Company Cars & Employees on Furlough / Lockdown

If furloughed or in lockdown and not using your company car, will you still pay benefit in kind?

COVID-19 is having a huge impact on employers and employees, and at such a time we are all doing what we can to minimise costs in order to protect cash. One expense that may go unnoticed during this period is the Benefit in Kind (BIK) arising on company cars. 

As many employees will either be furloughed, or will not be using their company car due to the lockdown, they may assume that they will not incur a P11D benefit during this period.

However, the general rules surrounding company cars are that a BIK will arise if the employee is provided with a car that is available for private use (whether or not any use is actually made of it).

Where a car is available for private use a BIK arises, which creates an employer’s NIC liability, and also results in an Income Tax charge for the individual. 

However, where the car is unavailable for any use by the employee for at least 30 days consecutively, then it should be possible to argue there is a reduction in the BIK. Therefore, it may be possible to temporarily suspend the BIK to help save both employer’s NIC and the employee’s Income Tax.

The key requirement is to prove that the car is actually ‘unavailable for private use’. In order to satisfy this, ideally the car and the keys need to be handed back to the employer so it cannot be used.  However, given the current circumstances this might be difficult to achieve.

It may still be possible to suspend the BIK if the car is stored at home, but (as a minimum) an instruction should be provided to the employee stating that the vehicle is not to be used whilst the employee is “furloughed” / unable to travel to visit customers.  Because this is a variation to their employment benefits the employee must both agree to withdrawal of the benefit and confirm their acceptance that it is not available for their use in writing. In addition to this, all the keys (or tabs) should be handed (posted) back to the employer if possible, so that the car’s use is physically prevented by the employer.

In theory, the above should meet the required conditions to temporarily suspend the BIK, however, as always HMRC may challenge this, especially if it appears that it was possible for the employee to continue to use the car.

Removing the benefit in this way could lead to a reduction in employer’s NIC and an Income Tax saving for the employee, achieving cost efficiencies in these uncertain times.

If an employer / employee wishes to do this then we recommend that the appropriate measures are undertaken, and that HMRC are notified that the car is unavailable for use via form P46 (Car).  Shorts can process these forms on your behalf, and can also advise on the status of the company car. 

Please do get in touch with your normal Shorts contact to talk things through, or one of our Covid-19 support coordinators (David Robinson, Scott Burkinshaw or Martin Dean). 

Please be assured that we are ready to help.

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