We have listed below a number of issues that you will need to consider if directors or employees use a car for business purposes.
Essentially, if the car is owned by the business any private use of the vehicle will trigger a tax charge for the driver (car user) and a possible NIC bill for the employer.
Use of a car may be exempt from these possible charges in the following circumstances:
- If the car is owned privately by the director or employee and any costs met by the employer relate to business journeys.
- If the car is owned by the employer but no private use of the vehicle is allowed. Employers are required to notify employees that this is the case and check that these instructions are complied with.
- If a car is adapted for an employee that is disabled. This use is only exempt if the private use is restricted to journeys between home and work and travel to work-related training events.
- There is no fuel related tax charge if any personal fuel is paid for by the employee or if the employer pays, but the private element is reimbursed by the employee.
- The use of pool cars is generally ignored. This assumes that there is no private use and that cars are kept at the business premises.
The way in which any taxable benefits are reportable to HMRC is complex. Partly, this depends on how the benefit is formalised. For example, is it a salary-sacrifice arrangement? Generally, any chargeable, private use of a company car is returned to HMRC each year on a form P11D. This will then determine the amount of tax payable by employees on the deemed benefit provided and also contribute to the amount of any NIC payable by the employer.