Company Car Benefit and Contributions.

nico11

Hi,

First time I have posted on here so I dont know if I have put this in the right place!

I have been with my employer for 2 years and have been provided a company car (pool stock) for this period. I am now in a position to order a car for the first time and our scheme allows the individual to 'Flex Up' which means I can pay out of my own pocket to get a car higher than the grade I am on.

Recently an email went out telling us that any contributions made towards this 'flexing up' do not qualify as a capital contribution towards the car thereby not reducing the Benefit tax paid for the provision and use of the car.

I have copied the paragraph from the new Company Car Policy below; is this correct as I thought that any contributions towards the car should be considered for tax purposes? Also, is there an email address for HMRC where I can also email this query?

'HMRC definition: Capital Contributions
We have received a numerous questions about what qualifies as a Capital Contribution thereby giving the employee a reduction in their tax.
Under current legislation, a qualifying capital contribution is one where the employee is required to make a contribution towards the private use of the car as a condition of the car being made available for the employees private use. This is not the case for xxxx drivers. In addition, where a driver merely makes a "payment" to obtain a car outside his/her allocated benchmark range does unfortunately not constitute as a qualifying capital contribution.'

Thanks,

Nick.

GRM

Is your 'FlexUp' payment a lump sum or monthly deduction? The latter is unlikely to qualify according to this.

nico11

Hi, its a monthly deduction. Surely If I am contributing towards the lease of the car, this should be considered by HMRC for tax purposes?

Any P11d's submitted by my previous employers have included Capital Contributions (not the same as Amount paid by employee for personal use of car) and my current employer also did the same until recently this year.

Even if my employer does not see this as a capital contribution, how would HMRC process/regard this contribution? Is there an email address for HMRC where I get get clarification direct from the horses mouth?

Many thanks.

pjclar02

Hello there

Just to be totally clear - as they are two separate issues....

Does your employer provide you with free fuel as well as the company car?

If so, are the contributions you are making toward the car or toward the private use of fuel?

Thanks for confirming.

nico11

pjclar02 wrote: »

Hello there

Just to be totally clear - as they are two separate issues....

Does your employer provide you with free fuel as well as the company car?

If so, are the contributions you are making toward the car or toward the private use of fuel?

Thanks for confirming.

Hi,

Thanks for the reply. No, I pay for all fuel used and then claim back business mileage from the company.

Basically, the contributions would be to pay for items as extras or a car that is/are not within my current car banding. e.g Insignia SRI is in my car banding and so wouldn't cost me any extra but if I wanted an Insignia SRI with satnav or any other extras, I would need to contribute an amount on a monthly basis to cover the extra cost above my banding allowance.

ceeforcat

Some tax inspectors take the view that such contributions do not reduce the benefit charge - they are merely made in order to get a more expensive car. This appears contrary to their own guides in calculating the benefit due here
http://www.hmrc.gov.uk/manuals/eimanual/eim24450.htm
but you can expect a strong defence from them if challenged.

Contact HMRC direct regarding this - you are joking? Even if you did find someone who was prepared to venture an answer, I certainly would not be staking my life on it.

pjclar02

Thanks

This seems reasonably clear cut to me based on the information you have provided....the contribution you are making should be deducted from the list price of the vehicle when calculating the taxable benefit. I think your employer has misunderstood the rules.

This link has the definition of a contribution:

http://www.hmrc.gov.uk/manuals/eimanual/EIM24355.htm

This is an excerpt from s132 ITEPA (2003):-
132Capital contributions by employee

This section has no associated Explanatory Notes
(1)This section applies if the employee contributes a capital sum to expenditure on the provision of—
(a)the car, or
(b)any qualifying accessory which is taken into account in calculating the cash equivalent of the benefit of the car.
(2)A deduction is to be made from the amount carried forward from step 2 of section 121(1)—
(a)for the tax year in which the contribution is made, and
(b)for all subsequent years in which the employee is chargeable to tax in respect of the car by virtue of section 120.
(3)The amount of the deduction allowed in any tax year is the lesser of—
(a)the total of the capital sums contributed by the employee in that year and any earlier years to expenditure on the provision of—
(i)the car, or
(ii)any qualifying accessory which is taken into account in calculating the cash equivalent of the benefit of the car for the tax year in question, and
(b)£5,000.

nico11

ceeforcat wrote: »

Some tax inspectors take the view that such contributions do not reduce the benefit charge - they are merely made in order to get a more expensive car. This appears contrary to their own guides in calculating the benefit due here

but you can expect a strong defence from them if challenged.

Contact HMRC direct regarding this - you are joking? Even if you did find someone who was prepared to venture an answer, I certainly would not be staking my life on it.

This is my point...surely if I am contributing something financially towards the list price lease of the car, I shouldn't be taxed on the bit I am contributing for!!

Thats why I am after an email address, I have spoken to them and they have told me that my employer needs to put the contributions down, I then get told by my employer that they don't have to and its not a Capital Contribution. At least if I get a clear response in writing from HMRC, I have something to back this up as evidence (and I dont end up with another underpayment of tax letter!!).

Dont want to call HMRC again as its a complete waste of an hour.

ceeforcat

pjclar02 - have a read of this - one of those things that one may never come across in practice but which, unfortunately, I did.

http://www.paypershop.com/news-cat/payrolltips196.html

pjclar02

Thanks Ceeforcat.

Based on the information provided by the OP - I would look to argue that this is a capital contribution under s132. However, I agree with your point that the OP will struggle to get a ruling from HMRC.

I think if the employer can have a contract in place with the employee that details that the employee is contributing toward the accessories, and therefore the original cost of the vehicle (albeit the contribution by the employee is spread over x months - effectively treated as an emplyee loan) this should be sufficient to satisfy HMRC in the event of an enquiry.

The fact that the OP could have accepted the car without the accessories and been taxed on a lower list price, yet the OP has decided to add the accessories, is a strong indicator that these should be capital contributions and the OP should not be taxed on the accessories.

OP - I think you need to take this up with your employer and their tax adviser, as I agree with Ceeforcat that you will struggle to get a ruling from HMRC.

ceeforcat

Yes - but the last two lines of the op's company car policy, as quoted, will also make this extra difficult in the sense that the op has been warned that such a contribution is unlikely to affect his BIK charge.