My employee didn’t use their company car during lockdown – does this mean the benefit in kind stops?

After months of lockdown, many of us have seen a noticeable decrease in petrol costs as cars have stayed stationary on driveways, and workers across the country have swapped the daily commute for days working at the dining room table.

If you have staff with company cars who have been working from home or furloughed, there are some tax implications that you need to be aware of which could impact your P11D calculations for the 2020/21 tax year. It’s important to highlight, in the case of company cars, just because the car is not being used doesn’t mean the benefit in kind (BIK) stops.

From HMRC’s perspective, unless the car has been made ‘unavailable for private use’ the employee will continue to be taxed on the BIK as though they had use of the car throughout the entire tax year. However, if the car has been made unavailable for 30 or more consecutive days, the tax liability of the employee and the Class 1A liability for the employer will be reduced proportionally to the number of days the car was unavailable.

What determines if the car is available or unavailable for private use?

During the pandemic, HMRC has been clear that the period of ‘unavailability’, where it has not been possible to return the car due to restrictions, will be from:

  • the date all the car keys/fobs were returned to the employer/third party, where the contract has been terminated, or;
  • 30 consecutive days after the date that all the car keys/fobs were returned to the employer/third party, where the contract has not been terminated.

The car will still be classed as ‘available for private use’, and therefore will still be classed as a benefit in kind, even if employees;

  • are instructed not to use the car
  • take photographic evidence of the mileage before and after the period of furlough
  • the employee is physically unable to return the car and the car cannot be collected from the employee

This includes employees who are furloughed and those working from home.

If you have employees that use a company car and believe you have made it ‘unavailable for private use’, we recommend that you record the period that the car is unavailable now to help with the preparation of any P11Ds next year.

If you need any more information on the taxation of company cars or have any questions about BIKs, contact our tax team on 01926 422292 or email [email protected].

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