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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Car benefit: special cases: employees in the motor industry (to 2008/09): when is there a car benefit charge?

Cars made available to employees in the motor trade should be charged to tax as benefits in the same way as cars made available to employees in other employments. The decision in Pepper v Hart (65TC421) on marginal cost does not apply in these cases. However, particular problems arise in the motor industry in connection with demonstration, test and experimental cars.

Where, as part of the normal duties, a director, car salesperson or demonstrator takes a car home for the express purpose of calling on a prospective customer, do not on that account alone treat the car as available for private use. In essence, the whole journey is for a genuine business purpose. If, however, such a car is otherwise available for the employee’s private use, for example, at weekends or holidays, the appropriate car benefit will be chargeable.

The use for testing purposes of experimental/developmental cars by engineers in both the motor and motor components industries should be looked at in the light of all the facts. Generally speaking, it is unlikely that a tax charge will arise. If, however, you find that such a car is used privately, the appropriate car benefit will be chargeable.

You will find below an extract from a circular dated 28 September 1976 and issued by the Society of Motor Manufacturers and Traders (SMMT) to its members and to which the then Board of Inland Revenue offered no objection. You can regard this extract as amplifying the second and third subparagraphs of this instruction above.

Extract from the circular

“Use of company-owned cars within the motor industry 

i) Demonstration cars

The Revenue do not consider that the fact that a car is the tool of trade for the car salesman is sufficient reason for introducing special arrangements.

ii) Frequent changes in the cars allocated to employees

It is common practice, both in the motor manufacturing industry and the retail motor industry, for cars available to employees to be changed frequently for sales promotion reasons. This could lead to problems in determining the correct charge to tax as individual cars are likely to fall into different taxable benefit categories. The Revenue recognises the need for administrative simplicity and the need to avoid both the Revenue and companies becoming involved in detailed records for each car. In such cases local Inspectors will be permitted to agree with companies an appropriate mean charge to benefit.

iii) Test and experimental cars

Test engineers in both the motor industry and the components industry are often required, as part of their jobs, to test cars under various driving conditions. For certain types of test such as cold starting, the only practical way of conducting them is for the engineers concerned to use the cars for private journeys and to report on their performance. In almost all cases the employees concerned have another company-owned car allocated to them on a permanent basis.

No general ruling can be made in such cases as the employee’s tax position would depend on the facts of individual cases. It is clear, however, that in cases where the employees concerned have the use of a company-owned car on a permanent basis, the occasional use of a test car for private journeys would not give rise to an additional charge to tax. Inland Revenue would, however, look closely at the use made of test cars and are unlikely to take a sympathetic view in cases where, for example, test cars are used for an employee’s holiday travel.”

2009/10 and later years

See EIM23800 onwards.