Don’t fall in the trap of private use of company cars
Whenever a company car is ‘available’ for private use by any employee (including directors), their family or household a car benefit arises. This benefit would then need to be declared to HMRC on a P11D form and the tax on the benefit paid across. While this does sound rather simple there are a few pitfalls to be aware of.
What does HMRC mean by ‘available’? This is a very generic term and HMRC makes good use of the lack of a detailed definition. For HMRC to class the car as available all the car needs to be physically available. A case was recently taken to a tribunal where a car had been declared off the road (SORN) and was therefore illegal to drive, however HMRC made the claim that since the car was still physically available and able to be driven the legality of driving the car was of no consequence. The tribunal ruled in HMRC’s favour, stating the car was still available and a taxable benefit was still present.
Here is where the second trap is, if the vehicle isn’t insured it is still considered available and is treated as a tax benefit.
There are a few ways to avoid these pitfalls though. The first is to make sure that the car is not physically available, i.e. the car can’t simply be driven away by any employee or director. How you do this would depend on your business and where the car is stored.
The second tip would be to set up a formal agreement where the car is prohibited from private use and set up a system where express permission must be granted for private use of the car in writing. For example, a log that would need to be signed by a senior third party (a person who is not going to be using the car) such as a senior employee or second director. This method becomes a lot more complicated for a single director company and may need a more unique method.
Should you need any further information, or assistance in setting up a system to help with limiting private use, please get in contact with us.
