Company cars

By Tolley in association with Philip Rutherford
Company cars

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
  • Tax planning
  • Salary sacrifice arrangements

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 114172 (Pt 3, Ch 6)

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

If the employer provides a cash alternative to the provision of a company car, this is subject to tax and NIC in the same way as salary.

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 (without the transfer of ownership), where that car is available for non-business use.

ITEPA 2003, s 114, EIM23205

The car benefit charge is designed to cover all the running costs of the car, such as service, insurance, road tax and congestion charge, and even covers fixed penalty notices provided the notice is attached to the car. Therefore, these costs are not charged as benefits in their own right.

ITEPA 2003, s 239; EIM21686

However, this exemption does not extend to the provision of a driver, which is subject to the rules in ITEPA 2003, ss 201210.

ITEPA 2003, s 239(5)
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

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