The trap applies in a similar way if the employee is given a season ticket for sporting or cultural events.

Proceed with caution

Used wisely, the trivial benefits exemption can be a tax-efficient way to treat employees and engender goodwill. However, care must be taken not to fall foul of the traps. If the exemption does not apply, it may be possible for the employer to use a PAYE Settlement Agreement to settle the tax bill on the employee’s behalf.

A popular profit extraction strategy is to pay a small salary and to extract further profits as dividends.

Why pay a salary?

There are a number of benefits of paying a small salary in order to take money out of a personal or family company for personal use.

Reason 1

If a salary is paid at a level that is at least equal to the lower earnings limit for Class 1 National Insurance purposes – set at £6,396 for 2023/24 – the year will be a qualifying year for state pension and contributory benefit purposes. An individual needs 35 qualifying years to be eligible for the full single-tier state pension, and at least ten qualifying years to access a reduced state pension.

Where the salary is at least equal to the lower earnings limit and does not exceed the primary threshold (set at £12,570 for 2023/24), the individual is treated as having paid Class 1 National Insurance contributions at a zero rate. This effectively gives them a qualifying year for free.

If you do not currently have the requisite 35 years, it is worthwhile paying a small salary to secure an additional qualifying year.

Reason 2

If your available personal allowance is at least equal to the salary that is paid, the salary can be paid tax-free. Extracting profits from the company without triggering a tax bill is worthwhile.

Reason 3

Salary payments and any associated employer’s National Insurance are deductible in calculating the taxable profits for corporation tax purposes. This will save corporation tax at the prevailing rate, which from 1 April 2023 is between 19% and 25% depending on the level of your taxable profits.

Reason 4

A salary can be paid regardless of the level of the company’s profits. Indeed, it is still possible to pay a salary even if doing so means that the company makes a loss. By contrast, dividends can only be paid if you have sufficient retained profits from which to pay them.

Salary level

The optimal salary level will depend on personal circumstances. However, as the standard personal allowance and the National Insurance primary threshold are now the same, if the personal allowance remains available, the position is more straightforward than in previous years.

Where the standard personal allowance is available in full, the optimal salary is one equal to the personal allowance, set at £12,570 for 2023/24. At this level, there is no tax to pay and no primary Class 1 National Insurance contributions to pay either.

There may, however, be some secondary (employer’s) National Insurance contributions to pay if the employment allowance is not available (as is the case for a personal company where the sole employee is also a director), or if it has been used up. Where this is the case, employer contributions are payable at the rate of 13.8% where the salary exceeds the secondary threshold, set at £9,100 for 2023/24. If a salary of £12,570 is paid, the secondary Class 1 National Insurance bill will be £478.86.

However, as with the salary, employer National Insurance contributions are deductible for corporation tax purposes, meaning that paying a salary equal to the personal allowance is still worthwhile.

If the employment allowance is available, as may be the case for a family company, there will be no secondary National Insurance to pay on a salary equal to the personal allowance.

Once the personal allowance has been used up, it is better to extract further profits as dividends, which are taxed at a lower rate. Any additional salary will attract tax at 20% and employee’s Class 1 National Insurance of 12%, in addition to any employer’s National Insurance that may be due. This will outweigh any associated corporation tax savings.

If the full personal allowance is not available, it is necessary to crunch the numbers as the optimal salary will depend on both individual circumstances and the rate at which the company pays corporation tax.

If you have a personal or family company, taking dividends is a popular and tax-efficient way to extract profits. However, while they remain tax efficient, recent tax changes have eroded some of the advantages. What do you need to know when planning your dividend extraction strategy for 2023/24?

Impact of corporation tax changes

From 1 April 2023, changes are made to the way in which corporation tax is calculated. If your profits are more than £50,000, you will pay corporation tax at a higher rate than prior to that date, reducing the post-tax profits that you have available to pay as a dividend. Remember, dividends are paid from retained profits and you can only pay a dividend if you have sufficient retained profits from which to pay it. Even if your profits are unchanged, you may not be able to maintain previous dividend payments if your effective rate of corporation tax rises from 1 April 2023.

Reduction in the dividend allowance

All individuals, regardless of the rate at which they pay tax, are entitled to a dividend allowance. This was set at £2,000 for 2022/23 but is halved to £1,000 for 2023/24. It is to be further reduced to £500 for 2024/25.

The dividend allowance operates as a zero-rate band. Dividends which are covered by the allowance are taxed at a zero rate, but the allowance uses up some of the tax band in which the dividends (taxed as the top slice of income) fall. The reduction in the dividend allowance will reduce the profits that can be extracted free of further tax.

In a family company, an alphabet share structure is often used to facilitate the payment of dividends to family members whose dividend allowance would otherwise be wasted, increasing the profits that can be extracted tax-free. This strategy may need reviewing in light of the falling dividend allowance.

Dividend tax rates

Dividends are attractive as the dividend tax rates are lower than the income tax rates. However, it should be remembered that corporation tax has already been paid on the profits which are paid out as dividends.

The dividend tax rates were increased by 1.25 percentage points from 6 April 2022 pending the introduction of the now-cancelled Health and Social Care Levy. Although the Health and Social Care Levy is not going ahead, the dividend tax rates are to remain at the increased levels for 2023/24. Consequently, dividends are taxed at 8.75% where they fall in the basic rate band, at 33.75% where they fall in the higher rate band and at 39.35% where they fall in the additional rate band.

Additional rate threshold

The dividend additional rate will apply if dividends are paid in excess of the dividend allowance and taxable income exceeds the additional rate threshold. This is reduced to £125,140 for 2023/24 from £150,000 previously.

Summary

As a result of these changes, you may have less profits available from which to pay dividends. Where dividends are paid, only £1,000 will be tax-free. Above this level, dividends will continue to be taxed at the higher rates introduced from April 2022. Further, the additional rate will now bite where taxable income exceeds £125,140.

In an alphabet share structure, each shareholder has a different class of share. For example, one shareholder may have A ordinary shares, another B ordinary shares, another C ordinary shares, and so on. The benefit of an alphabet share structure is that it provides the flexibility to tailor dividends to take account of the shareholder’s personal circumstances. Under company law, dividends must be paid in proportion to shareholdings. Having an alphabet share structure overcomes this restriction and is popular in family companies.

Utilising the dividend allowance

One advantage of an alphabet share structure is that it allows dividends to be paid to a shareholder who may work outside the family company but who has not fully used their dividend allowance for the tax year. The available dividend allowances can be utilised to increase the profits that can be extracted tax-free.

However, the dividend allowance is being reduced, curtailing the opportunities to extract tax-free profits in this manner. The dividend allowance was set at £2,000 for 2022/23. It is reduced to £1,000 for 2023/24 and to £500 for 2024/25. Thus, in a family company with four shareholders, it was possible to extract £8,000 of profit tax-free by making use of the shareholders’ dividend allowance in 2022/23. By 2024/25, it will only be possible to extract £2,000 of profit tax-free in this way.

Using lower tax bands

Although the reduction in the dividend allowance reduces the potential to extract profit free of further tax, having an alphabet share structure in place may still be beneficial if the shareholders have different marginal rates of tax, allowing dividends to be tailored so that they are taxed at the lowest possible rate. For 2023/24 dividends are taxed at 8.75% where they fall in the basic rate band, at 33.75% where they fall in the higher rate band and at 39.35% where they fall in the additional rate band.

Example

Albert, Betty, and Charlotte are shareholders in ABC Ltd. Albert has 100 A ordinary shares, Betty has 100 B ordinary shares and Charlotte has 100 C ordinary shares.

For 2023/24 the company has profits of £45,000 that they wish to extract. Albert has another job and is an additional rate taxpayer. Betty has an income from property of £35,270 a year and Charlotte has an income of £20,270 from her part-time job. They all have their dividend allowance available.

To minimise the tax payable, the company declares a dividend of £10 per share for A ordinary shares, a dividend of £150 per share for B ordinary shares and a dividend of £290 per share for C ordinary shares.

Albert receives a dividend of £1,000. This is sheltered by his dividend allowance and is tax-free.

Betty receives a dividend of £15,000 of which £1,000 is sheltered by her dividend allowance and is tax-free. The remaining £14,000 is taxable at the dividend ordinary rate of 8.75% (a tax bill of £1,225), which uses up her remaining basic rate band.

Charlotte receives a dividend of £29,000 of which £1,000 is sheltered by her dividend allowance and received tax-free. The remaining £28,000 falls within her basic rate band and is taxed at 8.75% (a tax bill of £2,450).

The total tax bill is £3,675.

Had each taxpayer received a dividend of £15,000, the total tax bill would have been £7,959. Albert would pay tax on £14,000 of his dividend at 39.35% and Betty and Charlotte would each pay tax at 8.75% on £14,000 of their dividend. The remaining £1,000 of each dividend would be sheltered by the dividend allowance. By having an alphabet share structure, they can tailor the dividends to reduce the total tax bill by £4,284.

Changes to the corporation tax regime come into effect from 1 April 2023 – the start of the financial year (FY) 2023. From that date there will no longer be a single rate of corporation tax; rather, the rate at which a company pays tax on its profits will depend on the level of those profits.

Small profits rate

Companies whose taxable profits are below the lower limit continue to pay tax on those profits at the rate of 19%.

The lower limit is set at £50,000 for a stand-alone company.

Main rate

Companies with profits above the upper profits limit will from 1 April 2023 pay corporation tax at the main rate of 25% on those profits.

The upper limit is set at £250,000 for a stand-alone company.

Availability of marginal relief

Where a company’s profits fall between the lower and upper limits (£50,000 and £250,000 for a stand-alone company), corporation tax is charged at the rate of 25% as reduced by marginal relief. This gives an effective rate of between 19% and 25% depending on where in the band the profits fall.

Marginal relief is calculated by the following formula:

F X (U – A) x N/A

Where:

F is the standard marginal relief fraction

U is the upper limit

A is the amount of augmented profits

N is the amount of the taxable profits.

For the financial year 2023, the marginal relief fraction is 3/200.

Augmented profits are total taxable profits plus qualifying exempt distributions that are received from companies that are not 51% subsidiaries or owned through a consortium.

Where the company has no qualifying exempt distributions (so that A and N in the above formula are the same), the formula can be simplified to:

F x (U – N)

Example

A company prepares accounts to 31 March each year. For the year to 31 March 2024, it has taxable profits of £120,000. It did not receive any qualifying exempt distributions.

It must pay tax of £30,000 (£120,000 @ 25%) less marginal relief.

As the company has no qualifying exempt distributions, the simplified marginal relief calculation can be used.

The marginal relief is therefore 3/200 (£250,000 – £120,000) = £1,950.

The company’s corporation tax bill is therefore £28,050 (£30,000 – £1,950), an effective rate of 23.375%.

Associated companies and short accounting periods

If a company has associated companies, the lower and upper limits are divided by the number of associated companies plus one.

The following table shows the lower and upper limits for companies with between zero and five associates.

Number of associates	Lower profits limit	Upper profits limit
0	£50,000	£250,000
1	£25,000	£125,000
2	£16,667	£83,333
3	£12,500	£62,500
4	£10,000	£50,000
5	£8,333	£41,667

The limits are also proportionately reduced if the accounting period is less than 12 months.

Accounting period straddling 1 April 2023

Where the accounting period straddles 1 April 2023, the profits must be apportioned. Those relating to the period before 1 April 2023 are taxed at 19%, whereas those relating to the period on or after 1 April 2023 are taxed according to the rules set out above, prorating the limits accordingly.

The Employment Allowance is an allowance that eligible employers can claim to set against their secondary (employer’s) Class 1 National Insurance liability. The employment allowance is set at £5,000 for 2023/24, capped at the employer’s secondary Class 1 National Insurance for the year where this is less. It is not given automatically and must be claimed.

Eligible employers

The National Insurance Employment Allowance is only available to eligible employers. An employer can claim the allowance for 2023/24 if their employer’s Class 1 National Insurance liabilities in 2022/23 were less than £100,000, provided that the employer is not otherwise excluded. Where the employer is part of a group, the £100,000 limit applies to the group as a whole. Likewise, where the employer runs more than one payroll, the total employer’s Class 1 National Insurance liabilities across all the payrolls must be less than £100,000 for 2022/23.

Certain categories of employers are not able to claim the Employment Allowance even if their employer’s Class 1 National Insurance bill for 2022/23 was less than £100,000. This includes companies where the sole employee is also a director (ruling out most personal companies) and public bodies.

Making a claim

The employment allowance is not given automatically, and employers must claim it. The claim is made through the employer’s payroll software. If the employer uses HMRC’s Basic PAYE Tools package or a claim cannot be made through the employer’s payroll package, this can be used to make the claim.

The claim is made in an Employer Payment Summary (EPS) by selecting ‘yes’ for the ‘Employment Allowance indicator’ field.

If an employer is no longer eligible for the allowance or a claim has been made in error, the employer should enter ‘no’ in the ‘Employer Allowance indicator’ field when submitting their next EPS. If a claim is stopped before the end of the tax year, any Employment Allowance that has already been given will be clawed back, and the employer will need to pay the secondary Class 1 National Insurance previously sheltered by the allowance.

Claims can be made for the previous four tax years.

Using the allowance

Once the allowance has been claimed it will be set against the employer’s secondary Class 1 National Insurance liability until it is used up, reducing the amount that the employer has to pay. Where the allowance has not been fully utilised by the end of the tax year because the employer’s Class 1 National Insurance liability for the year is less than £5,000, the remaining allowance is lost; it cannot be carried forward to the next tax year or set against Class 1A or Class 1B liabilities.

If you have paid too much tax, you will be able to get a refund from HMRC. The mechanics for obtaining your refund depending on how the overpayment arose. Claims must be made within four years from the end of the tax year to which the refund relates.

Self-assessment overpayment

If you pay tax under a self-assessment tax return, you may be due a refund if your income has fallen and the payments that you made on account are more than your actual tax liability for the tax year.

You can claim a refund when you complete your tax return. You will need to complete the ‘If you have paid too much tax’ section of the return. If you want the refund to go to you, you will need to provide details of your bank or building society account into which you want the refund to be made. Taxpayers without a bank or building society account can opt for a cheque to be sent to them or to a nominee whose details must be provided on the return. Where tax was originally paid by card, HMRC will attempt to pay the refund back to that card before making the payment to a bank or building society account.

HMRC ask taxpayers to allow four weeks to receive the payment before contacting them.

You can also claim a refund by signing into your self-assessment account online and selecting the ‘request a repayment’ option. Where a claim has been made in the tax return, it is not necessary to claim online.

If you have outstanding tax liabilities, any overpayment will first be set against these liabilities before a refund is made.

PAYE overpayment

If you pay tax under PAYE, for example, on income from employment or a pension, an overpayment may arise if your tax code is incorrect if you worked at the start of the tax year but did not work for the full tax year.

If you have paid too much (or too little) tax, HMRC will send you a tax calculation letter (P800). If the letter indicates that you are owed a tax refund, you will be to claim the refund either online via the Gov.uk website or through the HMRC app.

A claim can be made online by signing into your personal tax account, selecting ‘Claim a refund’ and following the instructions. A refund can also be claimed via the HMRC app. To do this log into the app and select PAYE, which will show a summary of your tax position. If you are due a tax refund, the summary will show the amount of tax that HMRC owes you. You can make a refund claim by clicking the ‘Claim a refund’ button and following the instructions.

The repayment should be made within two weeks. However, if you have not received it in this time frame, HMRC asks that you wait four weeks before contacting them.

Interest

HMRC will pay interest on the overpaid tax from the date of payment to the date of refund. The rate is set at the base rate of less than 1% (subject to a minimum rate of 0.5%). From 21 February 2023, the repayment interest rate is 3%.

Beware of refund scams

Fraudsters may send scam texts or emails that promise tax rebates to trick people into providing their bank details. HMRC does not contact taxpayers by text or email to advise them that they are due a refund. If you think you are due a refund, check either your personal tax account or the app, and where one is due, claim through the correct channels.

As far as National Insurance was concerned, the 2022/23 tax year was a tricky one featuring in-year changes to the primary threshold and in-year changes to the Class 1, 1A, 1B and 4 rates. This resulted in some strange numbers, with average rates applying for the purposes of Class 1A, Class 1B and Class 4 contributions. Average rates are also applied for Class 1 purposes to company directors who have annual earnings periods.

Hopefully, 2023/24 will be more straightforward. At the moment, the NIC landscape for 2023/24 looks as follows.

Employees and employers: Class 1

The Class 1 thresholds remain unchanged for 2023/24 and are as shown in the table below.

National Insurance thresholds for 2023/24
Threshold	Weekly	Monthly	Annual
Lower earnings limit	£123	£533	£6,396
Primary threshold	£242	£1,048	£12,570
Secondary threshold	£175	£758	£9,100
Upper earnings limit	£967	£4,189	£50,270
Upper secondary threshold for under 21s	£967	£4,189	£50,270
Apprentice upper secondary threshold	£967	£4,189	£50,270
Veterans’ upper secondary threshold	£967	£4,189	£50,270
Freeport upper secondary threshold	£481	£2,083	£25,000

Employees will pay contributions at the main rate of 12% on earnings between the primary threshold and the upper earnings limit and at the additional primary rate of 2% on earnings above the upper earnings limit. Employees with earnings between the lower earnings limit and the primary threshold are treated as paying contributions at a notional zero rate, giving them a qualifying year for state pension purposes for zero contribution cost.

The employer pays secondary contributions at the secondary rate of 13.8% on the employee’s earnings where these exceed the secondary threshold or, as appropriate, the relevant upper secondary threshold.

The Employment Allowance remains at £5,000 for 2023/24.

Employers: Class 1A

Class 1A National Insurance contributions are payable by employers only on most taxable benefits in kind, and also on taxable termination payments over the £30,000 threshold and taxable sporting testimonials over the £100,000 threshold. The Class 1A rate is aligned with the secondary Class 1 rate and is set at 13.8% for 2023/24.

Employers: Class 1B

Class 1B National Insurance contributions are also employee-only. They are payable on items included in a PAYE Settlement Agreement (PSA) in place of Class 1 or Class 1A liabilities that would otherwise arise, and also on the tax due under the PSA. As with Class 1A, the Class 1B rate is aligned with the secondary Class 1 rate, set at 13.8% for 2023/24.

Self-employed: Class 2

Class 2 contributions are how the self-employed build up entitlement to the state pension. For 2023/24, Class 2 contributions are payable at £3.45 per week where profits exceed the lower profits threshold of £12,570. Where contributions are between the small profits threshold of £6,725 and the lower profits threshold, the self-employed earner is treated as making contributions at a zero rate, securing a qualifying year for zero contribution cost.

Where profits are below the small profit’s threshold, Class 2 contributions can be paid voluntarily. This is a cheaper option than making Class 3 contributions.

Self-employed: Class 4

The self-employed also pay Class 4 contributions on their profits. These contributions do not secure any benefit entitlement and are more akin to a tax.

For 2023/24, Class 4 contributions are payable at the main rate of 9% where profits are between the lower profits limit of £12,570 and the upper profits limit of £50,270, and at the additional Class 4 rate of 2% on profits over the upper profits limit.

Voluntary contributions: Class 3

An individual can pay voluntary Class 3 contributions to make up for gaps in their National Insurance record. For 2023/24, the Class 3 rate is £17.45 per week.

A tax charge may arise under the benefit in kind legislation where a company van is available for an employee’s private use. If fuel is also provided for private journeys, a separate fuel benefit tax charge arises. The van and fuel benefit charges for 2023/24 have now been announced.

Van benefit charge

The van benefit charge only arises if the company van is not an electric van and private use of the van is not limited to home-to-work travel. The amount is set each tax year and increased in line with the increase in the consumer price index. The taxable amount is £3,960 for 2023/24, up from £3,600 for 2022/23. The rise means that a basic rate taxpayer will pay £792 a year in tax and a higher rate taxpayer will pay £1,584 on the benefit of their company van for 2023/24.

Restricted private use

It is possible to have a company van and to use it for home-to-work travel without incurring a tax charge as long as the ‘restricted private use’ conditions are met. This test has two parts – the ‘commuter use requirement’ and the ‘business travel requirement’.

The commuter use requirement is met if the terms on which the van is made available to the employee prohibit private use other than for ordinary commuting journeys or journeys that are substantially the same. Ordinary commuting is normal home-to-work travel. In addition, the employee (or the employee’s family) must not have actually used the van for private use other than for ordinary commuting.

The business travel requirement is met if the van is made available to the employee mainly for business use.

If this test is met, the van benefit charge does not apply.

Electric vans

The charge for an electric van is nil. Consequently, employees with electric company vans can, where permitted to do so by their employer, use their company van for unrestricted private use without any associated tax charge. This makes an electric company van a tax-free benefit.

Fuel charge

A separate van fuel charge applies if a van charge arises in respect of the van and the employer meets the cost of fuel for private travel. This is set at £757 for 2023/24, up from £688 for 2022/23. Consequently, the perk of ‘free fuel’ will cost a basic rate taxpayer £151.40 in tax for 2023/24. For a higher rate taxpayer, the tax cost is £302.80.

There is no charge if fuel is provided for home-to-work travel and the restricted private use requirement is met. Likewise, there is no charge if the employer meets the cost of electricity for private travel in an electric van.