What is the guidance received from Inland Revenue with regards to the taxability of motor vehicle allowances (PAYE). Per Practice Note 3 of 2001 it says that for a bona fide allowance PAYE does not need to be withheld, but is this best practice and acceptable practice to Inland revenue?
There is no guidance on the % the allowance should be taxed. Our advice is to taxed between 50% and 100% of the allowance. The employee should be aware that if the allowance is not taxed 100% then they will need to retain proof of travel expenses and vehicle expenses as well as a logbook, in order to claim the expenses in the tax return. If this is not done, they employee may have to pay in on the tax return.
The Practice Note merely states that if an employee selects and can claim vehicle expenses, then no PAYE need to be withheld, however in the market, this is dangerous.
Hope this helps.
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