Furloughed employees with company cars they are not using in the lockdown could save thousands of pounds in tax by returning the car to their employer.
Millions of people across the UK have been furloughed in a government-backed scheme that pays 80 per cent of wages up to £2,500 a month for workers who are on leave for the months of April, May and June.
Having seen their pay cut by 20 per cent, these workers can save money during their furlough period by giving their company car back to their employers, accountants said.
John Hood, a tax partner at accountancy firm Moore Kingston Smith, said: “If people are stuck at home and not able to use the car anyway, they are not getting much bang for their buck so they might as well reduce their tax bill as well.”
A taxable benefit arises from having a company car when that vehicle is made “available” to the employee for their private use. But accountants said this did not count as a benefit in kind for tax purposes if the vehicle was not available for 30 consecutive days or more. The same applies if the employee is provided with private fuel.
HM Revenue & Customs says that if employees are able to hand the car back to their employer then it will not count it as available. This could also be done by posting the keys back to the employer, for example. Ordinarily, HMRC would expect the car to be handed back to the employer so that it cannot be used. It said: “However, we recognise that under the current circumstances it may not be possible to hand the car itself back, so exceptionally, we would accept that where all the keys (or tabs) are in possession of the employer, and the employee does not have the authority to request the keys are returned to them, the car would be unavailable.”
Depending on the make and emissions of the car, doing this could potentially save someone thousands of pounds. The tax is calculated in relation to the value of the company car, which according to the gov.uk website “depends on things like how much it would cost to buy and the type of fuel it uses”. It is possible to estimate the tax payable on this job benefit, by using HMRC’s company car and fuel benefit calculator.
According to Moore Kingston Smith, a basic rate taxpayer provided with a company car worth £34,550 and with CO2 emissions of 132g/km would attract a benefit in kind charge of £11,402. If the car were unavailable, the taxpayer could save £190 a month and a further £134 for private fuel.
A higher rate taxpayer could save £380 per month and a further £269 for private fuel. Ian Dickinson, tax director at UHY Hacker Young, the accountancy group, warned people to stick to HMRC guidance. “We have seen claims about company cars turned down by HMRC for a lack of evidence, so it’s important that you can prove the car was unavailable,” he said.
The ideal, say experts, would be to hand the car and keys back to the employer, get a receipt and take photos of both being returned. The employee should also save any email correspondence with the employer about handing them back.
Mr Dickinson said employers looking to help their staff in this situation could introduce a policy banning private use of company cars. “That would provide good evidence for employees to show to HMRC,” he said. If the car has a tracker device installed, its logs can also show the car was not used.