Company cars and fuel during COVID-19

If you are an employee with a company car, and maybe fuel provided, it is worthwhile considering giving up the car, or fuel, during the current pandemic if you are working from home or furloughed.

A company car benefit in kind (BIK) is a set amount based on the list price and emissions regardless of the amount of usage.  If you are not currently not using the car then it may be worthwhile giving up the car in the short term to reduce the tax you are paying, the BIK can be reduced for periods of unavailability.

Unfortunately this is easier said than done, if a car is “available” then a benefit in kind will arise, merely not using the car will not reduce the benefit; if the car is on your drive and you have the keys you will have a BIK.  HMRC has confirmed that returning the car keys to the employer will be sufficient to demonstrate the car is unavailable, which could be an option, or, if possible, move the car to a company depot/car park so it is completely unavailable to you.  I also recommend a written declaration signed by both parties is in place to confirm the car is withdrawn and unavailable.  Of course personal circumstances may mean you need the car even if for short journeys and this is not an option.  Note that to be “unavailable” for tax purposes the period has to be at least 30 days.

However stopping the fuel benefit, if you have one, is likely more worthwhile if you are spending very little on fuel at the moment.  Again the private fuel BIK is not based on the miles travelled it is a set amount based on emissions.  A private fuel BIK is ‘all or nothing’, if there is just 1 private mile paid for by your employer a fuel BIK will arise.  However it should be possible for an employer to stop paying for fuel and request you reimburse any fuel costs since 6 April 2020.  A written agreement signed by both parties also needs to be in place to confirm the requirement to repay the fuel.  Strictly such an agreement should  ideally be in place before the start of the tax year, but you would hope HMRC would relax this stance in the circumstances.  A word of warning though, if fuel is stopped and reinstated later in the tax year the BIK will arise for the whole tax year, so if it is stopped that will have to continue to at least 5 April 2022.

If a BIK is stopped then the company will also reduce their Class 1A NIC liability.  HMRC would need to be advised of any changes to ensure tax codes are updated to see the immediate tax reduction of any income tax changes.

Comparing the tax savings and checking the appropriate paperwork and procedures are in place is recommended.  Do contact us if you require any further information.

Disclaimer - All information in this post was correct at time of writing.