HMRC Starts Investigation Into Car Allowance vs Company Car
Friday, 23. September 2016
One of the most common questions I get asked is how to finance your leased car. You have a number of choices if you run your own business, less of a choice if you are employed and only have one option provided by the company – finance the vehicle yourself then recharge the company for your business mileage.
But for many of my clients it can be a dilema which the HMRC is about to complicate further if their proposed changes go ahead. We knew that they were looking into Salary Sacrifice schemes which can get very complicated because it allows employees to pay for their car out of gross income rather than what the rest of us do and pay out of income after tax and NI has been paid.
I wasn’t surprised when it was announced that the HMRC were looking into this as they not only miss out on employee tax and NI payments but also employer NI. However, because of the very complex recording and reporting of car usage it has only been viable for providers of salary sacrifice to make available to companies of over 100 employees. And with only 80 – 100,000 cars on such schemes it has not grabbed the attention of the guys in HMRC.
However, it now seems that the net is widening and the tax man is now looking at the way company owners, directors and employees finance their cars in an effort to raise more money. They have taken the view that the provision of a car allowance should be lumped into the investigation.
With the proposals potentially being included in the Autumn Statement 2016 we could see the new rules effective from April 2017 this is worrying for those receiving car allowances, especially if they have opted for an Ultra Low Emissions Vehicle (ULEV). If they had opted for a company car they could end up paying less tax than taking a car allowance. Very complicated but worth discussing with your accountant before making the decision. Once they have completed the consultation and finalised the rules I will let you know. By Graham Hill
