Non-business journeys and the taxman

Non-business journeys and the taxman

Q: I very rarely use my company car for non-business journeys but I am still being charged tax in full on the benefit in kind. Is this correct?

A: The car benefit rules apply when a car is made available to an employee or a member of the employee’s family or household by reason of the employment and the car is also available for the employee or member’s private use.

The issue here is not the actual amount of private use but the availability for private use. The tax rules go on to say that the car will be treated as available for private use in a tax year unless in that year the terms upon which the car is made available prohibit such use and there is in fact no such use. This is a two-part test so even if there is no private use during the year the benefit charge will apply unless private use was prohibited.

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HM Revenue & Customs take the view that when a car is provided to the employee, private use must be specifically prohibited in advance and that prohibition is capable of being legally enforced, otherwise the car is available for private use.

The courts have somewhat surprisingly said the prohibition does not necessarily have to be made in writing. HMRC also takes the view that the onus of proof is on the employee which will require contemporaneous records including details of and the reason for each journey and the mileage covered.

At this point it must be remembered that private use for these purposes is determined by the tax legislation and not by agreement between the employer and employee, the most obvious example being travel between home and normal place of work.

The VAT legislation adopts a somewhat similar approach for determining whether a trader can recover VAT included in the cost of a car; there must be an intention to use the car wholly for business purposes and the car should not be available for private use. There are decided VAT cases which shed some light on how this rule is to be applied.

These were both important factors in helping the tribunal decide in favour of the VAT registered traders.

Ben Chaplin is managing director of Croner Taxwise