Company Cars – Matters to be aware of

We are often asked by clients to advise regarding company cars, so I thought it would be helpful to summarise a couple of points for you which have been highlighted in recent Tribunal hearings which have, unfortunately, gone in favour of the Revenue.

Pool cars

It is often thought that if a car is generally available to anyone who needs to drive it, it must be a pool car and therefore not taxable as a benefit in kind on anyone. Sadly, HMRC and the Courts do not agree.

To be exempt, the car must be one which is:

• Actually used by more than one employee or director
• Not ordinarily used by any one employee or director to the exclusion of all others
• Not normally kept overnight at or near the home of a director or employee (except where its kept overnight on premises occupied by the employer company)
• Not used by anyone for private (including home-to-work) travel at all (except for private use which is “incidental” to business use, such as taking a car home overnight in readiness for a business trip starting very early the next day)

The rules are very strictly applied and, if challenged, you need evidence to prove that they are met.

Car leasing costs

It would be rational and logical to assume that if your company leases a car for your use, and you reimburse the full amount of the leasing cost, you would have no taxable benefit. Rational, logical but not correct.

Recent tax cases have established that the correct tax treatment is that the appropriate car “scale charge” benefit remains in place. This means that even applying the correct treatment for reimbursement, the best you can achieve will be to reduce the taxable benefit pound for pound by the amount reimbursed, although even that reduction should not be taken for granted and is dependent on jumping through some hoops. Worse still, in general, the “scale charge” for a car is nowadays likely to exceed the cost of leasing it, so even if you reimburse the full leasing cost it is likely that you will be left with some residual charge to tax. Illogical as Mr Spock would say, but true.

If you have any questions or queries around these issues, please contact us. Our in-house experts on benefits, would be happy to undertake a more detailed review for you if necessary.

Steven Strauss
Senior Member
Simmons Gainsford LLP

steven.strauss@sgllp.co.uk