Car benefit ruling to be reversed by new law

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The Court of Appeal ruling in Apollo Fuels Ltd and others has indeed reached the end of the road as recently reported, but it is not the end of the story for employees who are provided with company cars or certain other benefits.

To recap: Apollo Fuels leased cars to its employees at market rates, so the employees paid no more or less than an unconnected party would pay for the same car under the same lease terms. When one of those employees undertook a business related journey in his leased car he claimed a business mileage rate from Apollo Fuels. The sums payable to the employee as business mileage allowances were set against the rental payments due from the employee for leasing the car.

Apollo Fuels argued that the employees received no benefit as they paid a fair market value to lease the car. The Court of Appeal upheld the judgements of the first tier and upper tier tribunals that no benefit was provided as market value rentals were paid. This clarifies what was thought to apply as a general rule for items provided to employees: Where the employee pays an open market value for the goods or services, there is no benefit to tax.

This decision could be used by other companies to avoid the very high benefit in kind charges due on the provision of a company car. The tax at stake could be huge multiplied over the number of employees who drive high emissions company cars. It should thus not be a surprise that HMRC is planning to change the law to ensure that the Apollo Fuels decision can’t be used to the taxpayer’s advantage from 6 April 2016.

Finance Bill 2016, clause 7 will change how the taxable benefit in kind is calculated for the following benefits provided to employees or their family members:

  • cars
  • vans
  • living accommodation
  • employment-related loans

The taxable cash equivalent of all of these benefits is calculated using specific charging rules which can result in the tax payable exceeding the market value of the service. In such circumstances would be advantageous for the taxpayer to pay the market price for the provision of the asset, rather than to pay tax of a higher amount.

The new law will ensure that the specific charging rules for those benefits will apply from 6 April 2016, even where the employee pays an open market price to receive the service/use of the asset.

There is an exception where the employer’s normal business is to hire cars or vans to the public.

If an employee leases a vehicle on the same terms and cost as a member of the public, the vehicle is treated as not being made available by means of his employment, so no benefit applies.

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

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13th May 2016 12:01

So lets say the company gives the director a flat to live in and he pays fair market value for the rent: Not withstanding this:
a) ATED will apply ~ if you live south of Watford :)
b) You still pay full benefit in kind with no deduction for the market rent

Is that right or is there a deduction somewhere?

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By ahills
13th May 2016 12:52

So, why did the employees not just go straight to the lease company?
Why is the employer acting as an intermediary?
I appreciate that the above two questions are the same!
Thanks

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to ahills
13th May 2016 13:18

Bad credit history...easy to do....stupidity..not tax lawyers

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By ahills
to Tom 7000
13th May 2016 17:09

Not answer I was hoping for!

I was hoping someone would say "because the employer gets a fleet discount", which would then demonstrate that there was a benefit to the employee.

Although I appreciate that for most other BIKs there is reference to "cost to employer", as some are referring to below, but when was the last time company cars have been taxed on that basis?

I've thought for a number of years that there was more of a political angle to the company car tax legislation, aimed at discouraging the use of cars which create higher levels of pollution - perhaps I am wrong.

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to ahills
19th May 2016 12:34

I agree, otherwise why would the employer arrange a lease for its employee?

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13th May 2016 13:31

I have never heard so much rubbish in all the years I have been in the profession! Very soon Mr Osborne will be taking the money out of our pockets and the problem is that people are sitting back and do nothing!!!

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13th May 2016 14:24

What has all that expensive time before the courts achieved?

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By ricktay
13th May 2016 14:34

So it appears that HMRC, by their action, are confirming that b-i-k legislation is there to raise tax, not to equalise the treatment between those who receive employment benefits and those who provide them from their own pockets?

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13th May 2016 16:43

If tax avoidance is wrong, so is this attempt by HMRC to tax a 'benefit' which is not a benefit. Any benefit incurs a cost to the provider. In the case of Apollo Fuels, the net cost to the employer was zero. Henceforth, the employee will be charged to tax on a benefit in kind that does not exist and cost the employer precisely nothing. This goes against natural justice and common sense. Come back The Man On The Clapham Omnibus.
Talk about a sore loser.

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15th May 2016 10:12

Ahills - Then, if the employees banded together and arranged their own cheaper deal, that would be okay? I think this is pettyfogging. May we please have someone in HMRC who shows a bit of common sense? Tax IS now taxing !

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By ahills
to sammerchant
16th May 2016 09:40

Yes, that would be OK by me.

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19th May 2016 12:23

Surely the amount the employee is paying in this situation should then be treated as a contribution to the running costs of the vehicle and so a reduction in the chargeable benefit?

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By ahills
to matttaxnpayroll
19th May 2016 14:32

matttaxnpayroll wrote:

Surely the amount the employee is paying in this situation should then be treated as a contribution to the running costs of the vehicle and so a reduction in the chargeable benefit?

That would seem fair, but when was tax fair!

Provided it has been structured correctly, that should work.

Or, if there really is no benefit to the employee in having the employer arrange it, they could just go to the lease company direct!

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16th Nov 2016 16:15

Apollo fuels got there scheme just about right, but it begs the question, did all employees want a leased car at market rates. I wonder what rates the employees claimed back, its not always 45p & 25 p it can be as low as 7p.

To recap: Apollo Fuels leased cars to its employees at market rates, so the employees paid no more or less than an unconnected party would pay for the same car under the same lease terms. When one of those employees undertook a business related journey in his leased car he claimed a business mileage rate from Apollo Fuels.

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