Care with cars: two tax pitfalls

Company cars continue to cause complications. Two which are worth bearing in mind are as follows:

First, “pool” cars. It’s tempting to think that if a car is generally available to anyone who needs to drive it, it must be a pool car and therefore not taxable as a benefit in kind on anyone. Tempting but, sadly, not often true. To be exempt, the car must be one which is

  • Actually used by more than one employee or director
  • Not ordinarily used by one employee or director to the exclusion of all others
  • Not normally kept overnight at or near the home of a director or employee (except where it’s kept overnight on premises occupied by the employer)
  • Not used by anyone for private (including home-to-work) travel at all (except for private use which is “incidental” to business use, such as taking a car home overnight in readiness for a business trip starting very early the next day)

The rules are strict and are notoriously strictly applied. Be prepared to prove, if challenged, that they are met.

Second, recharging of car leasing costs. It would be rational and logical to assume that if your company leases a car for your use and you reimburse every penny of the leasing cost you would have no taxable benefit. Rational, logical; and not true. A number of tax cases have demonstrated that in such cases the correct tax treatment is that the appropriate “scale charge” benefit remains in place. At best, the taxable benefit is reduced pound for pound by the amount you reimburse, but even that reduction should not be taken for granted and is dependent on your jumping through some hoops. The sting in the tail is that, in general, the “scale charge” for a car is nowadays likely to exceed the cost of leasing it – so even if you reimburse the full leasing cost it is likely that you will be left with some residual charge to tax. Quite counter-intuitive, but true.

For more on the tricky rules applying to car benefits, please get in touch with your usual BKL contact or use our enquiry form.

David Whiscombe


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