This article features a number of issues relating to employees’ contributions towards company car costs and other expenses paid personally. I have dealt with a few cases in point recently and it has to be said that HMRC’s approach to claims for such costs leaves much to be desired. Persistence and firmness are necessary in some cases.
Capital contributions towards the cost of company cars
Provision is made (by ITEPA 2003, s 132) for an employee’s capital contribution towards the cost of purchase of a company car. Broadly, contributions towards the cost of the car or ‘qualifying accessory’ (see ss 125–130) are deducted from the list price of the car/accessory up to a maximum of £5,000, in calculating the ‘cash equivalent’ for benefit-in-kind purposes. It is perhaps worth mentioning that if the agreement with the employee provides that the full contribution or a fixed amount will be returned to the employee when he changes the car, HMRC would regard this as a loan by the employee, and no allowance would be made (see EIM24360, EIM24365).
There have, of course, been attempts to avoid any benefit-in-kind at all by the employee becoming a part-owner of a company car, on the basis that the vehicle is available for his use by virtue of his part-ownership and not as a result of any provision by the company. In Christensen v Vasili [2004] STC 935 the company purchased a second hand Ferrari and sold a 5% share to Mr Vasili. ITEPA 2003 s 114(a) applies to a car ‘made available (without any transfer of the property in it) to the employee’ (my italics). However, the judgement of Pumfrey J was that this did not prevent the car from having been ‘made available’ by the company.
The ratio of Vasili has been followed in a number of other court/tribunal decisions including G R Solutions Ltd v HMRC [2012] UKFTT 234 (TC). In that case, the car had been purchased by the director who then sold a 90% interest to the company (the reverse of Vasili). Both tribunals followed Vasili and considered that it was immaterial how the joint ownership had come about. Both tribunals also agreed with HMRC’s argument that as income tax is a yearly tax the question of whether the car had been made available had to be considered for the year in question: the point in time when a car is ‘made available’ refers to when the car is used, not to the circumstances of its purchase or ownership.
It is probably fair to say that any future ‘cunning plan’ to avoid a car benefit based upon joint ownership is likely to fail.
Contributions towards insurance and maintenance etc.
Where, as a condition of a company car being available for the employee’s private use, the employee makes a payment for that use, the legislation (ITEPA 2003 s 144) provides for a deduction to be made in calculating the cash equivalent. That seems straightforward enough; however, we have to contend with the rather silly decision in CIR v Quigley [1995] STC 931, where an employee was given a company car on condition that he pay the insurance. The (Scottish) Court of Session agreed with HMRC the payments made were for the insurance of the car not for the use of it and therefore no deduction could be made. In the view of HMRC, other direct payments for petrol, servicing etc., also do not count as being for the use of the car (EIM25255).
If an employee requires the use of a car for his employment and the employer requires the employee to pay for certain costs, it seems mere common sense that the payments are in exchange for the private use of the car. However, in order to obtain relief it is vital that any payments made by the employee meet the strict wording of s 144.
Statutory mileage allowance relief
In cases dealt with recently the employee used his own car for business and was reimbursed by the company, but only at the advisory fuel rates for company cars of 15p per mile. The employee therefore was entitled to mileage allowance relief (MAR) for the difference between the amounts reimbursed and the statutory mileage rates of 45p per mile for the first 10,000 miles and 25p over that. The claim was therefore completely straightforward except that HMRC staff appear brainwashed into a ‘computer says no’ mentality regardless of the Taxpayer’s Charter and the fact that the employee has paid money out of his own pocket for which relief is provided by statute and to which he is therefore entitled.
Initially, HMRC demanded a disproportionate amount of evidence including a log of mileages, places visited, purpose of visit and even fuel receipts on the basis that only the ‘actual costs’ could be claimed. It is of course no longer possible to claim for actual mileage costs as an alternative to MAR. I argued that since the employee had provided details of his business mileages to his employer’s satisfaction (and for which a ‘dispensation’ should have been in force) I could see no reason why that should not also be acceptable to HMRC. There is of course no statutory requirement for an employee to maintain the sort of records which HMRC were asking for.
Obviously, for a claim to MAR a log of business mileages would be a minimum, but even that could be estimated in some cases. However, HMRC’s generally obstructive attitude may well put off many employees (especially if not professionally represented) from claiming expenses which they are legitimately entitled to claim.
Mobile phones
The employees I have recently represented are area managers who are contacted on their mobiles at home early each morning and advised where their services are needed, on a day-to-day, week-to-week basis. A mobile phone is therefore essential equipment but which the company does not provide. They each pay quite high tariffs for the phone rental and given that business use is, say, 75%, one would think that most of the cost would be allowable for tax purposes.
HMRC guidance (at EIM32945-EIM32951) basically considers that there is no claim for mobile phone rental costs because those costs would have been incurred anyway. Moreover, the examples given at EIM32951 are based upon the assumption that where ‘free’ minutes are included in the tariff the cost is therefore nil. I cannot be the only person who considers that this is nonsense.
There is, as they say, no such thing as a free lunch. The ‘free’ minutes are not free gratis: it is simply that they are included in the tariff. If you pay a higher tariff you get more free minutes. In a situation where a mobile phone is essential for the proper performance of the duties of the employment and where business use predominates, it seems to me that relief should be available for the rental charges based upon the proportion of the total use which represents business calls.
To my mind, there is no element of ‘dual purpose’; when the phone is being used for business purposes it is being used exclusively for those purposes. It is a question of identifying the cost, which involves practical difficulties but, again, estimates may be acceptable based, perhaps, on a sample period. As this view goes against the HMRC published guidance, though, a claim on such lines may be an uphill struggle, especially given recent experiences with HMRC!
Practical Tip:
Where an employee is required to pay towards insurance, repairs etc., as a condition of being provided with a company car, it is vital that:
- There is a written agreement between the company and employee based upon the wording of ITEPA 2003 s 144, i.e. that as a condition of the car being available for the employee’s private use, the employee will pay amounts to the company for such use, as advised by the company from time to time; and
- The company pays the insurance, servicing etc., directly and the employee reimburses the costs to the company/employer.
