What is the future of the company car?

What is the future of the company car?

Matthew Lawford, director of tax recruitment at AJ Chambers, poses the question to company car tax expert, Alastair Kendrick

What is the future of the company car?

We have seen over recent years significant increases in the level of benefit in kind which is being sought by the government, regarding those who are provided with a company car.

It seems that there will be no relaxation of these increases in the foreseeable future. Many are anxious about the promised announcement in the Spring, when it is expected the benefit in kind may be determined by reference to the new WLTP emission test. This comes at a time when there are questions over diesel cars and their future.

We have also seen the tax rules change in relation to salary sacrifice, and there are further revisions expected in this area come April 2019. In my experience, employees are frustrated by what they are paying for their company car and are beginning to ask their employers to come up with suggested alternatives.

It is important that those responsible take care to ensure that what they introduce is sensible and works effectively.

We are seeing a significant number of suggestions that company car drivers should move away from company provided vehicles and instead fund a vehicle acquired by an employee through either a PCP or PCH arrangement.

However, in many cases, there are other arrangements being offered, such as leasing providers that offer some sort of discount by reason of the employment or special terms because of the employment. The tax rules are clear on this matter: if ‘title’ to the vehicle is not transferred to the employee – which is the case with PCP or PCH – then the vehicle will, for benefit in kind purposes, be considered a company car. So, if the employee is able to obtain the vehicle at a discount, by reason of their employment, reduced terms, or underwritten by the employer, then, in the eyes of the law, the arrangement would be considered by ‘reason of employment’.

It has previously been argued that, if the loan repayments are collected by the employer by salary deduction, or even the scheme advertised on the company intranet site, it may be sufficient to say that the arrangement is by reason of employment. We are aware that many employers went into these schemes around 20 years ago, and a number got their fingers burnt when challenged by HMRC. The tax rules have not changed significantly since, so if the arrangement was via an employee car ownership scheme, when title transfers at the outset of the agreement, this issue will not arise.

Furthermore, many employers are deciding to offer a cash alternative to the company car driver. In doing so, they have not always worked out the correct amount of cash allowance. Once a cash allowance is in place, employees may commit to that sum, and thus it is difficult to reduce.

There are employers who have paid a generous allowance and have also permitted those same employees to claim a mileage rate for business travel of 45p, which is permitted in the AMAP rules. So, these employees are receiving more than they had when on a company car scheme.

Although some employers pay an allowance which they believe is in line with their competitors, are the subsequent driving patterns the same? It is sensible to implement an allowance that leaves either the employer or employee neutral from the provision of a company.

Therefore, in my view, and after many years of experience in this area, employers need to tread with care and ensure that what they are intending to introduce is tax robust and will not increase costs even further.

Related Articles

Patisserie Valerie: Reflections and future predictions on the cake business fraud scandal

Business Patisserie Valerie: Reflections and future predictions on the cake business fraud scandal

2w Lucy Skoulding, Reporter
Watch: Monthly accountancy news round-up

Brexit & Economy Watch: Monthly accountancy news round-up

3m Lucy Skoulding, Reporter
HMRC opens Making Tax Digital Income Tax pilot to all self-employed

Business HMRC opens Making Tax Digital Income Tax pilot to all self-employed

9m Lucy Skoulding, Reporter
Financial Power List 2018: 1-5 revealed

Accounting Firms Financial Power List 2018: 1-5 revealed

10m Lucy Skoulding, Reporter
Jim Harra, Second Permanent Secretary, HMRC

People In Business Jim Harra, Second Permanent Secretary, HMRC

11m Lucy Skoulding, Reporter
Brian Palmer, Tax Policy Expert, AAT

People In Business Brian Palmer, Tax Policy Expert, AAT

11m Lucy Skoulding, Reporter
Richard Murphy, Founder, Tax Research UK

People In Business Richard Murphy, Founder, Tax Research UK

11m Lucy Skoulding, Reporter
Patrick Mears, Chair of the General Anti-Avoidance Rule (GAAR) Advisory Panel

People In Business Patrick Mears, Chair of the General Anti-Avoidance Rule (GAAR) Advisory Panel

11m Lucy Skoulding, Reporter