Company Car Benefits – The (First) Moment of Truth Approaches
31/03/2010
Dealers will shortly be submitting their PAYE end of year returns for the 2009/10 tax year. This year, a new hurdle presents itself for the first time - the use of HMRC's banding rules for determining company car benefits in kind.
The Background
These rules were introduced to replace the old system of local agreements between dealers and their local tax office. The logic was to bring fairness to the system on a national level and to reduce differences between local arrangements although it is clear HMRC thought the old system was being abused.
The alternatives
Essentially dealers now have a choice between falling into line with the HMRC system, and following the strict statutory basis. The strict route means that each individual is taxed on the actual car they were driving on each day during the tax year. HMRC state that the banding rules apply only where the employee has frequent changes of car during the year. Precisely what "frequent" means in this context is not clear - even before you get into the detail, deciding whether the rules even apply is something of a minefield.
The mechanics
HMRC set out a series of steps to be taken in the averaging process. The calculations for the 2009/10 tax year are based on the cars available for private use on the night of 5/6 April 2009 and involve grouping the cars to be averaged into bands set by HMRC and deriving an average benefit in kind for those bands. Staff are then allocated to those bands - this allocation process is governed by certain strict criteria.
There are a number of practical issues arising from the allocation process which may mean that, to comply, dealers have to change the way they run their fleets. All of these difficulties are heightened if the calculations were not done on time, or the system was not actively managed throughout the year.
The HMRC approach
It is not yet clear how HMRC will police this, but they seem likely to consider firstly whether the calculations were done properly in the first place, and secondly whether steps were taken during the year to manage the system.
By comparing this year's benefits to earlier years it is likely to be relatively easy for HMRC to identify dealers who have not done the spade work and it may be that these dealers will be targeted. They are also likely to look for dealers who are not returning private fuel as a taxable benefit - the assumption usually is that fuel is provided unless the dealer can prove comprehensively that it was not. Private fuel is of course a whole different (and potentially very expensive) issue.
The next steps
For those dealers who have done their calculations and have actively managed the system through the year then there is probably little else that needs to be done now. For those who have not done so (and especially those who have not yet done the calculations for 2009/10) then time is running out to get their house in order.