As we enter another week of coronavirus lockdown HMRC have confirmed that company car drivers must still suffer a Benefit-in-Kind tax charge where they have access to private use of their vehicles. HMRC have confirmed that “the benefit charge applies where a car is made available for private use, whether or not it is so used. A car kept on an employee’s driveway during a period of furlough would still be considered to be made available”.
To pause or cease a company car benefit, the car must be unavailable for a period of at least 30 days.
Shorter periods of unavailability do not stop the benefit clock. The same applies if the employee is provided with private fuel.
A company car is still treated as ‘available for private use’ even if the employee is:
- instructed to not use the car
- asked to take and keep a photographic image of the mileage both before and after a period of furlough
- makes a SORN declaration as proof of unavailability
The only way to stop the car benefit is for the car to be physically handed back. As a result of the coronavirus, where this is not possible HMRC have confirmed that they will accept that a company car is unavailable when the car keys (including tabs or fobs) are returned to the employer or to a third party as instructed by the employer. In cases where the contract has been terminated, this applies from the date that keys are handed back but for contracts not terminated, cars will be classed as unavailable after 30 consecutive days from this date.
HMRC also recognise that following relaxation of coronavirus restrictions, it may take some time to collect cars where contracts have been terminated. Provided your employee continues to have no access to the keys until the car is collected from them, HMRC will still regard the car as being unavailable.
A basic rate taxpayer provided with a company car worth £34,550 and with CO2 emissions of 132g/km would attract a benefit in kind charge of £11,402. If the car were unavailable, the taxpayer could save £190 a month and a further £134 for private fuel. A higher rate taxpayer could save £380 per month and a further £269 for private fuel.
HMRC has also confirmed changes to salary sacrifice as a result of the pandemic. The guidance sets out that: “Changes in circumstances because of coronavirus are accepted as a lifestyle change which allows salary sacrifice arrangements to be reviewed. If your employee chooses to amend a salary sacrifice arrangement because of coronavirus, you must make sure the change is reflected in the terms and conditions of their employment
Consider sale and leaseback
For companies that own their own vehicles, a sale and leaseback arrangement can be a good way of realising some much-needed cash flow for the business.
With a sale and leaseback agreement, an organisation frees the capital tied up in its owned vehicles by selling them to a leasing company and contract hiring them back for an agreed monthly rental.
The business gains the advantage of fixed monthly expenditure, which can include maintenance, tyres and servicing so that fleet costs can also budgeted for, giving true fixed cost motoring.
Lease rentals are corporation tax deductible and the business no longer bears the financial risks associated with vehicle depreciation or the concern around residual values.
For further advice, please contact
your local Moore adviser.