Would HMRC class your commercial vehicle as a company car? Don’t get caught out

One of the many perks a business can provide is access to a company car. However, whether or not HMRC recognises the car as a commercial/business vehicle is another question.

Recently, HMRC demanded a car and car fuel benefit charge of over £40k (before interest and penalties). This was during an employer compliance review of a business.

The charge was based on a company car being “made available for the private use” of the individual between October 2013 and April 2016. The 4×4 vehicle was used on industrial sites.

Reasons the company believed it was a commercial / business only vehicle:
  • The company vehicle was primarily a site vehicle
  • The individual and their spouse always had their own private cars
  • The individual used their own vehicle outside of work
  • The business premises was very close to the individual’s home
  • The car was normally kept at the individual’s home overnight for security purposes, as the business premises are very remote
  • The business involved the individual undertaking a lot of business travel between different sites
  • The individual’s own car wasn’t equipped for driving on or around the sites
  • A company vehicle was suitable for travel around the sites and primarily used for business
  • The company provided all fuel for the car
  • The only personal use of the vehicle was the journey between the individual’s home and the main site. This was less than 50 miles per week
  • The individual took the vehicle home for security and was “on call” 24 hours a day
HMRC’s Review

The vehicle was “available” for the private use of the individual. However, HMRC stated that it was a company car for benefit in kind purposes and they applied the accompanying fuel benefit charge.

The car benefit calculation was £58k and the fuel benefit was £18k for the tax years 2013/14 to 2015/16. Therefore, the employer had to settle underpaid income tax (which would ordinarily be due from the individual) of £30k and underpaid Class 1A NIC of over £10k on these benefits in kind.

The individual made a repayment of the private element of fuel over the period under review by HMRC. This was at a rate that exceeded HMRC’s relevant advisory fuel rates. The individual hoped that HMRC would not require a fuel benefit charge for the company vehicle. However, HMRC did not accept these proposals as the legislation and guidance on this matter does not provide for concession.

As the fuel relating to the individual’s private use was not made good in the tax year in question, it was included in the calculation of car fuel benefit.

Double-cab pick-ups

Whilst not relevant in the case of the business above, there is an additional complication to be aware of where the commercial vehicle made available to the employee for private use is a double-cab pick-up truck.

In Coca Cola v HMRC, the first-tier tax tribunal ruled that some double-cab pick-up trucks fall within the company car tax rules (VW Kombi) whereas others fall within the company van tax rules (Vauxhall Vivaro). This is contrary to HMRC’s guidance on the matter, therefore individuals should exercise caution before following HMRC’s guidance.

The company car tax charges are usually significantly higher than the company van tax charges so it is important that employers consider the potential implications when vehicles are provided to employees.

Please note that other double-cab pick-ups are yet to be tested in court and the discussion and application of the principles was extremely complex and thorough in the case of the consideration of specific vehicles. However, there remains a large grey area in terms of the tax treatment for double-cab pick-ups.

Conclusion

In summary, if a vehicle is “available” for an employee’s private use then a company car/van benefit charge (and potential fuel charge) could arise. Furthermore, if fuel cards are provided to company vehicle users there may also be a Class 1 NIC charge due via the payroll.

Contact us

If you have any further questions, please feel free to contact our employment tax specialists Clair Williams or Rachael Matthewson.