Company cars during the lockdown – how do you stop the benefit charge?

 

Millions of employees across the UK have recently been furloughed under the Government ‘Job Retention Scheme’ (which pays 80 per cent of wages up to £2,500 a month). Many of those not on furlough may be working remotely from home during the Covid-19 lockdown.

Either way, if any of those employees have a company car benefit, they may want to consider temporarily stopping their taxable benefit during their period of furlough/remote working.

The problem is the car benefit charge is not based on usage but arises from the car being made “available” to the employee for their private use. So, having the car sat idle on the employee’s driveway does not stop the ongoing benefit charge.

The car benefit can be ceased temporarily if the car is not available for 30 consecutive days or more (the same applies if the employee is provided with private fuel). But how can this be achieved?

HMRC’s approach to “availability” is very clear – they expect that the car (or at least the keys) to be handed back to the employer so that it cannot be used. Their Employment Income Manual gives examples of when they would and would not accept a car was not available:

  • When HMRC would accept a car was not available:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim25170

  • When HMRC would not accept a car was not available:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim25175

That said, HMRC now recognise that under the current lockdown it may not be possible to hand the car itself back, and have recently confirmed that, exceptionally, they “would accept that where all the keys (or tabs) are in possession of the employer, and the employee does not have the authority to request the keys are returned to them, the car would be unavailable”.

This means employees are exceptionally allowed to make their car unavailable by posting the keys back to the employer, where they can’t otherwise hand the car or keys back

It is important to not only stick to this HMRC guidance, but also to retain sufficient proof the car was unavailable. Ideally, the employee would hand the car and keys back to the employer (or now simply post the keys), confirm this in writing and take photographic evidence of both being returned. Employers could also introduce a formal policy to ban company car private use for a period and keep that as further evidence for HMRC.

Depending on the company car make and emissions, temporarily stopping the benefit this way could potentially save significant amounts of tax for the employee and Class 1A NIC for the employer. If you would like to know more, please contact us at support@garbutt-elliott.co.uk.