Q: My client’s company is suffering a downturn in trading, and to ensure its cash flow stays stable, it is likely the director will end up personally meeting most, if not all, running costs of his company car for at least 2014/15. As costs are likely to exceed the benefit for the year, does it reduce the charge to nil even if final expenses are not known until after the end of the tax year?
Q: Unfortunately, the post year-end payment of the private motor expenses will no longer help reduce the benefit in kind charge that arises on the provided vehicle, where pre-viously it has done. This change comes as a result of a First Tier Tribunal Case from January 2013 (TC02466 Peter Mar-shall). The facts of this case were very similar those you mention.
A company car was provided to the director during the year, but owing to company solvency issues, the director ended up personally meeting most of the running costs, including all fuel, repairs, road tax and servicing.
The company’s accountant considered these payments into when preparing the annual P11D form and reduced the individuals’ benefit to nil for the year, on the basis that he had made a personal contribution to the running costs of the vehicle, allowable at ‘Step 8’ of the company car calculation (see EIM25250). But HMRC argued that as the payments were not quan-tified until the company accounts were prepared (after 5 April), they were not allowable as they had not been made in the same tax year.
The tribunal considered the legislation at section 144(1) ITEPA2003 which states:
“A deduction is to be made from the provisional sum calcu-lated under step 7 of section 121(1) [ITEPA2003 — the com-pany car calculation] if, as a condition of the car being avail-able for the employee’s private use, the employee: (a) is requir-ed in the tax year in ques-tion to pay (whether by way of deduc-tion from earnings or otherwise) an amount of money for that use and (b) makes such payment.”
The Tribunal felt that as pay-ments were made as required but were only credited to the accounts after the end of the year, they still met the con-ditions in s144. Following this and HMRC’s additional loss in the “Apollo Fuels” case (R&C Commrs v Apollo Fuels Limited and others February 2014) — in which the company leased cars from its own fleet to its employees at what it deemed to be full market consideration (they successfully argued that this removed the provision of the company cars from the benefit calculation) — they have amen-ded the legislation at s144(1) and repealed s144(3) to remove doubt in both situations.
The new legislation ensures a deduction is only given at ‘Step 8’, when payment is made (and credited) in the relevant tax year. Changes will apply for 2014/15 and subsequent tax years for company cars and vans.
Ben Chaplin is managing director of Taxwise
