Replies to Queries -- 4 - Company car minefield

Replies to Queries – 4

Company car minefield
The principal legislation taxing the private use of a company car is section 157(1), Taxes Act 1988, which includes the phrase 'where in any year … a car is made available (without any transfer of the property in it) …'.
Do readers believe that if a company car is initially provided by an employer to an employee for private use, and before the end of the tax year that car is purchased by the employee at its full value at that time, then as a result of the above phrase, there is no taxable benefit for that year on the private use of the car?
(Query T15,747) – Ever hopeful.


The phrase 'without any transfer of the property in it' should not be interpreted in such a way as to avoid a car benefit under section 157, Taxes Act 1988 where a benefit clearly exists. I have seen it suggested that a car benefit can be avoided if the employer transfers part of the ownership of a car, for example 5 per cent, to an employee. It is argued that, because there has been some transfer of the property in the car, section 157 does not apply.
The Inland Revenue is unlikely to accept an interpretation that attempts to avoid a benefit in kind, and neither are the courts. The Special Commissioner in Brown v Ware (SpC 29) would not allow the reduction of a car benefit where an employee made a payment to his employer to obtain a better car. This was because it was not a condition of making the car available, even though the Commissioner was sympathetic to the claim.
As far as the sale of a car to an employee part way through the year is concerned, the car benefit will be reduced pro rata the period during the year that the car was unavailable. This is clear from the legislation at paragraph 9(b) of Schedule 6 to the Taxes Act 1988: a car is treated as unavailable on any day that falls after the last day on which the car is available to the employee.
The Inland Revenue considers a benefit applies for part of the year where a car is sold to an employee during the year. The Schedule E Manual states at paragraph SE3462: 'Sometimes an employer will transfer the ownership of the car to the employee either free of charge or by sale. The car benefit will cease to apply from the date of the transfer because the car is no longer made available “by reason of the employment”. The car benefit charge must be time apportioned up to that date'.
Of course you do not have to accept the Revenue's view, but a Special Commissioner is unlikely to agree that no car benefit arises for the whole year because of the phrase 'without any transfer of the property in it'. It would be far better to spend the time finding a suitable new car with a low carbon dioxide emission. – G.S.

Almost all benefits are taxable unless specifically exempt or there is an agreement to make good, and making good actually takes place. The agreement must be made either when the benefit is provided or is expected to be made because of the way in which similar benefits have been dealt with in the past. On the stated facts, there is a benefit in kind. The phrase in section 157(1), Taxes Act 1988 'without any transfer of the property in it' is in my view qualified by reference to the time the vehicle is provided rather than to any time in the tax year. Furthermore consideration given by the employee would not allow a benefit to be avoided in respect of a vehicle provided on 6 April by a payment on 5 April the next year. A payment of purchase price is not to make good the benefit but to acquire the relevant asset.
Can the payment be construed as a capital contribution under section 168D(1), Taxes Act 1988? The impact on any benefit is limited to £5,000 but it seems the contribution can be made at any time in the tax year; presumably in this case the car will cost significantly more. An alternative view might be that the employer has made a beneficial loan to the employee to allow the vehicle to be purchased, but again that will depend upon the evidence available when the car was purchased. The employer may keep the vehicle in the company name, as security, but provided the paperwork is clear that may be a cheaper alternative. Otherwise the employee will face a car benefit charge, the employer a National Insurance contributions charge and the employee a bad bargain in that he will pay the list price for a vehicle that has, over the period provided as a benefit, depreciated in value.
If the employee can afford to purchase, then he should do so immediately. If the employer wished to assist in some way, then he could make a loan of up to £5,000 to avoid any benefit in kind charge. Such arrangements, being more transparent, are less likely to attract Revenue scrutiny. – Rookery.

Extracts from further replies received:

Upon a first reading of the legislation, one could quite easily envisage the removal (by transfer) of a dipstick or even an outdated map of Ayrshire from the car, to take the querist's hopeful belief to a further stage of interpretation to escape a car benefit.
Paragraph 6 of Schedule 6 to the Taxes Act 1988 removes any doubt that the cash equivalent of the car benefit is reduced pro rata to the days unavailable. Paragraph 10 of Schedule 6 to the Taxes Act similarly clarifies that the benefit must be apportioned to the date of transfer.
It is suggested the querist does a U-turn on this one. – Jim.

If the car starts the year in the ownership of the employer, then for the first portion of the year it is indeed 'made available (without any transfer of the property in it)' as described by section 157(1), Taxes Act 1988. This does not have to happen for the whole year, just 'in' the year. If the car is then transferred to the ownership of the employee, it is no longer so 'made available' to him – it is his own. Therefore it is 'unavailable' as defined by paragraph 9 of Schedule 6 to the Taxes Act 1988 for the second part of the year. – Ian.