Company cars have long been used by businesses to reward and retain staff as an extra perk on top of a standard salary. Unfortunately, the Government levies tax on company cars and HMRC have not issued any guidance on how the Coronavirus pandemic will affect the taxation of company cars.
This company car tax is called Benefit-In-Kind (BIK) tax, as the cars are seen as an additional taxable benefit that falls outside of standard salary with its income tax and National Insurance tax contributions.
But what happens if your staff are self-isolating or have been furloughed by you? We’ll assume your staff are not allowed to use the vehicle privately, whilst self-isolating or furloughed.
HMRC have not issued any guidance on how the Coronavirus pandemic will affect the taxation of company cars. Historically, HMRC have taken a very limited view of when a vehicle is not available to an employee. In their guidance for inspectors they state that they will agree a car is not available, only if either of the following situations apply
- the car is physically incapable of being used, for example it has broken down and has not been repaired, or is still in the garage undergoing repairs
- the employee is unable to gain access to the car because he or she does not have the keys to the car, and has no power or authority to
- direct the person who has the keys to hand them over, or
- direct the person who has the keys to drive the employee to a location of the employee’s choice.
In addition they also require that if the car was available both before and after the period in question, the period must last at least 30 consecutive days in order to count as a period of unavailability.
HMRC state that the car does not count as being unavailable to the employee simply because the employee is:
- banned from driving, or
- out of the country on business or holiday, or
- unable to drive the car for some other reason, for example illness.
HMRC argue that in some of these circumstances it may be the case that the employee is unavailable to drive the car. But that is not the same as the car being unavailable to the employee, which is what the legislation requires.
Neither does the car count as unavailable simply because there is no current:
- road tax
- MOT certificate, or
- car insurance.
Possible solution during an extended Coronavirus Shutdown
In order to prevent employees being assessed to a BIK tax charge, a business can introduce a temporary Coronavirus car usage policy.
1. You have a new company car policy set up that private use is forbidden by all employees during the pandemic.
2. The company policy needs to say any private use of the car will result in legally enforceable disciplinary proceedings
3. The company writes a letter under the terms and conditions of the policy to the driver banning private use
4. The driver writes a letter acknowledging he will comply with company policy and the car will only be used for business use.
5. The driver must keep a mileage log of all the business only journeys driven, meticulously and make it available for the company to inspect. This needs to be in the company car policy too.
6. The driver should retain evidence of any journeys e.g. to visit customer X and copy of X’s email setting up appointment. This should be in the company policy too.
4. Not a single use of the car can be made for private purposes
5. The insurance is changed to business use only
6. The car must be stored on company premises. Or if a home worker outside the registered office
7. It might help if the policy has a clause which says the driver must have an alternative car available for private use.
In this case HMRC would need to be satisfied that not only was private usage forbidden, it was also not going on in practice in order to avoid a BIK charge.
Another option is to ask the leasing company (if the vehicles are leased) to suspend payments and keep the vehicles in a secure place, or, at least, take ownership of the keys and fobs.
SRC-Time is one of the South East’s leading firms in advising employers about the taxation consequences of providing benefits in kind. We can be contacted on 01273 326 556 or you can drop us an email at firstname.lastname@example.org or speak with an account manager to get expert help.