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Electric cars for employees

Electric cars for employees

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Hello All

I have a client who is an associate dentist working through his ltd company. The payroll only has him and his wife as an employee which is common with these type of companies. The dentist has an electric car on a 3 year lease. CT relief is claimed on lease rentals and P11D is done for him. He now wants to lease another car for his wife through the company. The P11D for the wife will be done. Does anyone see any issues with having second car leased through the company?

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By David Ex
13th Jun 2022 16:41

What’s the wife employed to do? Is it just a second car for him which his wife uses?

Guess the usual W&E question rears its head if a few hours a week admin assistant gets a £50,000 company car.

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Replying to David Ex:
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By The Dullard
13th Jun 2022 21:20

There's a question before W+E. It used to crop up all the time in relation to wive's cars when so-called lower paid employees didn't suffer certain benefits, like car benefit. It's dealt with (kind of) at EIM23550 and ITEPA 2003, s 169.

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Replying to The Dullard:
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By David Ex
13th Jun 2022 22:47

The Dullard wrote:

It's dealt with (kind of) at EIM23550 and ITEPA 2003, s 169.

If I did know about that, I’d forgotten! That only prevents multiple charges for a single car, doesn’t it though? What does it say about 2 cars?

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Replying to The Dullard:
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By Ishouldhaveknown
14th Jun 2022 08:52

As David Ex said, I also believe EIM23550 only prevents multiple charges for a single car. Although, I can see W+E being an issue but the car will have both personal and some business use. P11D is there to tax an employee for such personal use. Are we saying CT relief is dependent on W+E test and it's irrelevant if an employee is subject to BIK tax charge?

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By The Dullard
13th Jun 2022 21:21

Yes. I can see an issue. What makes you assume that it goes on the wife's P11D?

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Replying to The Dullard:
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By Ishouldhaveknown
14th Jun 2022 08:41

The wife will also have personal use of the car and she is an employee of the company.

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Replying to Ishouldhaveknown:
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By The Dullard
14th Jun 2022 09:37

The subsidiary point from EIM23550 is that it may not be the case that the wife is having the car made available to her for private use just by reason of her employment or by reason of her employment at all.

It just might be that the director's wife (who is a member of his household) is having the car made available to her for private use, at least to some extent, by reason of his directorship.

Once you've had that argument, then you get to argue about how to apportion it between the two individuals. Assuming that he is paying tax at a higher rate, HMRC will go 100% for him.

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Replying to The Dullard:
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By Ishouldhaveknown
14th Jun 2022 10:05

They both are basic rate tax payers in this instance so it don't matter how the use is apportioned. I'm fine with BIK position but need to see if CT relief will be an issue irrespective of BIK position.

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By paul.benny
14th Jun 2022 09:27

Is Client being attracted by tax benefits and forgetting the overall economic picture? Although we don't know how spouse will be using car, second cars in households typically have much lower usage than the primary vehicle. It may be more cost effective for Mrs Client to use a smaller/older/cheaper petrol car.

(And also greener - environmental breakeven point of new petrol vs new electric is roughly 50,000 miles. Greener still is to continue using an existing vehicle)

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By AdShawBPR
15th Jun 2022 10:06

I would be happy with the BIK issue too. On the CT point, wouldn't the risk be that her compensation package as a whole might be seen as excessive for her role as a director and any other work she does. If so, some (or all) of the lease costs might be disallowed for CT purposes. I think HMRC have a hard time with this one as difficult to say what a reasonable compensation package for a director should be. The cost we'd be looking at would be the annual lease cost rather than the full cost of the car and I suspect this would not be so great as to cause a problem.

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Replying to AdShawBPR:
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By Hugo Fair
15th Jun 2022 10:42

OP only says that wife is an employee (not a director).

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Replying to Hugo Fair:
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By AdShawBPR
15th Jun 2022 14:49

True, although not sure that really changes anything does it?

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Replying to AdShawBPR:
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By raycad
16th Jun 2022 13:11

Replying to AdShawBPR

It certainly does change things. If wife is a director HMRC have no grounds for challenging her rem'n package; ditto re the overall "reward" (i.e any dividends) if she is a shareholder, too, following Arctic Systems.

But a car provided for a wife who is merely an "admin-type" employee can and probably will be challenged on the grounds that the car is being provided not by virtue of HER employment but by virtue of her husband's employment/ directorship.

Sec 117 of ITEPA explicitly charges cars made available to members of an employee's family. The only exception would be where the car would ordinarily be provided to an employee on the pay level appropriate for the duties performed. In other words if any other person fulfilling that role would likely be provided with a "company" car.

The question of whether both individuals are liable at basic rate might be a factor for HMRC in deciding whether or not to mount a challenge but, of itself, makes no difference. But in any event the switch of the BIK from wife to husband may propel him into HR tax, either now or in the future.

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Replying to raycad:
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By AdShawBPR
16th Jun 2022 15:13

Thank you, that's helpful. Actual lease cost and type of vehicle (i.e. electric or not) will be key.

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