Car benefit: Payments for private use – Is the timing of payments important?

An article by Mark McLaughlin

The benefit-in-kind calculation for car benefit (i.e. where an employer makes a motor vehicle available for an employee’s private use) is an eight stage process.

The final step in the calculation (if applicable) is to deduct “payments by the employee for the private use of the car” (ITEPA 2003, s 121). The legislation dealing with deductions for private use (ITEPA 2003, s 144(1)) provides for such a deduction if two conditions are satisfied, i.e. that the employee:

“(a) is required in the tax year in question to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and

(b) makes such payment”

Timing of payments for private use

The legislation is silent about when the payment for private use should actually be made. Does it matter? HM Revenue and Customs (HMRC) considered that it did in a recent First-tier Tribunal hearing.

In Marshall v Revenue & Customs [2013] UKFTT 46 (TC), the appellant was the director of a company which had become insolvent. He paid company expenses from his personal monies, including in respect of his company car. The appellant was subject to a car benefit charge for 2007-08 and 2008-09 in respect of the car. Following a HMRC enquiry, the company was assessed to Class 1A NIC, interest and a penalty on the car benefits (and also payments for use of home received by the appellant) of £4,196. The company had no funds to pay this liability, so the appellant paid it by personal cheque during the tax year 2010-11.

HMRC argued that the appellant could only deduct from the car benefit charge calculation any payment for the car “in the tax year in question”. The appellant argued that his payment of £4,196 on the company’s behalf during 2010-11 should be offset against the car benefit charges for 2007-08 and 2008-09. The tribunal considered that HMRC’s construction of the legislation was incorrect, because the words “in the tax year in question” appeared in condition (a) above, and did not appear in condition (b) as well.

The tribunal therefore held that there was nothing in the legislation to prevent the payment of £4,196 being deducted at step eight in the benefit in kind calculation of car benefit in ITEPA 2003, s 121 (1). The appellant’s appeal was therefore allowed.

Wrong way around

It is interesting to note in this case that HMRC used the Class 1A NIC charge on the company car as a basis for imposing a car benefit charge. The First-tier Tribunal observed that this approach was the “wrong way round”, as the National Insurance legislation broadly requires the income tax charge under ITEPA 2003 on benefits in kind as justification for charging Class 1A NIC (SSCBA 1992, s 10 (1)).

HMRC’s guidance on payments for private use of a company car (i.e. step eight in the calculation) in the Employment Income manual at EIM25250 does not (at the time of writing) appear to support its argument in the Marshall case that a “true and proper construction” of ITEPA 2003, s 114 (1) requires payments for private use to be made “in the tax year in question”. In any event, it is hoped that the guidance will be updated accordingly in view of the tribunal’s decision.

In the absence of any HMRC appeal, it would seem that the decision in the Marshall case offers some certainty about payments for private use of company cars, and an element of flexibility in the timing of such payments.

Written by Ellie MacKenzie

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