Online Company Car Alterations & Their Pitfalls
It has been reported that online Company car alterations for drivers will be introduced. The Taxman has started an online trial to that end. We think this is a very good idea, in principle, but the correct framework is going to have to be carefully considered and put in place first.
The current system
Up until April 2009 Companies were required to notify the Taxman of changes to a Company Car on form P46 (Car) for all employees quarterly. Then the rules were changed so that the only time a P46(Car) was required was when an employee was first supplied with a car. Subsequent changes could be notified with a P46(Car) form but this was not a requirement. Alternatively, the employee could call up the Tax Office and ask them to change the code.
The Government say that they receive over 4 million calls a year from "customers" about their tax codes. Anyone who has had the misfortune to call the Taxman to discuss their tax code will know that frustration of being forced to wait 25 minutes to get through to an operator, only to get cut-off or told to ring a different department (a process that will involve another 25 minute wait). So a system that can cut out these frustrations would be great, right? Well, yes, in principle. But in practice we think there are going to be a few a problem areas which we've listed below:-
1. List Price
Many people assume that it is the price paid for the car, but this generally isn’t the true list price. Many dealers will offer discounts to attract sales so they can reach their sales targets. If your employee gives a list price to the Taxman that is based on a discounted price either from the garage or an online car sales website then they are going to be underdeclaring their benefit in kind.
Tax Tip:- If you want to know the list price of your car then use this website to enter your car deails and it will give you both the list price and CO2 emissions.
2. Rental cars
It’s not unusual for employees (while waiting for a new company car), to receive a number of different cars on short term loan until the company car they’ve requested is available. Once online company car alterations are allowed is the employee going to be expected to contact the tax office 4-5 times a month to update them of these changes?
Once online company car alterations are introduced will the employees provide details about company mileage? We ask this because it is common for employees to be provided with fuel for business use only. However, if the employee confirms that the vehicle is taken home every night and is occasionally used at the weekend for private use, they may not realise that there is also a fuel benefit which might contradict Company car policy. Errors like this can often lead to an employer compliance review, which We're sure most employers would wish to avoid.
Another potential problem for online Company car alterations can occur when a non-company car driver is provided with a Company car for a short while when they are temporarily seconded to another part of the business. If the vehicle is only used for business, will the employee contact the Taxman to advise them they’ve had a car for work purposes believing that they’ve had a benefit?
The potetntial consequences of online company car alterations
- Clearly, there is extra work for the employer to educate the employee to ensure the correct details are recorded. So, in addition to paying experienced staff to deal with this issue, employers may also have to train non-technical staff as well.
- Then if an error is made, who will be responsible - the employee (with no tax / accountancy knowledge) or the employer?
- Don’t forget that the company car benefit also attracts Class 1A National Insurance Contributions (NIC). So, if an error is found years later, is the employer responsible for the employee giving the wrong information?
- Who pays any additional interest (which will be due on late payments of Class 1A NIC) and what about penalties? Is it a genuine error, has the employer taken all reasonable steps to ensure the details are correct?
- If the employee makes an error and reports to much of a benefit, the employer will again to hit for too much Class 1A National Insurance.
So, I would say that overall, online Company car alterations will probably be a good idea. However, without the employees understanding the correct information to send or record, it can be fraught with many problems. These problems can incur the employer in additional costs which may include interest and penalties. Therefore this new system will require careful consideration by all employers who supply their employees with a Company Car.
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