The provision of an employer provided car (often referred to as a company car) is still valued by recipient employees and directors. However, the increasing tax and national insurance costs to the employee and employer respectively have driven employers to consider alternative arrangements to provide cars to their employees.
In a recent case a company entered into leasing agreements with its employees. The employees paid a market rate rent for the exclusive use of the car. The company also reimbursed employees for business mileage travelled at the standard HMRC rates for employees who use their own car for business purposes.
HMRC argued that even though market rate rents were being paid by the employees, the arrangements still gave rise to a taxable benefit as the car was essentially being provided by the employer. If this was the position then the mileage rates paid would also be considered excessive with a resulting tax charge to the employees. This is because the acceptable tax free mileage rate for an employer provided car is much lower than the standard rates for an employee owned car.
The company appealed to the First Tier Tribunal on a number of grounds. Firstly, they argued that the car benefit charge can only apply if a car is made available to an employee, without any transfer of the property in it. The Tribunal agreed that as a result of the lease agreements there was a transfer of the property in the cars to the employees. Secondly, the car benefit charge can only apply if there is an actual benefit provided to an employee. As the employees were paying market rate rents for the cars there was no benefit provided to the employees. The Tribunal agreed with these arguments.
As regards the contention that the mileage rates were too high as the cars were company cars, the Tribunal did not agree with HMRC as the cars were not company cars. As a result the Tribunal allowed the taxpayers’ claims for relief from tax for the mileage allowance payments.
The key tax decisions made in this case are being appealed by HMRC to the Upper Tribunal so whilst the first round has gone to the taxpayers the fight is not yet decided.
If you would like to talk through any concerns you may have surrounding the provision of company cars to employees please contact Brian Gooch on 0114 266 7141 or firstname.lastname@example.org for further information.