COMPLIANCE
PeterMinchinton, tax advisor at PSTAX discusses the tax treatment of blue light vehicles in the emergency services sector, and how this has changed over time Electric dreams
I s there a way a blue light vehicle in the emergency services sector can be taxed under the company car rules, rather than the use of asset rules? One emergency service thinks it’s possible and this article explores the background. Electric cars A car provided by an employer to an employee for private use attracts a benefit in kind (BIK) charge based on the list price of the car and its CO2 output. With an electric car, there are no CO2 emissions, at least not from the car itself. To promote the use of electric cars, the government reduced the BIK to an extremely low figure – 1% of the list price for the tax year to 5 April 2022 and 2% for the next three years. This made the provision of electric cars very favourable compared to petrol and diesel cars and this has helped contribute to a surge in the sale of electric cars over the past couple of years. Case law While that bodes well for company car drivers, it’s not such good news for drivers of cars fitted with fixed blue lights. Previously, ‘blue light’ cars were taxed in the same way as company cars, although this was before the CO2 rules currently in place were introduced. However, this was successfully challenged by a deputy chief fire officer, who argued in 1989 that, as it was illegal for a member of the public to drive a car with blue lights, the car didn’t meet the requirements of the company car legislation.
The specific part of the legislation that he relied on to support a blue light vehicle not being a company car was Section 115 (1) (d) of Income Tax (Earnings and Pensions) Act (ITEPA) 2003, which refers to ‘a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used’ as being excluded from the definition. See the legislation here: http:// ow.ly/fWi530sccip. To promote the use of electric cars, the government reduced the benefit in kind to an extremely Following this, Her Majesty’s Revenue and Customs (HMRC) sought a tax charge under the use of assets legislation at Section 203A of ITEPA 2003. While there was still a tax charge, it was based on the higher of the market value or lease costs, which was normally lower than the manufacturer’s list price used under the company car regime. Maintenance, low figure – 1% of the list price for the tax year to 5 April 2022 and 2% for the next three years
insurance, and repairs needed to be added so, if you didn’t have a large uninsured repair cost – as the author has seen – then the benefit charge was at a reasonable level. Importantly, prior to April 2017, the employee could deduct the business use element of the benefit so only the private use element was taxable, and this also helped to minimise the BIK charge. Transitional arrangements However, in the March 2017 budget, the opportunity to deduct the business element was removed and, for 2017/18, it appeared that emergency vehicles would be subject to tax charge without any reduction for business use as had been the case previously. This removal had been intended to apply to large assets provided, e.g., yachts, helicopters, and its application to emergency vehicles was collateral damage. Following protests by the author’s firm, amongst others, to HMRC, transitional arrangements were put in place that mirrored the pre-April 2017 arrangements. These arrangements lasted until April 2020. There were also some minor changes on the calculation to class 1A National Insurance contributions that brought the calculation in line with the tax rules. Although the transitional arrangements provided some welcome respite, unless blue light cars met the emergency vehicle exemption under Section 248A ITEPA 2003 – where specific criteria regarding the use of the vehicle apply – then
| Professional in Payroll, Pensions and Reward | April 2022 | Issue 79 16
Made with FlippingBook - Online magazine maker