The iniquity of scale charges
Regular readers know we are always keen to explore ways in which the tax charges arising from the private use of a company car can be minimised. Generally the tax payable is based on “scale charges” which often bear no relation to the real “benefit” of having the use of a car mostly for business purposes but with an element of private use.

Bizarrely, the scale charges are related to the exhaust emissions and original market value of the car, rather than the cost to the company of providing the employee with the benefit of the private use of the car.

A brand new car costing, say, £20,000 used more or less exclusively for private use might be taxed more lightly than a secondhand car costing £10,000 used more or less exclusively for business use! Additionally, separate (and expensive) scale charges for the private use of fuel apply.
A challenge to the charge
Suppose the car is not wholly owned by the company, but instead is owned largely by the company (say 95%) and to a small degree (say 5%) by the employee personally. Do scale charges apply in such circumstances?

The legislation is not clear; on the one hand it is indicated that scale charges only apply if the car is made available “without any transfer of the property in it” (whatever that means), but on the other hand there are rules for reducing the “cost” of a car for scale charge purposes by a capital contribution made by the employee in respect of the car.

The Inland Revenue have always treated jointly owned cars as liable to the scale charge regime subject to a capital contribution deduction – but a brave taxpayer recently decided to take them on.
The decision
The Special Commissioner for Income Tax rejected the Inland Revenue’s arguments and upheld the contention that scale charges do not apply to motor cars jointly owned by the company and the employee.

This does not mean that such cars are completely tax free, but importantly the benefit in kind is based on a more accurate assessment of the cost of the provision of the car for private use. In particular, the “capital value” benefit is 20% of the company’s cost in acquiring the car (not its value when new), running costs are based on actual figures and the total benefit is apportioned between business and private use, so lower benefits arise to people who use their cars substantially for business purposes.

What could be fairer than that?

Barnes Roffe Topical Tips

• If you believe that the real cost to your company of providing you with the private use of your company car is much less than the applicable scale charges, consider a joint ownership arrangement so as to sidestep the scale charges.
• Such an arrangement is likely to suit individuals who do large amounts of business miles.
• Also, it is likely to be beneficial to individuals whose company cars are secondhand and which would have been quite expensive when new.

Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.