A POTENTIAL tax loophole using a joint ownership system between employer and employee is threatening to blow the benefit-in-kind (BIK) company car tax system wide apart.

A recent Special Commissioner's case (Vasili v Christenson) ruled in favour of the defendant who had acquired a 5% ownership of the company car.

The employee claimed that as provision of the car was due to joint ownership, and not because of his employment, he was exempt from company car tax.

The commission ruled against the Inland Revenue and in favour of the employee.

According to accountants Ernst & Young, it is very likely that the Inland Revenue will appeal to the High Court and, if necessary, beyond.

The loophole would be of interest to senior employees with owner-managed cars wanting expensive vehicles that would be in the highest BIK tax bands.

It could also be of use to employees adversely affected by the new company car tax regime, or for employers who have a lot of company cars coming up for renewal, where the company could save on Class 1A National Insurance contributions and the employee on company car tax.

However, Alastair Kendrick, director of PAYE/NI solutions at Ernst & Young, warned against fleets jumping headfirst through the loophole immediately for fear of the noose suddenly tightening.

He insisted that should the ruling go with the employee under appeal, it is likely that legislation would be changed to counter it, and it would be sensible for fleets to wait until the situation had become clearer.

Carolyn Mason, policy adviser for the Inland Revenue, said: 'It is early days, but we are obviously considering our next step.'

Kendrick also claimed that the leasing industry would not entertain the thought of joint ownership, as there had been discussions about exploiting such a loophole a number of years ago and the contract hire firms had rejected the idea, preferring to remain in total ownership of their vehicles.

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