The deadline for submission of forms P11D and P11D(b) to HMRC advising of benefits in kind provided to employees, is 7 July 2021. Employers need to look at this now, particularly as the provision of company cars and furlough may provide problems.
A benefit in kind tax charge arises where a company car is available for private use by an employee. The charge is reduced proportionately for any period of unavailability of at least 30 days. This period can span two tax years.
H M Revenue & Customs’ reading of the legislation is very strict and it is traditionally very rare for them to agree that a car is not available for private use, even if the employer specifies that the terms on which it is made available prohibit any private use.
During the Covid-19 pandemic, employees with company cars may have been furloughed or be shielding. This combined with lockdown measure may cause many people to assume the company car would be deemed unavailable for private use but this in itself does not shelter the employee from a benefit in kind tax charge.
In guidance published on how to treat expenses and benefits provided to employees during the pandemic, HMRC is still attempting to insist that a company car is available for private use even if the employee is:
- instructed to not use the car and
- asked to take and keep a photographic image of the mileage both before and after a period of furlough and/or
- unable to physically return the car or the car cannot be collected from the employee.
HMRC’s only concession is that where coronavirus has restricted movement (eg due to lockdown) and the employee was physically unable to return the car to his/her workplace; they will accept that a car is unavailable where the contract is terminated and the keys, including tabs or fobs, are returned on the same day.
In simple terms the car keys (plus tabs and fobs) must be posted to the employee workplace to demonstrate it is unavailable for private use.
Where the contract is not terminated, HMRC will not regard the car as being unavailable until 30 days after the returns of the keys and tabs or fobs.
We would question HMRC’s application of the rules and recommend that any attempts to impose a stricter test than that required by the legislation (e.g. the return of keys) be challenged.
However, it is important to note that the legislation does allow for a difference to be drawn between availability of a company car for private use and the employee’s ability to use the car for private use. Illness may mean that the employee is unable to use the car but unless the employer specifically prohibits private use (and there is in fact absolutely no private use), the legislation will impose a tax charge in this circumstance.
The simplest way to avoid a tax charge on a company car is to return the car to the employer. As long as it is on your drive, even if you don’t hold the keys, HMRC will potentially go to extreme measures to impose a tax liability.