Business only use of company car

Business only use of company car

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A client wants to give an employee a company car because the job requires a lot of travel, but the employee doesn't want private use of it. Their place of employment is their home, and they are prepared to sign a document agreeing that there will be no private use, and to keep a record of every journey to support the mileage. They have asked what the position is if they give a family member a lift, without deviating from the route of their business journey. Would this be regarded as a form of private use and trigger a benefit in kind?

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By thehaggis
27th Aug 2015 16:45

Prohibition

There needs to be more than an agreement that there will not be any private use. The employer must prohibit private use, and that prohibition must be both enforceable and enforced.

If that is the case, then the test is whether the journey is necessary. Carrying a passenger would not affect the necessity of the journey (as long is it did not cause a significant deviation from a normal route).

He would need to keep a record of all the miles travelled to show that there was no private use.

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Replying to CORSALOVER2:
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By PracticePartner
28th Aug 2015 08:00

Enforcement of private use prohibition

thehaggis wrote:

There needs to be more than an agreement that there will not be any private use. The employer must prohibit private use, and that prohibition must be both enforceable and enforced.

If that is the case, then the test is whether the journey is necessary. Carrying a passenger would not affect the necessity of the journey (as long is it did not cause a significant deviation from a normal route).

He would need to keep a record of all the miles travelled to show that there was no private use.

Having prohibited private use how can the employer enforce this condition? They can't remotely immobilise the car, so will need to rely on periodic checking of the mileage log. Perhaps the condition should be an addendum to the employee's contract of employment including a statement that any private use would be a disciplinary offence?

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By Kgallacher19
27th Aug 2015 16:48

Available
My understanding is that there doesn't need to be private use for it to be a benefit, merely that it needs to be available for private use. Therefore if the employee takes the car home, it's available and there is a benefit.

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Replying to johnjenkins:
Red Leader
By Red Leader
27th Aug 2015 17:08

pool car?

I think the best route to explore would be meeting the requirements for a pool car.

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Replying to SXGuy:
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By PracticePartner
28th Aug 2015 07:52

Pool car

Red Leader wrote:

I think the best route to explore would be meeting the requirements for a pool car.

Don't think so, as because the employee is home based it would never be available for general use?

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Replying to Abusinessman:
Red Leader
By Red Leader
28th Aug 2015 12:00

pool car

PracticePartner wrote:

Red Leader wrote:

I think the best route to explore would be meeting the requirements for a pool car.

Don't think so, as because the employee is home based it would never be available for general use?

Pool car conditions:

-used by more than one employee

-not ordinarily used by one employee to the exclusion of others

-not normally kept at or near employees' homes unless it is kept on premises occupied by the business

-used only for business journeys

 

Yes, in the case in the OP this may not be achievable unless the business is prepared to change things in order to achieve a better result tax-wise for both them and the employee.

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Replying to johnjenkins:
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By thehaggis
27th Aug 2015 21:20

It wont be available

Kgallacher19 wrote:
My understanding is that there doesn't need to be private use for it to be a benefit, merely that it needs to be available for private use. Therefore if the employee takes the car home, it's available and there is a benefit.

If the employer prohibits private use, it is not available for private use.

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Replying to tom123:
By Tim Vane
28th Aug 2015 03:16

Private use

thehaggis wrote:

If the employer prohibits private use, it is not available for private use.

But surely if the employee gives a family member a lift, that is private use, even if only incidental private use. The prohibition against private use is not being enforced.

He cannot have his cake and eat it.

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Replying to Abusinessman:
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By Anne Robinson
28th Aug 2015 11:56

Private use

Tim Vane wrote:

thehaggis wrote:

If the employer prohibits private use, it is not available for private use.

But surely if the employee gives a family member a lift, that is private use, even if only incidental private use. The prohibition against private use is not being enforced.

He cannot have his cake and eat it.


As stated just because it is on the way doesn't mean it is not private use - that a bit like telling the bus driver you don't need a ticket as he is stopping at the bus stop anyway.
Also what will the insurance policy say? No domestic use? What happens in the case of accident "on the way"?
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Replying to DJKL:
By Tim Vane
28th Aug 2015 13:48

Yes

Anne Robinson wrote:

As stated just because it is on the way doesn't mean it is not private use

EDIT - agreed - misread Anne's post, as pointed out by cheekychappy!

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Replying to Justin Bryant:
By cheekychappy
28th Aug 2015 12:30

I think

Tim Vane wrote:

Anne Robinson wrote:

As stated just because it is on the way doesn't mean it is not private use

Sorry, I just don't agree. It is not significant private use that would prohibit it from being business use, but it is still private use, by any definition that the company could meaningfully impose as a "no private use" clause in a contract. So it fails that test by its very nature.

 

that's what they said.

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Replying to Abusinessman:
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By thehaggis
28th Aug 2015 17:04

Incidental is not important

Tim Vane wrote:

thehaggis wrote:

If the employer prohibits private use, it is not available for private use.

But surely if the employee gives a family member a lift, that is private use, even if only incidental private use. The prohibition against private use is not being enforced.

He cannot have his cake and eat it.

But there is no incidental test.  The test is whether the journey is business travel as defined at s171 ITEPA.  This means that if it satisfies s337 or s338, which only requires that the journey is necessary, the journey is business travel.  There is no requirement for the business element to be the sole element.

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Replying to bernard michael:
James Reeves
By James Reeves
28th Aug 2015 17:33

It is important if "no private use" is an employer stipulation

thehaggis wrote:

But there is no incidental test.  The test is whether the journey is business travel as defined at s171 ITEPA.  This means that if it satisfies s337 or s338, which only requires that the journey is necessary, the journey is business travel.  There is no requirement for the business element to be the sole element.

I can't see how that wriggle works, and I don't think ITEPA is relevant to the original point. If the employer stipulates and enforces "no private use", how is carrying a member of the family on a private journey not "private use" by definition. The fact that the purpose of the journey is "business" for tax purposes does not mean that giving a family member a lift is not private use of the vehicle in fact even if not private use for tax purposes.

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RLI
By lionofludesch
27th Aug 2015 17:32

A long hard road

There's a long hard road ahead if you want to avoid the car benefit.

Don't bother, would be my advice.

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By Jackie0802
28th Aug 2015 14:06

Never known

This to succeed. Recently had a case where unused co car was left on directors drive simply for security after the user left the company. Despite the fact the director had and used his own car, as did his wife, it was still deemed a benefit because it was there at his home and available. If the employee doesn't want  this to be a p11d issue then he should use his own vehicle and claim mileage

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Replying to 356B:
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By PracticePartner
28th Aug 2015 08:26

Gilbert v Hemsley

Jackie0802 wrote:
This to succeed. Recently had a case where unused co car was left on directors drive simply for security after the user left the company. Despite the fact the director had and used his own car, as did his wife, it was still deemed a benefit because it was there at his home and available. If the employee doesn't want the this to be a p11d issue then he should use his own vehicle and claim mileage

Note that in my case the employee is not a director. From EIM23405:

"Guidance from the Courts on prohibition of private use

In the case of Gilbert v Hemsley (55TC419), the taxpayer was an employee of a plant hire company. He was required to be on call at any time and was provided with a company car. He used this to travel between his home and the company's nearby business premises and for genuine business trips. He successfully argued before the Commissioners that:

he was prohibited from using the car privatelyhe never used the car for private motoring.

In consequence, the twin tests imposed by Section 118(1) ITEPA 2003 were met so that no car benefit charge arose.

Vinelott J in the High Court saw no grounds for reversing the Commissioners' decision because of the very special facts as found by them, the essence of which was that:

his work base was his home and not his employer's premisesall journeys made by the taxpayer, including those between his home and the company's premises, were therefore business travel andin this particular context, where the taxpayer was in essence an ordinary, but senior and trusted employee of the company (he was a director, but had no material interest in the company), the verbal prohibition made by the company's managing director on the private use of the car was valid and enforceable.

Although the decision in this case turned upon the particular facts, it still provides judicial guidance on the factors that need to be present in order to be satisfied that the terms on which the car is made available prohibit private use.

The key principles that emerge from the case are:

there must be an express ban on private use, that is the ban must be explicitly stated, so that an implied ban is insufficient to meet the testthere must be a legally enforceable ban on private use.

Provided these factors are present, and depending on the context in which it is delivered, a verbal prohibition may count as an effective and meaningful ban on private use."

I like the inconsistency between the requirement for an express ban and allowing a verbal prohibition.

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Replying to 356B:
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By sammerchant
01st Sep 2015 12:33

Solution to Jackie0802's post?

Would the situation be different if the keys to the car were kept elsewhere or if it had been immobilised?

 

 

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By cheekychappy
28th Aug 2015 08:26

Jackie
Security alone has never been a successful argument because the car is still available for private use. I wouldn't have bothered arguing it.

I concur with Tim and Haggis.

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By DKB-Sheffield
28th Aug 2015 13:24

The options?

Hi,

Admittedly, prohibition is not easy but, it is not impossible either.

Using a tracker with a remote disablement option can allow the employer to disable the vehicle through the immobiliser; either for a set period every day or by manual intervention. In addition, full records of the individual journeys (including start and stop) can be maintained with Geo Fences being set up to highlight non-business locations/ routes. I had a vehicle hire client who used this system to find out where vehicles were, immobilise them if hire had not bee paid and set a Geo Fence to trigger an alarm if the vehicle strayed out of its expected location.

Now, there is a clear cost of this (£500 p/a per vehicle based on a dozen or so vehicles) and my client had an agreement term of 5 years. That's a lot of money to save on tax and Class 1As. Even then, there is no guarantee that HMRC would accept it! In all honesty, they probably wouldn't. After all, a single private journey - which we know there will be (regardless of what your client or their employee says), would invalidate the prohibition.

Please note: My comments are purely to show a way of enforcing and checking prohibition. However, I certainly don't believe this would be accepted by HMRC.

With regards to a "pool car", I think it's a no-goer. Whilst the employee is normally based at home, I don't believe from your post that any other employees are based at the same location (i.e. the employee's home). As a result, how could it possibly be argued that the pool car is available for general use? Any other employees wishing to use the pool car would have to travel to the employee's home in order to use it. Whilst not 100% impossible, it is certainly considerably unlikely.

In all honesty, if the employer wishes to provide their employee with a car, they would be best to see which cars could be purchased at a reasonable cost with low CO2 and low List Price to minimise the tax liability as opposed to spending considerable time and money on trying to avoid that liability.

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By PracticePartner
28th Aug 2015 13:36

It only costs if there is a PAYE enquiry

If the employer imposes a condition prohibiting private use including carrying non business passengers and the employee keeps records to show no private use, there seems no need to go to elaborate lengths such as fitting a tracker and monitoring software. No P46(Car) gets filed, so the only requirement to defend the treatment as a wholly business vehicle would be if HMRC selected the employer for enquiry. Then it could become a pain if it goes to Tribunal but surely that's not a reason to treat it as a P11D benefit?

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By DKB-Sheffield
28th Aug 2015 14:01

Why did you ask the question?

Hi PracticePartner,

It appears you already have all of the answers and are intent on arguing against any suggestions offered. Why are you looking for advice on this forum if you have already decided that any suggestions made by anyone on here that go against the plan of having a £Nil P11D value vehicle are wrong?

The true cost of this matter is in the people who have taken time to respond to a question that you have already answered and are purely determined to prove everyone else wrong!

Personally, I look at how to (a) avoid a costly enquiry and (b) prove the correct treatment if an enquiry is launched. I believe that is what my clients expect. If I offer clients advice and they take the decision not to adopt it because the cost of compliance and proof (either as tax or cash investment) is too high, that is their prerogative.

If I viewed things differently, I'd perhaps advise clients not to bother with VAT, PAYE, CT, SA etc. for any of my clients because; in all honesty, they are additional, work and incur tax costs and only become an issue if HMRC raise an enquiry.

In all honesty, whilst your client is looking for a loophole to avoid tax, I would personally question whether it is indeed true that the employee will not be allowed to use the vehicle for personal use. After all, it would be in the employer's and employee's benefit if that's all they did. I would suggest neither party is in a sufficiently independent position to "police" this claim and am positive that HMRC would take the same view.

As I said previously, my advice... look for a vehicle that doesn't cost the earth in tax. At least everything is then above board and above the suspicion of HMRC!

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By PracticePartner
28th Aug 2015 14:47

Why I asked

@DKB-Sheffield

I asked this question because I am interested in what others think, but I didn't think it was obligatory to agree with all the answers, or to refrain from to challenging them. I am finding this a useful discussion and some of my counterpoints have been triggered by comments from you and others, for which I thank you all for taking the time to post. Yes I have some of the answers but I may have missed something.

What I am hearing from some contributors is more a prevailing air of caution than experience of the exemption being applied in practice. I accept that it would generally not be feasible, and my starting point when advising clients is to treat a company car as a benefit.

In this case it is the employee (who is not a director) that does not need or want private use of the car, so they are worse off if they are forced to accept the tax charge just so everyone else sleeps at night. But they are not my client of course.

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By DKB-Sheffield
28th Aug 2015 15:15

@ PracticePartner

Hi,

 

Of course the employee will not want or need private use if they are being taxed on the benefit. In my experience, that does not necessarily mean they will not use the vehicle for private use once it is available. And to echo many others, the proof will be in the pudding your client has a PAYE inspection.

Incidentally, and bearing in mind you will be submitting a P46(Car), isn't it entirely possible (however unlikely) that the absence of this vehicle on the P11D, may trigger an inspection?

 

Furthermore, and I must apologise if I have missed this, why does the employee not want private use of the vehicle? Is it that they already have a car? If so, that is a plausible excuse. But, would it not be better for the employee and the company if they received private mileage payments for business use? Yes, the employee will have to add business use to his insurance policy (which is really pretty minor) and would have to keep a log of business mileage but this is something they will have to do anyway to prove complete business mileage for the company car.

However, if they do not have another car, it should be assumed that the company car will be used for private journeys - however short or rare. After all, I could walk round to the shops later for some milk but, because my car is on the drive, I'll probably use that instead.

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By Melody
28th Aug 2015 20:59

Van?

...

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RLI
By lionofludesch
29th Aug 2015 09:00

Better Option

A van would indeed solve the problem.

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By PracticePartner
29th Aug 2015 09:58

Van and P46

A van would be more plausible but perhaps not suitable for the white collar type of business. 

To @DKB's point that a P46(car) would be filed and its absence on the P11D noted, I thought that the sole purpose of the former is to notify a car that is provided for private use, therefore would not be filed where private use is prohibited? I don't know why the employee doesn't want the car for private use, maybe they cycle everywhere or ride a motorbike, or their partner has a car, but I guess that is up to them.

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By thehaggis
29th Aug 2015 14:13

@James

Why would ITEPA not be relevant?  It is ITEPA that imposes the tax charge when the car is available for private use, and ITEPA that defines defines private use - see s118.

Private use is defined as all travel that is not business travel. Business travel is defined at s171.

If the journey satisfies s337 or s338 it is business travel,  That means it is not private travel.

HMRC insist that it is the tax definition that applies - see EIM23400

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By Ruddles
31st Aug 2015 09:33

Just chipping in with a thought. Nowhere in the legislation or guidance can I find reference to the driving of the car, only its use. So, while I agree with haggis in part, I can imagine a zealous Inspector arguing that although a trip may be wholly for business purposes as far as the employee is concerned, by offering a lift to a relative this could be seen as also making the vehicle available to a member of the employee's household for what would obviously be non-qualifying purposes.

An interesting debate, and likely to be resolved only by real world examples.

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RLI
By lionofludesch
31st Aug 2015 09:25

Real world

In the real world, it very much depends on the records.

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By Ruddles
31st Aug 2015 09:32

By "real world"

By 'real world' I was referring to decided cases.

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7om
By Tom 7000
01st Sep 2015 12:50

Insurance

It will be insured for business purpooses only

 

If he drops his missus off at the Co-op as he is passing and he has an accident, he will not be insured as it wasnt business...

How do you deal with that?

 

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Replying to fawltybasil2575:
RLI
By lionofludesch
02nd Sep 2015 09:47

Unreliable

Tom 7000 wrote:

It will be insured for business purposes only

If he drops his missus off at the Co-op as he is passing and he has an accident, he will not be insured as it wasn't business...

How do you deal with that?

More to the point - would you trust your employee not to do this ?

Some tax isn't worth saving.  

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Replying to whitevanman:
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By PracticePartner
02nd Sep 2015 11:10

All tax is worth saving, from the employee's point of view

lionofludesch wrote:

Some tax isn't worth saving.  

How do you convince the employee to accept that argument?

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Replying to seandrowe:
RLI
By lionofludesch
03rd Sep 2015 08:20

Convincing ?

PracticePartner wrote:

lionofludesch wrote:

Some tax isn't worth saving.  

How do you convince the employee to accept that argument?

Who's the boss ?

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By leon0001
02nd Sep 2015 12:41

Non driver employee
Some years ago, one of my colleagues at a big 4 accountancy firm was issued a company car, the same benefit as all the other managers at his grade. As neither he nor anyone else in his household could drive or had any intention of learning, he requested that he be paid the monetary equivalent. This was refused and the car spent three years parked outside his home. There was no use, let alone private use, but should it have been classed as available?

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By pauljohnston
02nd Sep 2015 14:27

Another option if it is purely for business purposes

Is for the employer to rent a garage a little distance from the employees home say 1 mile.  The employee can then walk or use his own transport to the garage.  This would be his employers business premises and I a much better way of proving no private use.  Although I accept that private user may take place butn much more unlikely.

 

I agree with others that a lift to a family member would probally trigger a benefit, even if the person getting the lift was employed by the same company.

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