Company Car Conundrums!

What is a ‘company car benefit’?

It is a tax charge applied where an employee has the private use of a car made available to him, in connection with his or her employment. We shall look at a calculation in more detail later.

Warning

It does NOT apply just to companies. While it is often referred to as a ‘company car’, the taxable benefit also applies to partnerships and sole traders who provide cars to their employees (although, unlike directors, partners and sole traders will not have company cars themselves, because they are not employees).

Is it a ‘car’?

An unsurprisingly broad definition, it is ‘any mechanically propelled road vehicle’,

Except:

·       a vehicle built primarily to carry goods or other burdens (people are not ‘burden’);

·         a motorbike;

·         invalid carriage; and

·         a vehicle not normally used, or suitable to be used, as a private vehicle, such as a double-decker bus.

TICK

Has it been ‘made available’?

Where a car is made available for private use, it doesn’t matter whether or not it is actually used privately: mere availability is sufficient. This is a very low threshold and easily reached.

However, a car is not ‘available’ in this context simply because it is in the employee car park and an employee has access to the car keys: there has to be a conscious decision to make the car available to an employee, and that decision has to be communicated to the employee (directors are basically both employers and employees, so they may not need to make a formal decision to ‘make a car available’).

Note that the car does not have to be available to one employee exclusively, for the benefit to bite.

When will HMRC accept a car is unavailable?

·         The car cannot be driven, for example because it has broken down and/or is being repaired; or

·         The employee has no access to the vehicle, perhaps because the employer or a colleague has taken away the keys.

Note that a car normally has to be unavailable for a period spanning at least 30 days in order to ‘count’ towards reducing the annual benefit, unless the car is being withdrawn on a permanent basis (we shall look at the calculation in more detail later).

When will HMRC insist a car is still available? (EIM25175)

·         The employee cannot drive the car, perhaps because he or she is physically incapacitated/ill, or has been seconded to Timbuktu, for example; or

·         the employee cannot legally drive the car because he is banned or uninsured to do so; or

·         the car cannot be driven because it has no valid MOT or road tax.

There is some logic to HMRC’s argument that absence does not mean the car is unavailable, since a seconded employ could always come back home on leave, or at the weekend. But it is difficult to see how a car can still be ‘available’ if it is illegal to drive. We shall look at this again, later in the series.

A firm’s insurance policies can also be problematic: HMRC does not accept that being uninsured prevents a car being ‘available’ but if an employee is covered HMRC will often try to argue that a car is available and chargeable.

Warning: family members may count against you

The benefit cannot be avoided merely by making the car available to another member of an employee’s family. In such cases the benefit will still be assessed on the employee, on the basis that the car has been made available by reason of the employee’s relationship with the company.

Exception

Where the employer is an individual and is really making the car available to a relative for family reasons, rather than employment, then a liability may be avoided. But claiming tax relief on the vehicle and/or running expenses through the business would count against its being considered a family arrangement (EIM23255).

Both are employees?

If the other family member is also an employee in his or her own right, then it may be that the car has been made available directly to them. It should come as no surprise, however, that HMRC will normally try to assess the taxable benefit on the more senior (and generally higher-taxed) employee in the family; ITEPA 2003 s 169 generally prevents both employees being taxed on the same benefit.

TICK

Has the car been made available for ‘private use’?

‘Private use’ means any journey which is not a business journey. Commuting from home to work is normally treated as a private journey for company cars (the rules for vans are different), and note as before that it is not necessary to actually drive any private miles, as the benefit will be triggered just by being allowed to do so.

TICK

“...by reason of the employment”?

HMRC really has this condition sewn up: ITEPA 2003 s 117 stipulates that, where a car is made available to an employee by an employer, it is always deemed to have been made available ‘by reason of the employment’ (save for the exception above).

It is unusual for a car to be made available by a third party unconnected with the employer but it does happen – for example, salaried sportspeople do sometimes enjoy sponsorship which involves the provision of a car. The legislation does not automatically capture third-party provision, so such cases will turn on the facts, such as the relationship between the sponsor and the employer, and whether it is a team-wide arrangement.

TICK