There is widespread confusion among companies about how benefit-in-kind (BiK) tax is treated for hire cars.
Essentially there are three scenarios, each handled in a different way by HM Revenue & Customs.
Tax expert Alastair Kendrick sets out the tax position.
Hire car is made available to an employee without a company car
There is no BiK arising on a hire car that is used by an employee who does not have a company car – subject to the car being provided for business travel with only ‘incidental’ private use.
According to HMRC guidance, incidental private use is not measured by the actual number of private miles driven, but rather in the proportion of the private element of the journey when viewed as a whole.
A hire vehicle provided for a business journey which is taken home overnight to serve this purpose the following morning will be classed as incidental private use.
However if, for instance, the vehicle was taken for private use over a weekend this would not be considered incidental.
If the hire car is used for more than incidental private use, a BiK charge will arise, which is calculated using the normal rules – using the list price and CO2 emissions of the vehicle provided.
This will be apportioned in the tax year according to the time it was available to the employee.
However, there is often difficulty in obtaining the details relating to the hire vehicles from the provider.
This is an area which is audited by HM Revenue & Customs at the time of an employer compliance review and the audit would look at the internal control systems which exist to monitor the use of these vehicles.
Hire car replaces a company car
A number of factors are considered in calculating company car benefit. One is the number of continuous days that the allocated company car is unavailable to the employee in a tax year.
Company car benefit is apportioned where the car is unavailable to the employee for a continuous period of 30 days or more.
The company car benefit continues throughout a continuous period of unavailability of less than 30 days.
Therefore, where a hire or relief vehicle is used as a replacement for both business and private use during periods of unavailability, company car benefit still applies when this is for a continuous period of less than 30 days.
The provision of a hire car during this period will not incur a separate and additional BiK charge, provided it is not materially better than the company car or provided with this intention.
Should a hire or relief vehicle be provided where the company car is unavailable for a continuous period of 30 days or more, then the company car benefit is apportioned and an alternative BiK charge arises by reference to the hire or relief car. This would be calculated according to the typical company car benefit rules.
Hire car replaces a vehicle of an Employee Car Ownership Scheme
A vehicle provided through an Employee Car Ownership (ECO) scheme is not a company car; it is the employee’s own vehicle.
Where a hire or relief vehicle is provided to the employee on terms that include non-incidental private use, then a BiK charge arises.
If, however, the employee has in their contract with the ECO scheme provider the provision of a hire car then, if the vehicle is provided under the arrangement, no BiK will arise.
Fleets should check that they are dealing with this area correctly. If they have queries, take tax advice.
P Booker - 05/10/2015 21:42
We have 20 + surveyors who operate from both office and home. However 5/6 of them have continual use of a hire car, which they use to get to work to the office or to one our premises. They do not use them in the evening, or weekends. The rest use their own cars and claim the mileage back, but not to the office. So surely the surveyors with the long term (Many over a year +) should have to pay BIK?