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:
- 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.