TT50: Company Car Tax

March 24, 2004

Company cars revisited
In this post-Budget issue we return to one of our favourite topics – the tax charge that is imposed on employees and directors who enjoy the benefit of private use of a company owned vehicle. The news is mixed: some bad, some good and some neutral.
First, the bad news
In Topical Tips 44, we highlighted a cunning idea that had received approval from the Special Commissioners. A taxpayer (Mr Vasili) had successfully argued that if a motor car was jointly owned by him and his company (but mostly by the company), the benefit of any private use was not based on the usual (and costly) scale charges.

Instead, it was held that the general rules regarding the provision of assets applied, such rules reflecting the actual cost of the asset and the actual private use involved. Benefits calculated on such an ‘actual’ basis are generally much lower than those derived from artificial scale charges.

Unfortunately, the High Court recently overturned the decision of the Special Commissioners, ruling that scale charges do indeed apply in such circumstances. It remains to be seen whether Mr Vasili will take the matter to the Court of Appeal.
The new position with vans and ‘vans’

The Budget produced some modest amounts of good news for company van drivers. With effect from 6 April 2005, a scale charge of Nil will apply to van drivers who have to take their vans home at night, but who are not allowed any other private use.

Thereafter, it was announced in the Budget that the scale charge for having the unrestricted private use of any van would increase to £3,000 per annum, plus a further £500 per annum if fuel is also provided for private motoring.
Company car scale charges
Following the Budget, the position is that the basic scale charge rules (including the amounts) remain unaltered up to 5 April 2007 and the fuel scale charges have been fixed at the same amount for 2004/05 as they were for 2003/04. Some minor changes have been made to the rules in respect of cars taken home by emergency service workers (who are on call and need them to respond quickly to emergencies) if no other private use is allowed. It beggars belief that the Inland Revenue would ever attempt to tax such ‘benefits’, but any relaxation of the rules has to be welcomed!

Barnes Roffe Topical Tips

  • Reconsider any joint ownership arrangements that have been put in place, as it seems that these will no longer be tax effective (subject to the High Court decision being appealed).
  • Consider the company van idea, at least until 5 April 2007.
  • Review the company’s car strategy generally.Would it be more cost effective for individuals to run personally owned cars and to claim tax-free mileage allowances for business use?

Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.

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