Businesses have been warned to be vigilant in implementing creative and aggressive car and van schemes that might impact on the amount of tax HM Revenue & Customs (HMRC) believes should be paid.
The warning comes in the wake of moves by the Government to close two company car benefit-in-kind (BIK) tax loopholes. Both legislative changes were revealed in the small print of the Autumn Statement and have been included in the Finance Bill for implementation from April 6, 2014.
One change is being introduced after HMRC lost a First Tier Tribunal hearing that ruled cars provided under market value leases to employees were exempt from BIK tax.
It has appealed the decision made last year in favour of Sheffield-based Apollo Fuels and 25 others to the Upper Tribunal (Tax and Chancery Division), with the hearing listed for February 4.
The Government is also closing a second company car BIK tax related loophole after it lost a First Tier Tribunal that saw payments due in one tax year for the private use of a vehicle being delayed to a later year.
Referring to the Apollo Fuels case, Alastair Kendrick, tax director at chartered accountants MacIntyre Hudson, said: “HMRC is closing the net on creative and aggressive tax-saving schemes that exploit ambiguous legislation. These are both protective measures by HMRC.
“The Government is focused on protecting tax revenues by cleaning up what has previously been introduced by innovative organisations and people.
“In respect of company cars, some of them are ex-fleet people coming up with ideas where they think they can save companies money, but they don’t understand tax law.
“What was once considered acceptable in terms of selling tax-aggressive ideas and schemes is no longer in vogue. Companies and stakeholders need to understand that.”
Tax and fleet funding specialist David Rawlings, director of BCF Wessex Consultants, added: “There is nothing wrong with looking at schemes, but companies must understand that if they are aggressive what the downsides are to the business in reputation and risk and what the shelf-life of it may be before HMRC steps in.
“HMRC is becoming more focused on what it looks at and company cars are one hot-spot area; we have seen this in recent years with employee car ownership schemes.”
In the Apollo Fuels case, the Tribunal found the employees had proprietary rights over the vehicles, which meant that the car benefit charge did not apply. In addition, since market value rentals were charged there could be no ‘benefit’.
Employees at Apollo Fuels entered into agreements with their employer to lease cars from them. The employees paid rent for the vehicles, which the employers calculated by comparisons with similar cars rented from unconnected third parties, and could decide whether to pay more for a maintenance package. VAT was charged on the leases.
HMRC argued that, notwithstanding the terms of the leases and the market value paid for the cars, the arrangements gave rise to a BIK charge.
Section 114 (3) of the Income Tax (Earnings and Pensions) Act 2003 provides protection from double taxation, but in certain circumstances as highlighted by the Apollo Fuels’ case – where the benefit can be converted into money’s worth – it disapplies the benefit from being taxed under the appropriate rules for company cars and vans.
In a “taxpayer information and impact note”, HMRC said: “This was not the policy intention and, as there are other sections within the legislation that prevent double taxation, this section is being repealed.”
The second amendment follows another First Tier Tribunal in which it was ruled that a director of an insolvent company was able to delay paying until 2010-11 BIK tax on a company car that was due in 2007-8 and 2008-9.
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