Christina Nawrocki FCCA shares how furloughed directors and employees can save money by returning company cars to employers, and HMRC's exceptions to the rules during COVID-19.
As the COVID-19 pandemic continues to take a toll on the UK economy, businesses are looking for ways to survive, making the idea of furloughing employees more prevalent.
With experts estimating that up to 11 million people are expected to be furloughed by the end of lockdown, more individuals will be relying on 80% of their salary provided through the government's Coronavirus Job Retention Scheme to support their household leaving them with the task of finding new ways to save.
Furloughed directors and employees with a company car sat parked up with no where to go could save thousands of pounds in tax by giving it back to their employer.
Around a million carsand vans are made available by employers for their staff as part of their annual remuneration package. Whilst company cars are usually deemed a perk, it does come at a cost in the form of a “taxable benefit" when a vehicle is made available for private journeys.
What's the benefit of returning a company car to my employer during furlough?
A vehicle provided by an organisation to an employee for business and/or private use is considered a benefit from the business. This is known as ‘Benefit-in-Kind’ and means the benefit is taxable. Returning the vehicle could help reduce the tax bill.
The amount owed on company vehicles depends on a range of factors, including the cost of the car and the vehicle’s carbon emissions and can run into the thousands of pounds. Where the car is electric this is currently not the case, hence why many businesses are looking to expand their fleet with electric vehicles as the potential savings are quickly being realised.
To benefit from this tax planning opportunity the vehicle must be;
Unavailable for 30 consecutive days or more
Kept at the employers premises; however, this is where we are seeing some flexibility in HMRC's approach during COVID-19. Returning the keys to the employer (with documentation if possible) will be accepted as making the vehicle ‘unavailable’.
A spokesman for HMRC said:
It’s important that you maintain proof that the car is unavailable to satisfy HMRC's requirements. While possession of the key is one way, some employers may wish to establish a document substantiating that the company car availability is to be suspended or cancelled for a temporary amount of time thereby not allowing furloughed employees to use the vehicle. This would be agreed by both employer and employee.
This company car tax planning approach should be relatively quick to implement and can prove to be quite a substantial savings particularly for those that are a higher rate tax payer.
With uncertainties surrounding the length of lockdown and social distancing measures in place which will continue to affect businesses across the UK, many people will be facing tough financial times ahead for the foreseeable future and this is a good, proactive tax planning measure that should be considered.
The content of this post was created on 04/05/2020.
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