Do you lease a car through your company and reimburse the full costs of the lease (perhaps through your loan account)? Do you think you have avoided the tax trap of a company car? Think again!
HMRC have never accepted this view. The Benefit in Kind charge on cars is so high these days. It is frequently much higher than the actual cost of the lease. HMRC say that if the company is providing the car, then the full BIK applies and tax must be paid. Payments made by the employee/director will reduce the taxable amount, but not necessarily to zero. This can mean significant tax charges even where there is no real monetary benefit.
In 2016 HMRC actually lost a tax case where the Appeal Court ruled that no benefit arose when the full value of the lease was reimbursed. In that case the company had leased the cars and the directors had gone to the trouble of drawing up a second car lease between themselves and their company
HMRC is not a good loser and so the law was quickly changed In Finance ACT 2016.
As a result even where the full cost of a lease is reimbursed, a company car benefit must be assessed.
Last month a case was decided which sounded encouraging. In the ‘Harrison Solway Logistics Ltd’ case, the Tax Tribunal reached a similar verdict to the one in the 2016 case. Sadly, this doesn’t help as the case had just taken a long time to reach court. It was in respect of tax years before the change in the law.
Many owner-managed businesses can find themselves inadvertently caught by this legislation, with a lease car being paid for through the company. This serves as a good reminder of how legislation changes and the importance of getting good tax advice before taking any big financial decision.
So don’t get tax-trapped, get in touch! firstname.lastname@example.org