OCL Accountancy: When is a car not available for private use?
A taxable car benefit arises when a car is available to an employee (including a director), their family or household for private use, regardless of whether or not it’s actually used for that purpose. The Upper Tribunal recently decided a longstanding and contentious question regarding employer-owned cars, especially where company directors have access to them.
Tim Norton Motor Services Ltd owned two prestige cars, a Maserati and a rare Ford which were used by Tim Norton. HMRC disputed the figures the company reported for car benefit on Forms P11D. The dispute involved the periods the company declared that the cars were available for Tim’s private use. Tim’s argument was that there were periods when the cars were not available for private use because the company had lodged a statutory off-road notification (SORN) with the DVLA.
During the periods covered by the SORN no road tax was due or paid for the cars, Tim considered this to mean that it would be illegal to use the cars on the road and in effect for that reason they were not available. HMRC’s counter argument was simply that the legality of using a car on the road was not a factor in deciding whether it was available.
The word “available” has no special meaning for tax and so the legal consequences of driving an untaxed car were irrelevant. Where a car is physically available the only let out is where “…the terms on which it (the car) is made available prohibit…” private use. A car is available unless physically prevented or prohibited by the employer.
In the Tribunal’s view there was no question of the cars being physically prevented from being used as they were capable of being driven on the road. The issue was whether there was a legal restraint prohibiting their use.
The Tribunal accepted that in this case there was a prohibition in the company’s employee handbook that required permission from the company for the vehicles to be used for private journeys. However, on the facts presented, the judges concluded that approval by the other director of the company had been given, albeit tacitly in some instances. Therefore, the contractual prohibition was removed and the cars were available.
The moral of this story, especially for directors of small companies, is if they wish to prevent a company car benefit charge they must make the car physically unavailable. Alternatively, they must prohibit private use clearly in a letter or agreement (at the very least the staff handbook) and have a system where express permission, preferably written, is required before using the car privately. For example, a log showing when the car is made available signed on each occasion by a third party, e.g. senior employee or other director.
For more information contact us – callTristan Wilcox-Jones, Samantha Taylor orLucas Knight on 01225 445507