Car Provision Rules

Cars Provided For Relocation

Where a car is made available to assist an employee’s relocation, it may be provided tax free as long as the following apply:

The car would need to be provided in connection with the employee’s change of residence and for one of the following reasons. The employee has started a new job, changed his duties or changed his workplace.

The total exemption, including all costs connected with the relocation cannot exceed £8,000. The standard car benefit charge will need to be included within this overall limit.

Cars Provided To Partners

There have been increasing attempts by companies to avoid the car benefit charge and fuel benefit charge by providing cars to a company’s directors via a separate partnership.

A recent case, Cooper & Ors (Leaside Timber Merchants Ltd) v HMRC has clarified the position.

The First Tier Tribunal has recently ruled against a taxpayer who sought to avoid such benefit charges. In this case the tax and NIC at stake was approximately £215,000.

A partnership, Coopers Management Services, made up of four family members provided administrative services to a company, Leaside, but had no other income.
Two of the partners were directors of Leaside and the other partners were the wife and son of one of those directors, and were also directors of another Leaside group company.

The tribunal found that although the partnership was legally independent it was commercially dependent on the company and the arrangements were not therefore established on an arm’s length basis.

The partnership leased cars from an unconnected third party and permitted the partners to use these for both business and private purposes, with a private use adjustment being reflected in the partners’ income tax returns.

As all of the costs were effectively met by Leaside via the management charges paid to the partnership, HMRC argued that the cars were provided by reason of the directors’ employment by Leaside and that a car benefit charge should arise.

The tribunal agreed with HMRC, but went much further by denying relief for employee contributions and stating that any double tax charge (arising because private use adjustments had been made in income tax returns) should stand because the taxpayers had to accept the consequences of arranging their affairs in the way they had chosen.

Cars Provided For Former Employees

When an employee leaves a company and returns a company car, his benefit-in-kind ceases. However, if the employee is allowed to retain the car a further tax charge arises. Although this will be calculated using normal company car principles the reporting requirements are different and the employee may be entitled to the income tax exemption, up to £30,000, available on termination of employment.