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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Car benefit: exceptions - private use prohibited

Sections 118 and 171(1) ITEPA 2003

This page considers the first part of the two legged test detailed at EIM23400, under which the car benefit charge will not apply if:

  • the terms on which the car is made available prohibit private use and 
  • it is not in fact used privately (EIM23410).

Guidance from the Courts on prohibition of private use

In the case of Gilbert v Hemsley (55TC419), the taxpayer was an employee of a plant hire company. He was required to be on call at any time and was provided with a company car. He used this to travel between his home and the company’s nearby business premises and for genuine business trips. He successfully argued before the Commissioners that:

  • he was prohibited from using the car privately
  • he never used the car for private motoring.

In consequence, the twin tests imposed by Section 118(1) ITEPA 2003 were met so that no car benefit charge arose.

Vinelott J in the High Court saw no grounds for reversing the Commissioners’ decision because of the very special facts as found by them, the essence of which was that:

  • his work base was his home and not his employer’s premises
  • all journeys made by the taxpayer, including those between his home and the company’s premises, were therefore business travel and
  • in this particular context, where the taxpayer was in essence an ordinary, but senior and trusted employee of the company (he was a director, but had no material interest in the company), the verbal prohibition made by the company’s managing director on the private use of the car was valid and enforceable.

Although the decision in this case turned upon the particular facts, it still provides judicial guidance on the factors that need to be present in order to be satisfied that the terms on which the car is made available prohibit private use.

The key principles that emerge from the case are:

  • there must be an express ban on private use, that is the ban must be explicitly stated, so that an implied ban is insufficient to meet the test
  • there must be a legally enforceable ban on private use.

Provided these factors are present, and depending on the context in which it is delivered, a verbal prohibition may count as an effective and meaningful ban on private use.

The requirement that there is no actual private use of the car

There are two parts to the test at EIM23400, both of which must be satisfied. The mere prohibition of private use is insufficient on its own to prevent a tax charge. It is also necessary to show that a car is not used for private motoring; see EIM23410.