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Exemptions from the company car tax benefit charge

20 February 15 | By: Jas Jhooty

no car

Everybody is familiar with the company car benefit rules that are chargeable on directors and employees (or members of their household), where a car is made available for their private use. However there are a few instances where the normal rules for calculating the cash equivalent for a company car benefit-in-kind do not apply. This article briefly lists these exemptions.

Car made available by an employer who is an individual

An exception to the normal car benefit rules applies where the employer providing the car is an individual, and the vehicle is being made available to a member of their household in the normal course of their domestic, family or personal relationships. In these instances there is no car benefit to pay.

Cars made available to disabled employees

Cars made available to disabled employees are exempt from tax where the following conditions apply: -

  • The car has been adapted to the employee’s special needs or is an automatic car where the employee can only drive such a car, and
  • The car is made available on terms that prohibit it’s use other than for business travel and ordinary commuting

The National Insurance position is slightly more relaxed as it is not necessary for the car to be specially adapted nor for it have automatic transmission to be exempt from the Class 1A NIC charge.

Cars provided under Employee Car Ownership Schemes (ECOS)

Under these ECOS schemes it is the employee who enters into the contract for the provision of the company car instead of you the employer. Such schemes benefit from the fact that there is no company car or fuel tax charge for the employee, nor any corresponding Class 1A NIC charge for the employer. For such schemes to be effective it is vitally important that evidence is retained showing that the ownership of the vehicle is transferred to the employee from the outset.

Pool cars

Cars that are included in a car pool for the use of one or more employees are exempt providing certain conditions are met.

Employees in the motor industry

Employees in the motor industry e.g. those working in manufacturing or car sales very often take different cars home at night. In these circumstances HMRC agrees to adopt an averaging approach to calculate the car benefit for such employees. However the employer must be able to demonstrate that such an approach is justified to reduce the administrative burden of having to calculate multiple cash equivalents of the different vehicles and is not an attempt to arrive at a lower car benefit figure.

Employees in the motor industry who only take cars home as part of their normal duties of employment e.g.:-
  • on occasions when they are they are calling on a customer to pick up or drop off their car for servicing
  • where they are dropping off or retrieving a hire/lease car
  • when they are taking a demonstrator vehicle to a prospective customer

will escape the car benefit charge as HMRC accepts that in these instances the car is being provided as tool of the trade.

Test and experimental cars

Where an engineer in the motor industry uses a test or experimental vehicle on their ordinary commute, HMRC can sometimes be persuaded that no benefit charge should arise. Each case has to be taken on its own merits but common arguments such as the engineer has to test the vehicle under various driving conditions (e.g. cold starting) have proven to be successful in the past. There also have to be strict conditions attached to the use of the car i.e. it is primarily being provided for test purposes and any private use is merely subsidiary to the testing. We also have used similar arguments to get HMRC to agree to exempt test cars used by motoring journalists.

Emergency vehicles

An emergency vehicle is defined as a vehicle used to respond to emergencies which either: -

  • has a fixed flashing lamp affixed to it or
  • it has to have a removable flashing light because there is a special threat to the personal physical security of the driver.

Such emergency vehicles are exempt from the car benefit rules if they are driven by employees in the traditional emergency services (e.g. Policemen, Firemen and Ambulance drivers etc.) who happen to be on call, and the terms for the provision of the emergency vehicle forbid any other private use except for ordinary commuting.

How emTax can help?

All of our consultants used to be ex-HMRC employer Compliance Inspectors as well as Senior Employment Tax Managers working for the Big 4 accountancy firms. As such we are well versed in negotiating favorable outcomes with HMRC if they raise any queries concerning your company car provisioning.

This article only provides a very brief overview of the current rules surrounding exempt vehicles. For more detailed advice on any of the above matters or on any other employment tax query please do not hesitate to contact us.


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