PAYROLL INSIGHT
Emergency vehicles and tax
Duncan Groves, director and head of employment taxes at PSTAX, dispels some myths and clarifies some complex points
R eaders of the PSTAX pages will subject to taxation, referencing a change to legislation that took effect from April 2017. This latest offering reflects the fact there are several questions for which no consistent answer appears available; however, expect a fourth and final article in due course. Should fuel, motor insurance, and the costs of modifying the vehicle be included in the ‘use of assets’ benefit calculation in the P11D return? Tax legislation requires an employer to include any costs that are ‘in connection with’ the provision of the benefit. Therefore, in theory, all the above listed costs should be included; however, there are technical arguments which, if successful with HM Revenue & Customs (HMRC), could take the respective costs out of the equation. For example, in relation to the modification of the vehicle, it would be reasonable to view these costs as wholly necessary for the required business use and not in connection with the provision of a benefit. After all, an emergency services officer could not derive a personal benefit from the fitting of ‘blues and twos’ unless they dare to turn them on when running late for a date with a loved one...and such use would be strictly prohibited, of course. In recent discussions, HMRC have taken a reasonable view that these costs can be excluded, so long as there is no attempt to seek a lower ‘market value’ as a result of the modifications. In terms of the motor insurance costs, it remember more than one article on how emergency vehicles should be
would be possible, in most circumstances, to identify a ‘per vehicle’ annual cost and therefore to include this in the calculation. However, some insurance policies appear to include an entire fleet; since the fleet would be largely made up of marked vehicles, vans and larger vehicles such as fire engines or ambulances, it might be possible to treat the costs connected with the ‘assets’ as below de minimis, based on the principle of ‘marginal cost’. HMRC has never accepted outright the principle of marginal cost, other than when applied to in-house benefits, and so this argument would be one to put to HMRC on a case by case basis and would ultimately rely on a common-sense application of the law. ...an emergency services officer could not derive a personal benefit from the fitting of ‘blues and twos’... The provision of fuel is the most contentious point. Prior to April 2017, emergency services would commonly include employer-provided fuel in the P11D return calculation, but the new legislation prohibits any apportionment of the benefit by reference to business use. Consequently, an officer would have to pay tax from April 2017 on both the business and private use of the car, to include the costs connected with the car’s provision. In recent discussions with HMRC on this point, we have conceded that, for fuel provided
by employer pumps or via fuel cards, the P11D calculation should correctly include this cost. However, HMRC is currently maintaining that fuel costs met personally by officers should be similarly included and we disagree in terms of both application of the law and common sense. Encouragingly, HMRC has volunteered to take the apparent inequity of this position to policy colleagues; and so we await more positive news. What is the correct steps when calculating the benefit of use of an asset? Just when we thought this question had been resolved following numerous employer compliance visits, it has re- appeared due to a HMRC guidance document issued in December 2017. It refers to the benefit in kind calculation for 2016/17 and prior years and clearly states that the business use apportionment should follow the ‘making good’ reduction, not precede it. We challenged HMRC on this, and their response was very interesting. While clarifying that, for class 1A National Insurance contributions (NICs), the correct process would have been to ignore the ‘business apportionment’ step and simply apply the class 1A charge to the cash equivalent after taking off the officer contribution, they also confirmed that, for tax purposes, their example in the guidance was correct. It was pointed out to HMRC that hundreds, possibly thousands, of officers’ tax codes would need to be amended to take account of this as a large majority of emergency service organisations have
| Professional in Payroll, Pensions and Reward | April 2018 | Issue 39 20
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