HMRC updates company car advice
HMRC has updated its guidance relating to company cars, Employee Car Ownership Schemes (ECOS) and salary sacrifice.
Company cars should be treated as being “made available for private use” during the time an employee is working from home or furloughed, HMRC advises: even if the employee is instructed to not use the car; asked to keep a record of the mileage; unable to physically return the car.
In the guidance, HMRC regards the car as unavailable only if the contract has terminated and the keys are returned to the employer or a third party as instructed by the employer. In addition, where the contract has not been terminated, after 30 consecutive days from the date the car keys are returned to the employer. The advice, however, does not appear to consider the practicalities or sensibilities of separating keys from cars and their being returned to fleet managers who may be working from home themselves.
Speaking in April, co-chair of the AFP Caroline Sandall, said, “During lockdown, there are many people facing potential hardship and being able to avoid benefit-in-kind could make a genuine difference to some. While it has been established in principle with HMRC that key handback is a definite option, there are some points on which we remain unclear.
“The main immediate problem that needs to be avoided is employees simply pushing their keys back through the letterboxes of unattended offices, something of which we have heard several reports. For your employer and HMRC, this doesn’t create an audit trail showing when the key was returned or to who, which is something that may need to be ultimately established to the satisfaction of either or both.
“It also creates a possible fleet management problem for the future. If you run a single or limited badge fleet, you could find yourself with a pile of identical keys and no means of working out how to link them to a particular vehicle. Plus, there is quite a high probability that keys will be lost and replacing them is always expensive.”
The HMRC advice continues that employees who have used ECOS arrangements, including a loan from a third party to purchase a car, may not have been able to return the car at the end of the loan period for its value to be assessed as a final settlement of the loan, consequently incurring an income tax charge on the amount of the loan still owing. The guidance states that where a loan was longer than four years, there will be an income tax charge whereas shorter than four-year loans “it may be possible for your employee to arrange an extension with the loan provider for a few more months” whereby HMRC will accept that the arrangements do not give rise to the Income Tax charge.
Concerning salary sacrifice schemes, HMRC says that changes in circumstances caused by coronavirus are valid reasons to review arrangements. If an employee chooses to amend a salary sacrifice arrangement because of coronavirus, employers must make sure the change is reflected in the terms and conditions of their employment.
The rules on salary sacrifice changed in April 2017 and for most arrangements entered into before 6 April 2017, these new benefit valuation rules now apply. The transitional rules apply for a longer period where the benefit is: the provision of a car with emissions of more than 75g CO2/km; provided living accommodation; the payment of school fees.
The new rules will not apply to these types of benefits until 6 April 2021, unless employees vary or renew their arrangements. An arrangement is not regarded as being varied if the variation of the arrangement is only directly in connection with coronavirus.
Commenting on the guidance, Toby Poston, director of corporate affiars at the BVRLA said: “It is not an ideal solution, but we have to accept that living with COVID-19 requires some compromises. Government needs to consider the relevant legislation, its own administrative capabilities and the potential for fraud when coming up with answers to the many questions and requests for support it gets.
The BVRLA has worked with its colleagues across the automotive sector to develop some guidance on vehicle collections, storage and deliveries, which should make it easier for fleet managers and their suppliers to make their plans going forward.”