Away for the weekend with friends and chatting with one guy who works for a large car company. Unsurprisingly, he was driving one of their latest models and we got chatting about company cars.
I've got a company car that's changed every three years and pay BIK at ever increasing rates, as the Chancellor seems to view company car drivers as an easy way of generating extra revenue.
My friend has to change the car every four months, has access to the vehicle 24 hours per day (so it's not a pool car for business purposes only) yet pays no company car BIK tax, as the vehicle is deemed to be 'on loan' to him.
That fairly unusual scenario must be just about the cheapest way of running a car that is always virtually new and is a handy way of avoiding lining the chancellor's pockets!
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i wonder how hmrc defines on loan? Sounds to me that he's got a company car but just changes it more often than most. As you described it he's got a company car in all but name.
Last edited by: sooty123 on Mon 23 Jan 17 at 23:43
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Does anyone with a car working for Autocar, Auto Express, etc.... pay BIK I wonder?
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Some of our rivals are owned by major industrial concerns which include motor manufacturers.
The travelling staff are given nice company cars for about six months which are then passed to dealerships as low mileage forecourt fodder. It also increased the sales of more niche models in the company's range.
AFAIK they all had to pay BIK and if it is not being paid and should be there will be fines to pay when HRMC finds out.
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There is, AFAIK, a long standing arrangement with HMRC on how employees of car manufacturers are taxed on their 'company' cars. As I understand it, most schemes work on the premise that the employee owns the car. In general HMRC is happy for employers to sell staff whatever product / service they sell the public at a discount, though not at a loss. So for example, if you work for Waitrose and get a 10% discount on your shopping that's not a taxable benefit.
So the car manufacturer sells the employee a car (or cars; most senior employees will get multiple cars) at discount, with a guaranteed buy-back at a set number of months / miles. They'll lend the money to pay for the discounted car, and settle the loan when the car is returned. The only taxable benefit is the tax due in the benefit (interest cost) on an interest free loan. In the case of cars that depreciate a lot there will be a taxable benefit if the buy-back price is higher than the market price. It might work a bit like this...
Employee works for Mercedes. A nicely specified C Class has a list price of £40k. An ex-demonstrator retails at £30k. If Merc sell the employee the car at a 25% discount it'll cost £30k. They'll buy it back in 6 months for £30k. No ones lost any money, and there's another well specced low mileage used car for the dealers. There's the small matter of the £30k outstanding for 6 months, but that's structured as a loan to the employee. Interest rates are low so lets assume the market interest rate is 4%. Conveniently that makes the maths easy ;) 4% of £30k is £1,200. That's the taxable benefit, at the employees marginal tax rate. So at 20% that's £240, or £20 a month. Car manufacturers tend not to pay that well, but use the lure of 'free' cars. Even so a 40% tax payer would only pay £40 a month. Compare that to you or me running a £40k Merc as a company car. No idea on the emissions, but let's pretend they put it in the bracket that attracts a 25% BIK value. 'Our' Merc is taxed at £40k X 25% X 40%. £4K per year, or £333 a month compared to £40.
The number of cars available on these schemes is not insignificant; around 10% of all BMWs/MINIs registered in the UK have an employee car scheme as the first registered keeper, or at least did a few years ago. Can't imagine it's changed, and can't imagine other manufacturers are massively different, though the fact that MINI have a factory in the UK might push it up? Still, that means probably quarter of a million cars in the UK end up being supplied on the cheap to staff or 'friends and family' in one way shape or form...
In Daily Mail speak HMRC is being ripped off to the tune of £3,520 X 250,000. £880 million!! :p
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HMRC official interest rate for this is currently 3%, which makes it even better value..
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I've recently opted out of the company car world for the first time due to punitive taxation (that's getting worse again in FY2017). As was mentioned above, company car drivers are now seen as a 'cash cow' for the government. It's no surprise really. There isn't exactly going to be an outpouring of sympathy from the voting public at the Chancellor hitting people who get free cars from their employer.
I am not surprised that companies are coming up with "ways around" it. A previous employer was in cahoots with one of the big accountancy firms and came up with a scheme where they trousered the BIK on private fuel instead of passing it on to HMRC. This was achieved through a complicated system of "loans" and "advances" that even after reading the information sheet several times, I never really understood. As employees, we saw no net benefit, as an equivalent amount was deducted from our pay packet every month, but the company had some system where they basically kept it (less, I suspect a healthy percentage for the accountant).
When you have one of the most convoluted and complicated tax systems in the world, accountants will always earn a fortune finding holes in it.
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"So for example, if you work for Waitrose and get a 10% discount"
15% actually plus 12% or 25% in John Lewis depending on type of product
Comes in very handy :-)
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>> There is, AFAIK, a long standing arrangement with HMRC on how employees of car manufacturers
>> are taxed on their 'company' cars. As I understand it, most schemes work on the
>> premise that the employee owns the car. In general HMRC is happy for employers to
>> sell staff whatever product / service they sell the public at a discount, though not
>> at a loss. So for example, if you work for Waitrose and get a 10%
>> discount on your shopping that's not a taxable benefit.
>>
>> So the car manufacturer sells the employee a car (or cars; most senior employees will
>> get multiple cars) at discount, with a guaranteed buy-back at a set number of months
>> / miles. They'll lend the money to pay for the discounted car, and settle the
>> loan when the car is returned. The only taxable benefit is the tax due in
>> the benefit (interest cost) on an interest free loan. In the case of cars that
>> depreciate a lot there will be a taxable benefit if the buy-back price is higher
>> than the market price. It might work a bit like this...
>>
A neighbour of mine is retired from a car manufacturer and the above is how he has described their scheme to me. He reckons there's no tax, but he does pay a fairly nominal amount per month which is supposed to cover running costs - all he has to do is put fuel in.
That nominal amount has been increasing though and he often gets asked to change the car at short notice and there isn't always much choice of new cars he can take. He reckons he's increasingly questioning whether the hassle/cost is still worth it.
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>> There is, AFAIK, a long standing arrangement with HMRC on how employees of car manufacturers
>> are taxed on their 'company' cars. As I understand it, most schemes work on the
>> premise that the employee owns the car. In general HMRC is happy for employers to
>> sell staff whatever product / service they sell the public at a discount, though not
>> at a loss. So for example, if you work for Waitrose and get a 10%
>> discount on your shopping that's not a taxable benefit.
Many moons ago when I worked for British Aerospace they had a scheme called MVO - management vehicle ownership scheme. It sounds the same as they were effectively lent the money, but had to buy a massively discounted Rover which would be returned within 9 months, but often sooner. When the car was returned to Rover the loan was cleared. I remember my boss complaining because every time he got a decent model / spec / colour he would only have it for a couple of months before the local dealer would recall it for change out - basically if someone walked in and asked for your spec car it just got called in and you were given a new one......like a beige 400 diesel :-)
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I knew someone who worked at Ford. She and her husband were allowed two cars each!
I seem to recall they had to order a new one once the car reached 3,000 miles.
This is where the stock of nearly new cars come from on the dealer forecourts.
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>>I've got a company car that's changed every three years and pay BIK at ever increasing rates, as the Chancellor seems to view company car drivers as an easy way of generating extra revenue. <<
What's not to like? (For those of us who always buy our own and subsidise the company car scam).
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>> What's not to like? (For those of us who always buy our own and subsidise
>> the company car scam).
>>
No problem at all for those of us who have a nice car at a nice spec, at least partly, as a perk, but don't forget the large number of company car users for whom the car is a tool of the job and who put in huge mileage with a long time spent every day in the car and who get clobbered on tax just the same.
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You'll have to excuse me on this one because I know virtually nothing about the company car thing but, if one has private use of the vehicle one drives for work all day, it's still a perk, isn't it?
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>> You'll have to excuse me on this one because I know virtually nothing about the
>> company car thing but, if one has private use of the vehicle one drives for
>> work all day, it's still a perk, isn't it?
>>
Yes it is, so long as it is available for personal use. The problem is that the tax is becoming disproportionate as it is based on the full retail value of the car and options and takes no account of real prices and discounts obtained. In my case it is now cheaper to forgo the company car, take the money and lease my own car. Allowance plus tax saving is more than cost of lease, insurance and maintenance.
Last edited by: zippy on Tue 24 Jan 17 at 13:30
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>> You'll have to excuse me on this one because I know virtually nothing about the
>> company car thing but, if one has private use of the vehicle one drives for
>> work all day, it's still a perk, isn't it?
>>
Not much of one, if i have already driven 150 miles+ in a working day, or more likely if I have driven 600+ miles in a week and only get home at weekends I am not likely to get much "perk" use of the car at the weekend, and in a different job might well choose not to run a new car.
For these people to pay the same tax as someone who has it because of level in the organisation is not equitable in any way.
As I say, personally I have a perk car, I chose a nice one, no complaints.
Last edited by: commerdriver on Tue 24 Jan 17 at 15:05
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In most organisations a company car is either a 'perk' and therefore part of your package regardless of miles driven or it's a business need. The latter would be taken away if you didn't need it. Anyone with a benefit/perk company car can also normally take a cash allowance and avoid paying BIK but will pay tax on the allowance instead.
I am pretty sure if you get a business need car and do not use it for personal miles then you do not pay any BIK. It may be available to you as a car but surely you can opt not to use it and have your own car.
I could have a fuel card covering personal miles but I don't do enough to benefit from the tax I'd pay for it's use. So I don't have one.
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I always understood that you had to park it at work for it to be exempt from BIK, but there may be other ways round such as logging mileage etc.
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I thought that van drivers paid no tax if they parked the van at home between shifts, so long as it wasn't used privately. So assume the same for cars, but I bet it;d be quite hard proving that you didn't use it for private use, especially as home to office commute would normally be classed as private miles not business (ties in with what commerdriver says re parking at work)
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so long as it wasn't used privately. So assume the same for cars,
>> but I bet it;d be quite hard proving that you didn't use it for private
>> use, especially as home to office commute would normally be classed as private miles not
>> business (ties in with what commerdriver says re parking at work)
>>
A family member had a company van and it was taxed at a nominal rate of £150 a year. This was 10-15 years ago. They could still take it home, but they had to log every journey which was checked by the boss. Personal use was a no no, i think now it's probably done by a tracker. Although it sounds cheap, they had to buy another car anyway as the van was no good for taking family and kids about. So unless you've got no family it's, not on the face of it, that cheap.
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>> I am pretty sure if you get a business need car and do not use
>> it for personal miles then you do not pay any BIK. It may be available
>> to you as a car but surely you can opt not to use it and
>> have your own car.
>>
No. If it's available you pay the BIK.
The only way out of it is for the employer to make it unavailable. That's so difficult to police that few employers will agree as they'd get hammered by HMRC for any breach.
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>>The only way out of it is for the employer to make it unavailable.
Which is notionally achievable by not insuring it for private use. I guess with a tracker fitted it might be possible to prove it. But as you rightly say, they'd be hammered by HMRC for any breach so would be reluctant to follow this route.
In an owner managed business it wouldn't be possible; HMRC wouldn't believe you.
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A company car that isn't a company car... - sooty123
