Company car drivers – could you reduce the benefit in kind charge during lockdown?

With the current lockdown and many staff members working from home and advised to only go out for ‘essential travel’ – there will be many company cars sitting idle on driveways. Unless these cars are fully electric they will be attracting tax on the Benefit In Kind (BIK). Even during a period of furlough, the car would still considered to be a benefit, even if completely unused.

So what can you do to avoid paying tax on an unused vehicle?
The key point is to make the car ‘unavailable’ for use. Ordinarily, HMRC would expect that the car is handed back to the employer with the keys so that it cannot be used. However, under the current circumstances it may not be possible to hand the car itself back, and so HMRC may accept that where all the keys (or fobs / tabs) are in possession of the employer, and the employee does not have the authority to request the keys are returned to them, the car would be unavailable and there would be no BIK tax charge.

Example saving (for illustrative purposes only):

BMW 530i 2.0 with a retail price of £42,620 would attract annual tax of £4,944 for a higher rate tax payer. This means a saving of £1,236 for the employee and a further £426 for the employer for every 3 months the car is not in use.

a) Amend employment contract terms to state that employee will no longer be provided with a company car for private use.
b) Notify the insurance company and the DVLA.
c) Take a photograph of the mileage in the car at the time the car is ‘handed back’ and again if it subsequently becomes available for use. This evidence can be used to support the case that the car wasn’t used during the period where it was unavailable for use.

This is not solely for furloughed employees. If any employee or director has use of another motor car at home, then the steps above could be used to save tax on the BIK over the coming weeks and months.

As always you should take advice relevant to your individual circumstances.

These are unprecedented times and HMRC may well issue further guidance in relation to company cars. However, given it’s probably not high on their priority list it may be advisable to take action now.