REWARD INSIGHT
Beyond the TRs
Peter Minchinton, employment taxes senior manager for PSTAX, provides an update on developments
I nformation recently provided by HM Revenue & Customs (HMRC) indicates that from 6 April 2020 the transitional rules (TRs) for emergency vehicles (EVs) will no longer have application and the original use-of-assets (UoA) legislation will again become relevant to police, fire and ambulance services. Emergency services employers need to consider how EVs are provided as the effects will be far-reaching, giving rise to a substantial increase in the taxable benefit for those employees who continue to use their EV privately. Prior to April 2017 employees with vehicles fitted with ‘blues and twos’ had any benefit calculated under the previous UoA rules. The legislation at that time allowed employees to deduct the business element of the benefit so that they were only taxed on the private use. In April 2017, the rules for determining the level of chargeable benefit changed, eliminating the opportunity for officers to deduct the business element meaning the taxable amounts would increase – and significantly where officers used their cars primarily for business purposes. Although the new rules allowed a deduction for ‘unavailable days’, the guidance on how this should be interpreted appeared to cast doubt on whether such a deduction would ever apply other than in exceptional circumstances. Following representations, TRs were introduced which reinstated the pre- April-2017 rules and, in terms of the cash equivalent calculation, even allowed payments for personal use to be deducted after the reduction for the business element, rather than before as per HMRC’s previous guidance. However, it appears that these TRs will only apply up
to 5 April 2020, covering three tax years the last of which is the current tax year. Many affected officers will be using their current vehicles through further tax years without (yet) knowing that continued use, on the same terms, will create significantly increased tax burdens. ...continued use, on the same terms, will create
emergency services officers so the benefit for tax year 2020–21 will increase from £2,500 to £7,500. We were closely involved in discussing this matter with HMRC following the April 2017 change and were delighted when HMRC, albeit a little later than we had hoped, announced in April 2018 that TRs would be introduced. At the time, we were given the clear impression HMRC was going to consult with affected public bodies prior to April 2020 before deciding whether the TRs should be made permanent or simply left to expire. We pressed our HMRC contacts and were informed in April 2019 that HMRC’s Policy team had no further intention to ‘consult’ and advised that there had been an opportunity to ask questions or comment on the legislation in July 2018. Having researched this we discovered it was a single paragraph in the 143- page explanatory notes to the Finance Bill, which referred, in the main, to the extensions of the EV exemption. There was nothing to suggest there would be no further consultation on the UoA rules. We know from experience of dealing with cases in 2017–18 that reverting to the new rules will cause difficulty to services, especially fire and ambulance services where private use of an EV is an inevitable consequence of the vehicle being used for call-out rostering. The use of such a vehicle for both ordinary commuting and ‘freedom of movement’ is an established practice since it would make no sense for an officer who is liable to be called out to use a personal vehicle for a necessary private journey when on call. Notwithstanding that the UoA rules
significantly increased tax
Illustrative example The car is purchased 31 March
2019 with a market value £25,000. Maintenance, insurance etc costs are £3,000. The officer undertakes business mileage of 8,000, ordinary commuting mileage of 2,000 and, freedom of movement 1,000 (whilst on call) together with other private mileage of 1,000. The officer pays £500 a year towards private mileage. The benefit for 2019–20 is calculated as: £25,000 × 20% = £5,000, plus maintenance etc of £3,000, minus £500 = £7,500. The TRs allow the business element (8,000 ÷ 12,000) to be deducted giving a net taxable benefit of £2,500. However, with the abolition of the TRs from April 2020 the business element can no longer be deducted. We don’t consider that the ‘unavailable days’ rules will apply to any great extent to cars provided to
| Professional in Payroll, Pensions and Reward | June 2019 | Issue 51 42
Made with FlippingBook - Online magazine maker