ICAEW’s Tax Faculty delivered a webinar on company cars and related issues on 28 February 2024. The webinar was presented by John Messore of Innovation LLP and Peter Bickley, ICAEW Tax Faculty. The webinar is available to watch on-demand. Answers to questions asked during the webinar are provided below. Unless stated otherwise, all references are to Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

• There is no benefit-in-kind (BIK) on employer-provided wholly electric vans and only 2% of list price BIK for wholly electric cars. The BIK charge does not apply where there is a transfer of ownership of the vehicle to the employee – eg, by way of a properly structured and constituted employee car ownership scheme.
• Take care with vans with rear seats as these are treated as cars for tax purposes following the Coca Cola case. There is still a concession for double-cab pick-ups with a 1 tonne payload.
• There is also no BIK charge for any electricity used by wholly electric cars or vans, regardless of whether the cost of the electricity is paid for directly by the employer (eg, charged at the office or via a charge card) or reimbursed by the employer to the employee (eg, when charged at home or at a service station).
• Cars and vans powered by internal combustion engines (ie, including hybrids) are subject to a BIK charge where they are available for private use. Vans used for business including ordinary commuting and where there is insignificant other private use will not give rise to a BIK.
• For fuel BIK, hybrid vehicles are treated the same as normal diesel or petrol vehicles.
• Where the employee has to provide their own car and is paid a car allowance, the qualifying amount (QA) of the relevant motoring expenditure (RME) element is disregarded for NIC. This is 45p per business mile for all miles. The employer needs to do this in the payroll. Following the Laing and Willmott cases, most if not all car allowances are now treated as RME, but employers need to be careful with the exact wording of their staff car allowance policy.
• HMRC is actively encouraging taxpayers (employer and employees) to submit retrospective claims to recover NIC paid in error on car allowances. Taxpayers need to have regard to the time limit for claims, which is current year plus six prior tax years. The sooner you submit your claim, the sooner you will receive a refund.
• Because electricity is tax free for wholly electric cars, there are opportunities to take advantage of this – even for private motoring costs – but take care as to how this is achieved and seek appropriate specialist advice.

Double cab pick-ups car / van BIK

1. Double cab pick-up covered at the back fully so rain does not get in - is that also covered by exemption?
   

If a double cab pick-up has a payload of more than one tonne, it is classified as a van for tax purposes, hence exempt from company car tax. The cover over the back does not change this classification provided the payload capacity is maintained.

Adapted vehicles

2. Is there any indication that HMRC may look to target commercial vehicles that have been adapted and therefore treated as a van (i.e. Land Rover Discovery with rear seats removed)?

HMRC might investigate commercial vehicles adapted for personal use to ensure that they remain eligible for commercial vehicle tax treatment. The key factor in the Coca Cola case was the primary construction of the vehicle, i.e., whether it was designed and constructed to carry people or to carry goods.

Electric vehicles (EV) BIK reimbursed expenses

3. Can the employer reimburse the employee for their insurance policy (in personal name not company name) in relation to a company provided EV?
   

Yes, the employer can reimburse the employee tax free because all expenses are covered by the car BIK charge. This is confirmed by s239(2): “No liability to income tax arises in respect of a payment to an employee in respect of expenses incurred by the employee in connection with a taxable car or van or an exempt heavy goods vehicle.”.

This is of course subject to the vehicle insurance policy details.

Wholly electric cars and wholly electric vans fuel BIK

HMRC has recently confirmed that: “Following a review of our position, HMRC now accepts reimbursing part of a domestic energy bill, which is used to charge a company car or van, will fall within the exemption provided by section 239 ITEPA 2003.”. This means that reimbursements by an employer to an employee are not treated as earnings. Also, there is no taxable BIK where an employee charges their vehicle at work, or if an employer pays for a charging point to be installed at an employee’s home, or if the employer pays for charge cards used at public charging points. Electric vehicle drivers do not have to pay fuel benefit tax for any electricity paid for by their employer, even if it is for personal use. Note that this applies only to wholly electric vehicles.

Reimbursement of cost of electricity used to charge electric car or van at home

4. From a practical point of view, how would a company director with a company provided EV which is charged at home determine the cost of the electricity used to charge the company car?
5. Is there a rate that we can use per mile for electricity for a company vehicle where the vehicle is charged at home?

A company director with a company-provided EV must calculate the cost of electricity used for business to reimburse or record it accurately. They might use a separate electricity meter or smart charger for precise measurements or estimate based on typical consumption rates. Or the employer can use HMRC’s Advisory Electricity Rate (AER) (currently 9p per mile; 8p from 1 June 2024) to reimburse the employee for business mileage covered in their company electric car charged at home, or, if the employer does not reimburse, the employee can claim a deduction against earnings in their tax return but it must be at actual cost as opposed to AER.

To determine the exact cost, the employee should ideally maintain a record of the vehicle’s electricity consumption, specifically for business use, multiplied by the relevant tariff they are on at the time of charging.

6. So staff can recoup electricity costs of charging at home from the company with no tax benefit and get 9p per mile from the company also?
   

Employees can be reimbursed by the company for the electricity costs incurred from charging a company vehicle at home under s239 (total usage) without incurring a taxable benefit, provided the reimbursement is based on actual costs or a reasonable estimate.

In addition, the HMRC Advisory Electricity Rate (AER) guidance suggests that you can also claim AER for specific business miles driven.

This also applies to EVs charged at the workplace, which are exempted under s239.

Electric van fuel BIK

7. Re the section 239 point and slide, is the bottom line that there is a fuel benefit charge on electric vans, or not?
   

Section 239 excludes certain expenses from being treated as earnings where they are covered by the van BIK charge.

Wholly electric vans, and vans covered by the restricted private use condition (ie, private use restricted to commuting to and from work and insignificant other private use), are not subject to a fuel BIK charge (s160).

Cost of electricity used to charge car and van at public charge point

8. For section 239, you explained that home charging is not taxable. Does this also apply if an employee charges at a service station?

Yes, there is no BIK where the employee charges their company electric car or van at a service station, even if the vehicle is used privately.

Company hybrid vehicles fuel BIK

9. Can you clarify your point about hybrid company vehicles charging at the office. Did you say this can lead to a fuel benefit charge?

Charging a hybrid company vehicle at the office could lead to a fuel benefit charge if the vehicle is also used for private purposes and if the employer provides the fuel (or electricity) for private use. If only business travel is covered, there shouldn't be a charge.

Hybrid cars fuel BIK

10. What is the correct way to calculate the private fuel costs for the employee who has a company hybrid car, if they want to make good their private fuel as to avoid the fuel benefit charge, as some of the use will be electric and some petrol/diesel?

To calculate private fuel costs and avoid a fuel benefit charge, you need to distinguish between business and private mileage and the associated costs of fuel and electricity. Employees can reimburse the company for private fuel use to avoid the charge, considering the proportion of electric to fuel use.

The simplest way is to use HMRC’s Advisory fuel rates (AFR); hybrid cars are treated as either petrol or diesel cars for AFR.

Note that reimbursement must be made by the employee by 6 July following the end of the tax year. Note if you are payrolling the fuel benefit then the making good has to take place by 1 June.

Employee using own car

Personal hybrid cars

11. Please confirm there is no tax charge if we allow employees to charge their personal hybrid cars using our chargers at the office?

Allowing employees to charge their personal hybrid cars at work does not result in a taxable benefit under s237A provided the charging is available to all employees.

NIC: car allowances and relevant motoring expenditure (RME)

12. To verify, if we pay 45p and then 25p after 10,000 miles we would still deduct NIC on the car allowance?

Payments of up to these rates are exempt from tax. Payments of up to 45p per mile are disregarded for NIC for any number of miles. The tax and NIC rules must be considered separately. If the employer pays more than these rates, the excess is subject to tax.

But if the employee has gone over 10,000 business miles (say 19,000 business miles) and you paid only 25p for the last 9,000 then there is still 20p x 9,000 = £1,800 of remaining Qualifying Amount which must be offset against the car allowance before deducting NIC on the car allowance.

13. Can future NIC reductions for mileage element of car allowance be processed annually rather than monthly?

NIC adjustments for the mileage element of car allowances typically occur through the payroll.

Whether these can be adjusted annually instead of monthly would depend on the company's payroll practices and discussions with HMRC, though HMRC is likely to insist on following the normal pay period timetable. The definition of business mileage in the NIC regs is also rather convoluted and not entirely what parliament wanted and implies the relief must be given in the month the mileage is driven.

14. How far can you go back on reclaiming NIC for RME for car allowance?

The backdating of NIC claims for mileage allowance should be in line with reg52, Social Security (Contributions) Regulations SI 2001/1004, which typically allow for adjustments in the current tax year and the previous six tax years, subject to certain conditions. Therefore a claim in respect of the 2017/18 tax year must have been submitted by 5 April 2024.

See HMRC’s article RME: impact of recent Upper Tribunal decisions on NIC.

15. Why do you need mileage records if you don't need to pay NIC on any part of the car allowance?

Keeping mileage records is essential to demonstrate that the payments are indeed reimbursements for business travel and not additional taxable salary.

The only way to not pay any NIC on a car allowance is if the qualifying amount (QA) exceeds the car allowance. But QA = M x R where M is the number of business miles – meaning that you still need records to arrive at the figure “M”.

Car BIK – owner-managed company director

16. Single company director / employee works from home. Significant private use. What is best practice please?

For a single director/ employee company where there is significant private use of the vehicle, the most tax-efficient approach often depends on several factors, including the type of vehicle, its CO2 emissions, and the extent of its business use. Generally, choosing a fully electric vehicle can be beneficial due to lower benefit-in-kind rates and the availability of 100% first-year capital allowances. It also depends on the total earnings of the director; ie, as to whether or not they are a higher rate taxpayer.

17. If you were to take a car as a director through a company what would be your most tax efficient choice, ie, full electric, charging at home and claiming mileage allowance?

If you were to choose a company car for tax efficiency, a fully electric vehicle (EV) would typically be the best option, especially if you are charging the car at home and can clearly differentiate between business and personal mileage. EVs benefit from lower benefit-in-kind rates, and if the electricity used for business purposes can be accurately calculated or reimbursed, it maximizes tax efficiency.

However, this should be balanced with the company’s needs and the total cost of ownership.

Employees who receive no cash earnings: payrolling and reporting BIK

18. My company has no employees who are paid a salary. The director has a company car (EV). How many forms do I have to file each year? So far I have found 14 (the 12 "nil payment" RTI returns plus P11D and P11D(b). Are there any others that HMRC can fine me for if I don't file them?

The minimum number of forms that an employer whose employees are paid only by way of BIK must submit per year is three, comprising a form P11D, a form P11D(b), and a period of inactivity PAYE RTI employer payment summary for the tax year which must be filed between 6 and 19 May during the tax year as explained below.

Because BIK are being provided, the employer must have a PAYE scheme even though no employees are being paid cash. The employer will need to send HMRC period of inactivity employer payment summaries (EPS) via PAYE RTI to report that no cash payments are being made to employees in a specific period. Such EPS can cover a minimum period of one month and a maximum of 12 months. If filing for a complete tax year, the EPS has to be submitted between the 6th and the 19th of the first tax month following that in which no employee was being paid cash; therefore, to cover a tax year, between 6 and 19 May inclusive.

See HMRC’s guidance: You did not pay any employees in a period.

The BIK and any Class 1A NIC must be reported/accounted for on forms P11D and P11D(b) which need to cite the PAYE scheme reference number.

19. Under mandatory payrolling of BIK, how can I payroll a benefit if the person is not paid a salary (just a director with a company car)?

For a director receiving a benefit like a company car without a salary, the mandatory payrolling of benefits-in-kind (BIK) starting from April 2026 will pose challenges. Currently, you need to report the BIK on a form P11D and account for Class 1A NIC using form P11D(b), but we do not yet know how HMRC intends BIK provided to employees who are not paid a cash salary to be reported under mandatory payrolling of BIK.

We have already raised this point with HMRC as part of our seeking to clarify numerous points on how the proposed mandatory payrolling of BIK will work in practice.

Where a cash salary is paid, an employer can deduct tax via PAYE of up to only 50% of the cash salary since HMRC recognises that it would be wrong or unfair to leave employees with no or little cash take home pay.

Electric cars – corporation tax

20. Where a director has his own consulting company, can the company claim EV cost a 100% deduction when the car is used for personal and private purpose as well?

If a director's consulting company purchases an electric car (car includes motorhomes and vehicles not built for transporting goods) used for both business and personal purposes, the company can claim first year allowances at 100% of the cost as long as the car is new and unused and CO2 emissions are zero.

If the wholly electric car is second-hand then the company can claim capital or “main rate” allowances at 18%. Main rate allowances of 18% can also be claimed on new or second-hand cars which have CO2 emissions of 50g/km or less.

Special rate allowances at 6% can be claimed on new or second-hand cars with CO2 emissions of over 50g/km.

If the EV is a van (or a lorry, truck or motorcycle), annual investment allowance can be claimed instead.

See HMRC’s guidance Claim capital allowances – Business cars.

CT and VAT

21. If an expenses invoice in the name of the employee is good for VAT, why is it not good for corporation tax – e.g., mobile phones?

While expenses invoices in the name of the employee are acceptable for VAT claims, for corporation tax deductibility expenses should ideally be incurred directly by the company. This ensures clear demarcation of business expenses and prevents any issues with dual-purpose expenses in the corporation tax computation.

Horizon scanning

22. John, you've obviously got your head around every corner of company vehicles, but to your knowledge are HMRC looking at attacking any holes in this legislation? These things can sometimes change under the radar.

Thank you for your kind words. While currently there may be no specific indications of HMRC targeting this area, it is essential to stay informed about any changes in legislation or HMRC guidance, as tax rules and interpretations can evolve, impacting the taxation of company vehicles.