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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I receive a Car Allowance every month, on which I am taxed.

Resolved Question:

I receive a Car Allowance every month, on which I am taxed. I rent a car from a Manufacturer under an agreement made between my employer and that Manufacturer, but have sole responsibility for the vehicle (including all running costs) whilst it is in my possession.
I drive approximately 40,000 business miles per year for which my employer reimburses me at the rate of 12p per mile - this has been reduced from 25p per mile on advice from HMRC.
I consider the arrangement for the hire of the vehicle to be just that, and not provision of a Company Car for which I pay for private use.
I sign a new agreement with the Manufacturer each time I receive a replacement vehicle, simply notifying my employer when I change the car - which is insured under the Company insurance policy.
My employer deducts the rental of the vehicle from my salary (after tax), and effectively I'm in a neutral position (the amount charged to me equates to the amount received after tax)
My issue is that my employer, for some reason considers the arrangement to be the equivalent of supplying a Company Car, and reports a taxable benefit of around £1000 on the emissions created by the car (taxable benefit minus rental paid)
HMRC now consider that I receive a Company Car ad has adjusted my tax code accordingly
My argument with my employer is that I could rent a suitable vehicle for 10,000 miles at a time, pay no servicing costs and there would be no taxable benefit.
I don't want to switch from the current scheme and feel that I'm being unfairly taxed.
Can you advise please?
Thanks
***** *****
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

The fact that there is an agreement between your employer and the manufacturer appears to make your employer think the car is a company car. The fact that it is insured through the company policy doesn't help. If the lease agreement is between you and the supplier and you are named as the lessee (as opposed to your employer) I cannot see that it is a company car even if your employer has done a deal with the car supplier to provide it at a lower rental than normal.

The fact that you get a car allowance is not relevant. That is simply extra salary and suffers tax and NIC. Most people who get a car allowance use it to finance the purchase or lease of a car and you should consider doing that completely independently of your employer.

Unless you reimburse your employer for the whole of the taxable car benefit, then there will be a taxable benefit if the car is a company car. There is a box on the P11D for employee payments for private use of a company car. The whole arrangement you have is very tax inefficient and odd to say the least. As I said earlier, you should ideally either buy or lease your own car and claim business mileage from your employer.

The facts that your mileage rate has been reduced on advice from HMRC, that you are financing all the running costs and you pay the rental via your employer do muddy the waters somewhat. The mileage payments rates are aimed at those who are using their own cars for business and is deemed to cover the full running costs of the car including depreciation in its value caused by business travel. Mileage allowances paid to company car users are lower and should reflect as close to the actual fuel costs as possible.

HMRC are simply assessing a car benefit as reported to them by your employer. If I were you, I'd try to persuade your employer that the car is not a company car or to accept the running costs that you pay as a further deduction from the taxable benefit. Company car uses don't normally pay for MOT, servicing, repairs, insurance, road tax, etc themselves. Those bills are normally settled by the employer. At the very least, your employer should explain why they think the car is a company car.

Alternatively, you should write to HMRC and explain the situation in some detail with a view to having them instruct your employer that the car is not a company car. If that doesn't work I'd consider asking for a tax tribunal hearing where the matter can be heard by an independent panel.

I hope this helps but let me know if you have any further questions.

Customer: replied 1 year ago.

Hi,

Thanks for your response.

I've checked the agreement which I sign at renewal, and it is addressed to my employer with my name as contact.

It relates to the "loan" of a demonstrator and shows a cost and mileage limit - very similar to a normal hire agreement (which is what I did prior to taking a vehicle under this scheme).

Does this make it more or less likely that this is the reason why my employer considers the car to be a Company car?

Also, the tax liability shown on the coding notice (the most recent of 5 I have received so far this year) shows unpaid tax for previous years.

I was unemployed prior to starting with my current employer - for a period of 3 months (between November 17th 2012 and February 6th 2013), and recall that HMRC advised that unemployment benefit was taxable once they had been made aware of my new employment, however if the amount of taxable benefit at that time (as I recall it was something like £500), added to the £1094 on the P11d for 2013/14, my liability should be significantly less than the £2500 they are currently claiming as unpaid tax.

My employer has yet to submit the P11d for period 2014/15, but it looks likely that it will be for around £1500 - making the amount of tax due in total since 2013, something like £600, but I suspect that this will -to use your phrase - muddy the waters even further.

I'll try the tack of asking my employer if the costs I am incurring for servicing the vehicle can be added to the total of payments I'm making as rentals, to see what he says.

After which, I'll try arguing with HMRC.

Its not that I'm unwilling to pay my taxes, just that they way in which this has been done leaves a sour taste!

Thanks again

Peter

Expert:  TonyTax replied 1 year ago.
I have sympathy for your situation as its not been handled well by your employer. The addressing of the agreement to your employer is probably the cause of this problem.

I cannot comment on the tax liabilities which have arisen without sight of the figures. You should call HMRC on the number here and ask them for a P800 tax calculation for each tax year that is affected and check the pay and tax details and the car benefit figures. Ask them to review your current tax code too.

Given that an employer is usually responsible for the running costs of a company car, I would have thought that they should be deducted from the benefit as you pay them.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15835
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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