Company Car Tax Query?

mighty_rhinos

Not sure if anyone can help or offer some advice, I seem to have hit a brick wall!

From October 06 to August 07 I was employed as a sales rep and given a company car. The employer advised me that their company car scheme was a rarely used system, but would be beneficial to me financially provided I did "enough" miles each year.

The car was registered in my name ( I held the V5 forms) and the company had me sign a form which said they had given me a loan to buy the car. I never paid back a monthly amount for the loan, I was told it was just part of the scheme.

I was given a fuel card and all fuel was bought with that. Each month I submitted my mileage for both business and personal, and had the personal percentage deducted form my wage monthly.

From October 06 to 31st March 07 I was told the running costs of the vehicle were £2,800 approx. These were broken down by loan, insurance, road tax, etc. My mileage at 40p a mile came to £2,000 approx and I received a form (for my info) that I owed circa £800 in car benefit to the tax office.

I had the same car (VW Golf 1.6 diesel) from 1st April to mid-August 07 when I left the company. During 2008 I chased the fleet manager for the tax detail thinking that 4 months running costs would be lower than my mileage x 40p/mile and I would be due a tax rebate.

From my own records I know I completed 8442 miles in that 4-5 months, and 4914 were business. Based on what i was told, at 40p a mile I was due £1965. However, the company paperwork showed the running costs from April to August were £4000+.

I think this £4000 is based on 12 months as I know the car went to the rep who replaced me (I'm still in same industry so see the car), as I cannot see how 5 months in the first financial year was £2800, is overwhelmed by £4000+ in 4 and a half months in my second financial year.

Has anyone come across such schemes before? Am I completely misinformed. Since receiveing the paperwork the fleet maanger and HR department have refused to discuss the calcualtions behind the running costs. Prior to my query they were still friendly. They won't take calls, reply to emails or acknowledge letters that they signed for by recorded post.

Can anyone offer any advice, can I try to reclaim some money, or am I completely barking up wrong tree?

Thanks for your help, apologies for the long explanation.

Elaine_Wilson

I don't have an answer but can I just recap on the question to get this straight in my mind.

My reading of your query is that the car is owned by you. The company actually bought the car but treated this expenditure as a loan to you. Repayments were due on this loan but you didn't actually pay them. They were treated as a benefit in kind as monthly repayments were written off. They presumably paid all the running costs. The fuel card covered all fuel but you reimbursed them for the private miles.

The 2006/07 P11D showed a benefit of about £800. This would have comprised loan repayments, servicing, business petrol (private petrol having been refunded through the payroll) tax and insurance. Those all totalled £2,800. You were then able to claim about £2,000 for business mileage at 40p per mile.

That seems fair enough.

For 2007/08 the P11D shows benefits of about £4,000. Did they not break down these costs? I would expect them to include tax, insurance, servicing and business petrol as before. But the complication is the loan. Repayments up to the date you left should have been included. But what happened to the car then?

You say the car went to the rep who replaced you but surely you owned the car? I can only assume that in effect you sold the car back to the company. The value of the car at the date of leaving would have been offset against the balance of the loan outstanding. If it was insufficient to cover the balance of the loan then this would be an additional benefit.

I think you need to examine all the paperwork provided by the company. If you think the P11D is wrong then HMRC may get involved but it seems more likely that this is a question of valuation of the car and the loan written off. In this case it is between you and the company.

Sorry if I've waffled on but you need to be absolutely sure about exactly what happened when you left. Why did you pass your car on to the new rep? You ought to have agreed a figure for the sale to the company.

Look at the paperwork again and come back with more questions.

mighty_rhinos

Thanks for the reply, I've found out some more paperwork today to go through it better. The car was given to me and I signed a loan agreement. Basically the paperwork says that they have lent me money to buy a car. It says I won;t sell it without their permission and it says the agreement terminates if I leave the lender's employment.

Point 8 says the following: Amount of loan will be reduced by the lender for each 12 month period by 25% of amount outstanding (limited to £3K for loans over £12K) at the 5th April each year with a proportionate reduction where the car has not been owned by the Borrower for the entire 12 months immediately preceeding the 5th April. This is an allowance towards depreciation in the value of the Car.

So with that in mind I found the initial loan was £14,193 at start Oct 06.
Outstanding loan 1st April 07 = £12,693. Average Loan £11,414, Outstanding 31st March 208 £10,135, average interest on loan £332

I then have two side-by-side sections.
B = Running Costs. Average interest £332, Balance of individual loan write off £2,558.11, Insurance £288.75, RFL £67.08, Repairs £155.69 (what repairs??), Business Fuel Costs (relief claimed in A) £619.66 TOTAL B = £4,022.21

A = Business mileage 4914 / Private 3528 - Total 8442
Taxable allowance "40p/25p x 4914 = £1965 + £0.00 = £1965.60"

P11D total Benefit £056.61

When I left the company I returned the car and signed the V5 to give the car back. There was no discussion of the loan or anything. The car was used as a pool car for a while and then given to the new rep later in the financial year. I found that out from former colleagues at first.

Thanks for having a think about the situation, do you think I have any argument to lower the P11D benefit declared. I sent an email to the company today asking for my "loan account form" for 1st April 06 to 31st march 07, and copies of both year's P11D submissions. I don;t think they'll send them though, or respond to me again.

I am wondering whether the loan write off of £2558.11 is effectively 12 months amount, however I was only there for under 5 months of that year.

Any thoughts?

Elaine_Wilson

Blimey! Some companies do have 'em. (I meant schemes by the way, nothing personal Rhino)

Point 8 of the agreement seems to mirror the capital allowances available to the company but I'm not sure of the significance of that.

Looking at the P11D position it's beginning to make a bit more sense to me now. For 2006/07 your P11D running costs were about £2,800. These would have comprised -

Interest £350, Loan write-off £1,500 (6/12ths of £3,000), Insurance £385, Road tax £90, Fuel and repairs £475. Or something like that.

Everything looks reasonable in the 2007/08 figures you gave but the one figure not explained is the loan write-off of £2,558.

One point - where it said loan outstanding March 2008 this refers to the balance at the date of repayment, i.e. mid August 2007. The balance is stated to be £10,135 but taking four and a half months pro-rata of £3,000 (balance at beginning of year was over £12,000) gives something like £1,125. This would give a balance of £11,568.

The actual write-off works out at about 10 months but I doubt they made a mistake like that. I suspect they have valued the car at the date you left at £10,135. This again would mirror the capital allowances regime where the sale proceeds (or value) determine the allowances in the last period of ownership.

I don't see any way of lowering the benefit in kind charge unless you can establish that the value of the car was more than the figure they have used.