Company cars

By Tolley in association with Philip Rutherford
Employment_tax_img

The following Employment Tax guidance note by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Company cars
  • Introduction
  • Employees chargeable to tax
  • Is there a car benefit?
  • Calculating the benefit
  • Adjustments to the benefit calculation
  • Exemptions and special conditions
  • Reporting the benefit
  • Salary sacrifice arrangements

This document discusses in detail the definition of a car and when a car benefit arises; calculation of benefit; non-availability restriction; exemptions; cars for disabled employees; reporting requirements; P11D treatment; salary sacrifice arrangements; and transitional rules.

 

Introduction

Company cars are one of the most common taxable benefits. In addition, they have quite a number of complex rules and onerous reporting requirements. Company cars are covered by very specific legislation.

ITEPA 2003, ss 114–172 (Part 3, Chapter 6)

Detailed guidance on each of the following sections to cover specific circumstances is available at Simon’s Taxes E4.625 (subscription sensitive), from HMRC at EIM23000 and within HMRC’s 480: Expenses and benefits ― a tax guide .

Employees chargeable to tax

A taxable benefit arises on the provision of a company car by an employer to an employee or a member of his family or household and that car is available for non-business use.

ITEPA 2003, s 114
Is there a car benefit?
What counts as a car?

For a taxable benefit to arise, the vehicle must be a car. A car is defined in ITEPA 2003, s 115 as a mechanically propelled vehicle which is not a goods vehicle, a motor cycle, an invalid carriage or a vehicle that is not commonly used as a private vehicle and unsuitable to be used as such. Therefore, every motor vehicle is treated as a car unless it meets the definition of one of the exceptions.

Generally, what constitutes a goods vehicle will be obvious but there is further consideration of what is covered by this exception in the Heavy goods vehicles guidance note.

What constitutes a motor cycle and invalid carriage are covered by the Road Traffic Act 1988, s 185 (subscription sensitive). Again, these should be obvious from the nature of the vehicle in question.

HMRC considers that almost all vehicles are capable of being used for personal use. Convincing HMRC that a vehicle falls within the final exception can, in practice, be very difficult.

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