Posted by Nick Day on 03 Jul 2020
Car Subscription Services and the Company Car Charge
Many car manufacturers are joining the current move away from traditional ownership and leasing plan, by offering drivers a subscription model – for a single monthly payment, subscribers receive a car with all tax, servicing and insurance taken care of (just fuel needed), and the car provided can be changed regularly. But what are the benefit in kind (BIK) tax implications of offering such a car subscription to your employees?
Where an employer provides a car to an employee and the non-business use is more than incidental (generally taken to mean where the vehicle has private use by and/or is taken home by the employee) then the employee will have a taxable benefit for the period that the car is made available to them.
It is extremely difficult to avoid this charge by claiming business-only use. For example, if the employer hires a car for an employee to go on a business trip, and that is the only use, then HMRC generally accepts that no taxable benefit arises as any non-business use is incidental, but if the employee takes the car home for the weekend before dropping it back then the non-business use is no longer incidental and a taxable benefit will arise.
The annual taxable benefit for the car is calculated based on the list price of the car (even for hire cars) multiplied by a percentage, which is based on the emissions of the car. For the 2020-21 tax year, this percentage will be between 0% (fully electric vehicles) and 37% for high emission cars (petrol over 160g/km CO¬2 and Diesel over 140g/km CO¬2), which can lead to substantial annual benefit charges. This annual benefit is applied to shorter periods based on the number of days the car is available to the employee.
This means an employee provided with a car through a subscription service could have 3 or more different cars in a tax year, each with their own taxable benefit calculation to be carried out based on the car itself and the exact dates the employee has each car.
It is always important to keep clear and accurate records of company cars to allow the benefit in kind to be correctly calculated and defended. For subscription services, this record-keeping is even more important.
If you would like any advice regarding car subscription services for company cars or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or email@example.com