Higher car benefit costs have pushed many employers away from company cars and towards a cash-based car allowance in recent years. However, there are still employees who have company cars and who could benefit from a reduced benefit-in-kind charge during lockdown by eliminating the availability of their company vehicles or by driving a more environmentally friendly vehicle attracting lower charges.
Car unavailability
Employees are charged to tax where a car is made ‘available’ for private use, whether or not it is actually used on an amount each year of up to 37% of the car’s list price, depending on its CO2 emissions. In addition, an employer’s national insurance contribution (NIC) is payable at 13.8% on the benefit. If the car is not needed for private journeys, there may be an opportunity to save tax by handing the car or keys back to the employer. The car must be unavailable for a period of at least 30 consecutive days and then the benefit is reduced in proportion to the number of days the car is unavailable.
HM Revenue and Customs (HMRC) strictly applies this availability condition, and has stated that during lockdown it accepts that it might not be possible to return the vehicle but that where all the keys (or tabs) are in possession of the employer, and the employee does not have the authority to request the keys are returned to them, the car would be unavailable.
HMRC would not normally accept a written agreement that the car is not available for private use but it is not possible for the keys or tabs to be returned and an agreement is the only way forward, then this should be supported by a robust audit trail which might involve records of tracker outputs or similar technology.
Private fuel benefit
Employers should also consider revising their policies around private fuel. If a car is unavailable for private use, then the benefit charge for private fuel follows suit. So when there is no car benefit, there is also no fuel benefit. In circumstances where a fuel card is provided and private fuel provision ceases, it is recommended that the card should be returned to the employer or destroyed. It should be noted that if private fuel is withdrawn but subsequently reinstated at any point in the same tax year, then the full benefit in kind charge will apply. Therefore, this is only effective if the fuel benefit is withdrawn until at least 6 April 2021.
Low-emission vehicles: a changing face of fleets
Given that working practices may change in the ‘new normal’ with increased demand to work from home or avoid public transport in future, now may be a good time to review how car fleets are structured going forwards. It is certainly worth considering low-emission or electric vehicles with considerably lower tax liabilities attached to them. Now that charging points are far more accessible and such cars become more commonplace, this could be the perfect time to change how company cars are provided.
Typically, the benefit in kind on the provision of a company car will be calculated based on the list price of the car, the date it was registered, its fuel type, its CO2 emissions and, from 6 April 2020, the range of electric cars.
The company car benefit rate for 2020-21 will be 0% for: All fully electric cars; and for cars registered on or after 6 April 2020 with CO2 emissions of 50g/km or less and an electric range figure of 130 miles or more.
While these rates are proposed to increase by 1ppt in 2021-22 and 2022-23, this means that there will be no tax due on the benefit on company cars that meet the above criteria in 2020-21 and it will still be very low for the following two years. In addition to these changes, unlike the provision of petrol or diesel, the provision of electricity by employers for charging fully electric company cars is tax-free, even if the car is used for non-business purposes by the employee.
Across a car and/or van fleet, the total tax and NICs savings could be substantial, but this should be balanced with the administrative burden and financial costs associated with the changes.
Caroline Harwood is a partner and head of share plans and employment taxes at Crowe.