Payroll
Company cars
– simply taxing
SamanthaMannMCIPPdipMAAT, CIPP policy and research technical lead , provides an outline of the rules and procedures for calculating and reporting
D etails of when a company car will be subject to the car benefit tax charge can be found in HM Revenue & Customs’ (HMRC) Employment Income Manual (https://bit.ly/2zjjZFa). The car benefit charge applies where the car is made available to an employee (or to a member of the employee’s family or household), without any transfer of the ownership but by reason of their employment and is available for the employee’s private use. Furthermore, and this has been the case since tax year 2015/16, the director/employee is not in excluded employment (https://bit. ly/2xZ6w5d). Where these conditions are met, the cash equivalent value of that benefit must be calculated to allow for the tax to be collected by way of an adjustment to the person’s tax code. This adjustment is calculated by HMRC. The CIPP as part of the Employment and Payroll Group (EPG) carried out a survey earlier this year to ask what aspects of the expenses and benefits in kind (BIKs) and P11D reporting process provided the greatest challenge. Without doubt, company cars provide the greatest challenge – not with calculations but with gathering the data. Gathering accurate and timely details of cars provided to new employees, of the days where cars were unavailable, communications with fleet companies, and keeping track of mileage records were all reasons cited as causing challenges and reasons for inaccuracy.
P11D return Section F of the P11D return is used to report where cars have been made available and, if applicable, car fuel. Space is allowed for reporting two cars, but if more have been provided an additional sheet must be used to report them, following the same process. Optional working sheets are also provided to support the calculations – working sheet 2 for the provision of company cars. Where cars are provided under an optional remuneration scheme, working sheet 2b has been introduced for use instead. Car benefit calculation There is a specific process to follow when calculating the cash equivalent benefit arising from the provision of a car with private use, as follows. ● Step one – establish the list price of the car. This is rarely the price paid by the employer, but is the inclusive price published by the manufacturer, importer or distributor on the day before the date of the car’s first registration. This price includes standard accessories and any relevant taxes such as VAT (value added tax) and car tax. If a list price is not available, then a notional price is used which is the price that might reasonably have been expected. ● Step two – add in accessories which are: ❍ made available for use in the car (but not owned by the employee) ❍ being made available by ‘reason of the employment’ but is not ‘necessarily
provided for use in the performance of the duties of the employment’ attached to the car. ❍ ‘Accessories’ excludes mobile phones and any type of equipment – except where the equipment enables the car to run on road fuel gas – and those that enable a disabled person to use the car. ● Step three – reduce the amount from step two by the value of any capital contributions that have been made by the employee up to a maximum amount of £5,000. This amount should not be confused with contributions towards personal use, which are covered in a later step. ● Step four – establish the appropriate percentage multiplier, based on the car’s CO2 emissions figure, and for vehicles registered after 1 March 2001, found in the vehicle registration document (or certificate) V5. ● Step five – take the resulting figure in step three and multiply by the percentage in step four. ● Step six – if the car is unavailable for a significant period of time during the year, this will reduce the amount established in step five. To be considered ‘unavailable,’ the day must be: (a) before the first day on which the car is available to the employee; (b) after the last day on which the car is available to the employee; (c) within a period of thirty or more consecutive days throughout which the car is not available to the employee.
A reduction to the figure brought forward from step five is made in
...the greatest challenge – not with calculations but with gathering the data
proportion to the number of days the car was unavailable. No reduction is made if the period of unavailability of the car is less than thirty consecutive days. ● Step seven – contributions made by
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| Professional in Payroll, Pensions and Reward |
Issue 61 | June 2020
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