Gaps in new company car tax guidance issued by HMRC could pose a problem for road safety and leave question marks over tax liabilities, the industry has warned.
The advice has been issued by tax officials, with the aim of helping fleet decision-makers deal with company car drivers who are working from home or who have been furloughed.
Some eight million employees were registered on the Government’s job retention scheme by the middle of May, while the majority of those who have continued to work have done so from home, including tens of thousands who pay benefit-in-kind (BIK) tax on a company car.
That benefit, however, is being questioned by some employees, with vehicles stood idle on driveways.
HMRC’s new guidance suggests how employees could return keys and avoid paying BIK, but the fleet and leasing industry is warning the measures announced could fall short in practice.
Caroline Sandall, co-chair of fleet trade and training body the Association of Fleet Professionals (AFP), says HMRC has listened, but only “up to a point”.
“We now have a mechanism for taking company drivers out of benefit-in-kind,” she said. “However, there are concerns; the main practical element being the handing back of car keys to employers.”
Tax officials now say they will accept a company car is unavailable where the contract has been terminated from the date that the car keys (including tabs or fobs) are returned to the employer or to a third-party as instructed by the employer.
HMRC will also accept the vehicle is unavailable, where the contract has not been terminated, after 30 consecutive days from the date the keys (including tabs or fobs) are returned to the employer or to a third-party as instructed by the employer.
The AFP, as well as leasing companies, questions the logic in separating keys from cars, which may need to be moved in an emergency.
Matthew Walters, head of consultancy and customer data services at LeasePlan UK, labelled it a “health and safety hazard”.
“Not everybody has a driveway where they can store their vehicle, so we need to ensure they have a way of safely moving the vehicle whenever it’s necessary,” he said.
“We also need to remember that asking employees to send their keys back to their employers during the present time is unrealistic and could lead to a number of potential issues for the fleet manager.
“For example, keys could easily get lost in the process, or you might have a situation where the fleet manager returns to the office to find dozens of returned keys sitting in a pile, leading to further confusion and inefficiencies.”
In fact, Sandall argued: “The presence of the key in the hand of the employer is no more evidence that the car has not been used than a photograph of the odometer or telematics data.”
The new guidance states that, for furloughed employees or those working from home, employers must treat the car as being made ‘available for private use’, 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; and they are unable to physically return the car or the car cannot be collected from the employee.
For Nigel Morris, tax director at accountancy firm MHA MacIntyre Hudson, it is the requirement for the termination of the contract between employer and leasing company, to determine when a driver is not liable for BIK, which he believes is “slightly odd”.
“Surely, where an employee arranges with an employer, or third-party, to return the keys and does so, the vehicle is unavailable,” said Morris.
He argues that it is “unlikely” an employee would post the keys back to their employer, without mentioning or agreeing it with them.
“So why the need for the 30 consecutive days rule? Particularly, as HMRC go on to say, ‘the return of keys means that a car cannot be driven in any circumstances, even if it is still in the possession of your employee’.”
Furthermore, he said: “Employers are unlikely to cancel contracts, particularly as the standard rules relating to early termination can impose quite hefty costs on the employer for doing so.
“Employers are much more likely to remove the availability of the car, so the contract termination point seems to have very limited application.”
A recent survey by Fleet News, conducted in the first few weeks of the lockdown, showed that almost three-quarters (72.6%) of respondents had less than 10% of their company cars being driven for work.
Any semblance of normality was reserved for just one-in-20 fleets, which said more than 75% of their company car drivers were still on the road.
In terms of actual demand from fleets for the new measure, Nick Hardy, sales director at Ogilvie Fleet, told Fleet News there had been very little uptake.
At the start of the lockdown in March, there were a few enquiries, says Hardy, and after the official guidance was published at the start of May a couple of fleets had been in touch.
“Out of the 700-800 key corporate customers we’ve got, they were the only two (who wanted to discuss the guidance in more detail); for the rest it hasn’t been an issue.”
He believes that with the ‘stay at home’ message changing in the past few weeks, it is also becoming less of an issue for fleets.
The Government has brought in a range of measures such as changing the rules on company car availability to try to help lessen the impact of coronavirus on employees.
They include updating the guidance HMRC issues to employers on salary sacrifice arrangements to allow for the impact of Covid-19.
HMRC rules allow for employees to opt out of a salary sacrifice arrangement where a lifestyle change significantly alters their financial circumstances.
Previously, that lifestyle change included marriage, divorce or a partner becoming redundant or pregnant. However, the Government has now revised the guidance to include changes to circumstances directly arising from coronavirus.
Employment tax specialist Alastair Kendrick said: “It should be noted that this change could prove expensive for the employer. If, for instance, it involved a car provided under salary sacrifice, then they would potentially face the early termination costs imposed by the leasing provider.”
Nevertheless, Sandall welcomed Government attempts to alleviate some of the challenges facing fleets during this unprecedented time.
“It is positive that HMRC has recognised that this is a life event and that allows us to handle the BIK angle satisfactorily,” she said.
However, she is concerned that it still leaves the fleet to try to sort out impact on the vehicle contract, which would be substantial.
“Our fear surrounding all of this is that it will hang over until P11D submission next year, and that employers and employees will be left to debate any fallout in a relatively ad hoc manner, which is a far from satisfactory situation,” said Sandall.
“We’d really like HMRC to be taking a further look and will be doing our best to get them to address the issues we are raising over the next few weeks and months.”