If you are applying for the fifth and final grant of the Self-Employment Income Support…
If you have staff who are furloughed, or working from home, and are not using their company car, can you reduce the benefit-in-kind (BIK)?
Benefits in kind are taxed on the basis of availability for private use, regardless of whether it is used or not.
However HMRC announced recently some potential relief during the lockdown.
In order to pause or cease a company car benefit, the car must be unavailable for a period of at least 30 consecutive days. Shorter periods of unavailability do not take effect.
HMRC have said that they will accept that a car is unavailable if the employee:
- is physically incapable of using the car – i.e. it has broken down and has not been repaired, or is still in the garage undergoing repairs;
- is unable to gain access to the car because he or she does not have the keys to the car, and has no power or authority to direct the person who has the keys to hand them over; or
- has no power or authority to direct the person who has the keys to drive the employee to a location of the employee’s choice.
If employees return their company cars to the business premises, and/or hand back or post the keys to the business, this should be sufficient.
The employer could introduce a policy prohibiting private use. This would avoid the need for employees to hand back the cars or the keys, but HMRC will need to see evidence that the car has not been used privately in the period. Trackers and similar technology could be used to demonstrate this. A written agreement should be drawn up and signed by the employer and employee declaring that the use of the car has been withdrawn for private use.
In summary, if the benefit is reduced through lack of availability, then it will reduce income tax for the employee and Class 1A National Insurance for the employer.