For many, their working patterns changed as a result of the Covid-19 pandemic. Some employees were required to work from home, some were furloughed, while those with certain health conditions were required to shield.
If the employee has a company car, is a deduction available for periods during the pandemic when it was not used?
Legislative test
Under the legislation, a benefit-in-kind tax charge arises where the car is available for the employee’s private use. The legislation deems a car to be available for private use, unless that use is specifically prohibited and there is in fact no actual use.
Deduction for periods of unavailability
When calculating the amount charged to tax in respect of the private use of a company car, a deduction is given:
- where the car is made available during the tax year, the period from the start of the tax year to the date on which the car was first made available to the employee;
- where the car ceases to be available to the employee throughout the whole tax year, from the date that the car ceases to be available to the end of the tax year; and
- periods of 30 days or more throughout which the car was not available to the employee.
Unavailability during Covid-19: HMRC’s stance
HMRC have published guidance for employers on the tax treatment of various expenses and benefits provided to employees during the coronavirus pandemic in which they specifically address the extent to which a company car remains available for an employee’s private use.
In the guidance, HMRC state that where an employee has been furloughed or is working from home because of Coronavirus and the employee has been provided with a company car that they still have, the car should be “treated as being ‘available’” for private use during this period even if the employee is:
- instructed to not use the car
- asked to take and keep a photographic image of the mileage both before and after a period of furlough
- unable to physically return the car or the car cannot be collected from the employee
Where restrictions on the freedom of movement prevent a car from being handed back or collected, HMRC accept that the car is unavailable where the contract has terminated from the date that the keys, including the fobs, are returned to the employer or to a relevant third party. Where the contract has not terminated, HMRC only regard the car as being unavailable from the date 30 days after the keys are returned.
Worth a challenge
The unavailability tests set by HMRC are stricter than those posed by the legislation, which require only that private use is prohibited and not take place; there is no requirement in the legislation that they keys are returned. Where and employee is instructed not to use the car and evidence can be provided that it was not indeed used, there a goods grounds for a deduction where the period of unavailability exceeds 30 days, even if the keys are not returned.
Partner note: ITEPA 2003, s. 114, 118, 143; www.gov.uk/guidance/how-to-treat-certain-expenses-and-benefits-provided-to-employees-during-coronavirus-covid-19