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Can an ex-employee keep a company car?

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Hi all, hoping you can help!

I have a new employer and they have agreed to let a leaver keep a company car on contract hire, so the car is in our name yet the driver is no longer an employee. There are a lot of red flags for me! But my main issue is the taxable benefits arrising in the 2020/21 tax year as he would not have been employed by us. Am I right in thinking we should ask for the car back and deal with the monetary value/compensation for the car separately? Or is there a way I can make it work as is?

Thanks

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By Tim Vane
24th Jun 2020 19:15

It would seem to be a termination benefit, and covered comprehensively in the relevant sections of the Employment Income Manual. The sizeable tax bill may cause the employee to reconsider...!

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Replying to Tim Vane:
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By jessdoll
24th Jun 2020 22:31

That manual is quite a piece of work! I’m surprised the employee has opted for it now I’ve seen that. Unless I’m missing something?

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By Anonymous.
24th Jun 2020 20:57

jessdoll wrote:

they have agreed to let a leaver keep a company car on contract hire,

Do you mean retain use for the residual term of the contract? Is "contract hire" (in this instance) an agreement that results in the employer owning the car? Obviously the company cannot give the car to the ex-employee unless it owns it.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim12815

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim13270

It would be worth double checking the insurance position. Is the former employee responsible for providing cover - and is someone checking they are doing? If it's assumed to be covered by the fleet policy, might be worth being clear whether or not ex-employees are covered.

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Replying to Anonymous.:
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By jessdoll
24th Jun 2020 22:31

Thank you for your reply, the employee will be continuing to use the car for term of the contract hire (another 2 years) and then will return it to us and we are still liable (one of the red flags!) He has realised he cannot insure it as he is neither the owner or registered owner. Any recommendations?

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By paul.benny
25th Jun 2020 08:05

As you say, best is take the car back and provide some financial compensation.
Highlighting the risks of the present arrangement might focus minds.

You didn't mention why the person is an ex-employee. Could you rehire them and put them on unpaid leave? I'd take advice on the employment law implications of that - for instances/he would still retain some employment rights.

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By Kevin Kavanagh
25th Jun 2020 09:15

All the above is extremely good advice. But one point seems to have been missed: you're the employee, this should be a concern of your employer not your problem. So perhaps just mention to your boss that there may be issues and leave it to him or her to consider the situation and presumably discuss it with their accountants.

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Replying to Kevkava:
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By jessdoll
25th Jun 2020 09:25

The issue is that I am currently processing P11d's and as a member of the board it has become a concern of mine too. Unfortunately this all happened before I started!

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Replying to jessdoll:
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By Anonymous.
25th Jun 2020 09:35

jessdoll wrote:

The issue is that I am currently processing P11d's and as a member of the board it has become a concern of mine too. Unfortunately this all happened before I started!

There presumably can't be a P11D for the period following termination of the employment.

As noted, the car isn't insured by the former employee. (Is it insured by the company at the moment??)

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Replying to Anonymous.:
By SteveHa
25th Jun 2020 14:52

If it is made available to the ex-employee by reason of someone else's employment (presumably a director) in which case I'd venture that it's a BIK on that director.

And to address an earlier comment, there is no such thing as a "registered owner" of a vehicle. Only a registered keeper, which may be completely different from the owner.

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Replying to jessdoll:
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By raycad
29th Jun 2020 18:51

As others have posted, this is a termination benefit and so is NOT reportable on the P11D. A "P11D-able" benefit in kind can only apply where the benefit is provided by reason of the employment, not by reason of the termination of same. The amount to show on the P11D is the scale charge(s) up to the last day of service.

The post-termination benefit may still be taxable, but only where the entire severance package exceeds £30k. The key difference is that Class 1A NICs are not payable on ANY termination benefits where the employment ended prior to 6/4/20, which this one evidently did. And, even post-5/4/20, Class 1A NICs are only payable if the entire severance package were to exceed £30k (and only on any chargeable excess).

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By normanwl
29th Jun 2020 13:36

I did this 30 years ago when I left my employer to become self employed. i managed to insure it as the keeper.

I paid the monthly fees to my former employer and returned it after 1 year, the amount outstanding on the lease. It suited the company because of the cost of returning an unwanted leased car early. it suited me because no upfront payment on the lease in my first loss making year.

I know that the taxable benefits were not the same then. The tax inspector who passed off my first 3 years trading did not comment on the arrangement. He was believe on not a Mr Millions.

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By tom123
29th Jun 2020 15:02

Is the vehicle insured? If so, how?

We have a fleet policy (which generally covers any vehicle on company business), but I can't see it covering a person we no longer employ on a car that we have hired.

You wouldn't find this out until there was an accident..

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