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Replies to Queries - 2 - Road rage

18 September 2002
Issue: 3875 / Categories:

A client, who is a maintenance engineer working continually at customers' premises countrywide, has a company car and fuel provided by the employer.

The client recently advised me that, due to an eye condition, his driving licence has been revoked and, as a result, his employer has provided a driver to transport him in his company car. Apart from the provision of a driver, the client goes about his daily business as before.

A client, who is a maintenance engineer working continually at customers' premises countrywide, has a company car and fuel provided by the employer.

The client recently advised me that, due to an eye condition, his driving licence has been revoked and, as a result, his employer has provided a driver to transport him in his company car. Apart from the provision of a driver, the client goes about his daily business as before.

As far as I am aware, the company has not notified the Inland Revenue of any change of circumstances and in fact has completed the benefit in kind form P11D for the year to 5 April 2002, showing full year car and fuel benefits.

The client has asked why he is still charged for car and fuel benefits when, as he puts it, he is 'not allowed to touch the car'. Can readers suggest any action that either the client or his employer can take to reduce or eliminate these benefits?

(Query T16,077) - Illusory Benefit.

 

There are several issues here which must each be addressed before the client might justifiably avoid the benefit in kind charges. First, the question of timing: when was the licence revoked? The P11D for 2001-02 reflects the situation from 6 April 2001 to 5 April 2002, and if the change in arrangements is more recent than that, obviously there should be no change to the benefit for that year. On the other hand, the past P11D will lead to an entry on the coding notice for 2002-03 (presumably adjusted for the change to the carbon dioxide emission basis of assessment), and that is definitely open to dispute.

The problem is that the charge arises where a car 'is made available by reason of his employment' (certainly satisfied) and 'it is in that year available for his … private use' (section 157, Taxes Act 1988). There is no requirement that the employee should drive the car to be assessable. The provision of a car with a driver is certainly chargeable under section 157, if the driver drives (or even could drive) the employee around on private journeys. Indeed, a proportion of the driver's salary would then become assessable on the employee as an extra benefit in kind. There would also be no argument to reduce the benefit if the employee's spouse was still allowed to drive the car.

If the driver only drives the employee on business journeys, and the car cannot be used by a family member (either because there is none, or because the conditions of employment forbid it), there is then a much stronger argument that the absence of a driving licence means that the car is not available for private use. It would be helpful to this argument if the car is not kept at the employee's house overnight (does the driver bring it to the house to collect the employee?). The Revenue tends to resist the argument that the car is never used privately as a matter of fact and is not even available for such use.

The Revenue may take heart in this argument from the VAT decision in Commissioners of Customs and Excise v Upton (t/a Fagomatic) [2002] STC 640, which related to different rules, but which effectively held that the mere possibility of private use confirmed not only 'availability' but also a subconscious intention on the part of Mr Upton to make the car available.

However, the High Court held that an employer's prohibition of private use, together with other circumstances, meant that a car was 'not made available for private use' in Gilbert v Hemsley [1981] STC 703 (an income tax case, and more directly relevant as it was about this exact rule). The fact that the law of the land (rather than the employer's conditions) would prohibit the employee from driving would be a strong factor in making this case applicable, but all the other circumstances would have to be considered, such as family members, actual journeys made by the driver, and so on.

It is of course important to remember that 'home to office' is likely to count as a private journey, unless the employee can show that the employment involves so much travelling to other places that any visits to the office are 'not ordinary commuting'.

The fuel benefit under section 158, Taxes Act 1988 depends entirely on the car benefit under section 157. At the point at which it can be demonstrated that the car ceased to be available for private use, the fuel benefit will also cease. However, there is a slightly different argument here in addition: if the car is still available for private use, but there is no actual private use, section 158(6)(b) negates the fuel benefit, even if there is still a car benefit under section 157.

It is also possible to avoid the fuel charge (but not the car charge) by reimbursing the employer at an approved mileage rate for any private miles driven (see the Inland Revenue's press release at www.inlandrevenue.gov.uk/cars/fuel_company_cars.htm). - Leyborne.

 

The charge to tax for company vehicles arises where a vehicle is made available for private use (section 157, Taxes Act 1988). Taking the words 'private use' in their ordinary everyday meaning then, one would suspect that the tax charge would arise for cars being used on private journeys (including to and from a permanent place of work) irrespective of who is actually driving. If this were not the case then presumably everybody could circumvent the car benefit for a luxury car by employing a 'cheap' chauffeur.

In this particular case, the writer fears that the situation may actually be worse than suspected as there should also be a benefit in kind for the chauffeur costs applicable to the private journeys. This would be calculated on a marginal cost basis (section 155, Taxes Act 1988), possibly based on private miles compared to total miles or private chauffeur time compared to total chauffeur time.

Given the fact that the driver's licence has been revoked and given the assumption that the chauffeur is not available twenty-four hours a day, then it seems likely that the driver has the use of another vehicle, possibly driven by a family member. If this is the case, it should be easy to circumvent the car and fuel benefit charges.

The driver appears to have a permanent workplace by reference to a geographical area with no single site as a permanent workplace (see paragraphs 3.33 to 3.37 of Inland Revenue booklet 490, Employee Travel. A tax and National Insurance contributions guide for employers). If the driver lives within that geographical area, then there will be no 'ordinary' commuting. The only private journeys therefore will be journeys unrelated to work. If these private journeys can be fulfilled by another vehicle and driver, then the car and fuel benefit is avoided altogether.

Whether the above avoids the benefit of chauffeur costs for business journeys is a different matter. Paragraph 11.5 of Inland Revenue booklet 480, Expenses and benefits. A tax guide states 'The expense ... of a chauffeur ... is a separate benefit'. From the company's point of view then, it could provide a chauffeur if it so wished, irrespective of the employee's eyesight condition. The company would obtain a tax deduction if the cost were incurred wholly and exclusively in the trade of the company. The employee on the other hand could be chauffeured irrespective of a medical condition. On the basis that there is no private element to the journey, then this benefit should also be avoided.

In conclusion, with some planning all car, fuel and chauffeur benefits should be able to be avoided. 'Illusory benefit' needs to review the case to see whether the relevant conditions were met so that the exclusion of benefits could effectively be backdated. - TC AT.

Issue: 3875 / Categories:
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