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HMRC internal manual

Employment Income Manual

Section 7 Finance Act 2016: guidance on the new legislation on company cars

What does the legislation do?

The legislation does 2 main things. It:

  • maintains HMRC’s long-standing interpretation of when a car or van benefit under the benefit code arises
  • creates a new exemption within the company car legislation in the situation where a business that hires cars out to members of the public also hires cars to their employee and the cost of hiring the car to an employee is the same as to a member of public

 

Maintains the long-standing interpretation of when a benefit under the benefit code arises

Section 7 maintains the long-standing understanding of when a car or van benefit-in-kind arises under the benefits code in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). In particular, it provides that if the conditions in section 114(1) apply, then there is a benefit for the purposes of the company car benefit legislation. For the avoidance of doubt, what is known as ‘fair bargain’ also does not apply. (A ‘fair bargain’ is where an employee gets something from their employer on the same terms as a member of the public or independent third party dealing on arm’s length terms with the employer.)

The section addresses the Court of Appeal judgment in the case of ‘Apollo Fuels’. ‘Apollo Fuels’ was about company cars, but the section also confirms that the concept of fair bargain does not apply to accommodation benefits and cheap taxable loan (beneficial loan) benefits as well.

As it does not alter HMRC’s understanding of when a car is made available by reason of employment, this means there are no changes to rules in situations.

A. when an employer knowingly makes a car available to a member of an employee’s family under terms that are only available because of that familial relationship; a car benefit in kind will still arise

B. where an employee (or family member) obtains a car via a discount scheme. Whether a car benefit in kind arises will depend on the facts. If the discount is restricted to the employee (and their family members) then a car benefit will arise. If the discount is available more generally, say to multiple employers, then it is unlikely that a car benefit in kind will arise

These changes confirm that a benefit will arise if the employer provides the employee with accommodation, a beneficial loan or makes a car available for the employee to use for private journeys. Furthermore, it will be a benefit regardless of any specific terms and conditions.

These legislative changes took effect from 6 April 2016.

New exemption where the employer carries on a vehicle hire business

The section also creates a new exemption within the company car legislation at s117 ITEPA 2003 in the very specific situation where a business that hires cars out to members of the public also hires cars to their employee and the cost of hiring the car to an employee is the same as to a member of public. This new exemption will apply to cars or vans that are hired to employees if all of the following conditions are met.

a. the employer carries on a vehicle hire business, and

b. the cars or vans are hired to an employee in the normal course of the vehicle hire business; and

c. those cars or vans are of the same kind that are made available to members of the public for hire; and

d. the employee is acting as an ordinary member of the public when they are hiring the car or van.

The changes to the legislation in more detail

Section 7 as amended introduces section 114(1A) that says that where Chapter 6, Part 3 applies the car or van provided is a benefit. This effectively means that if all the requirements of section 114(1) are met, there will be a company car benefit.