Car benefit – are you an exception?
Calculating an employee’s car benefit is usually straightforward. The employee is deemed to have the benefit of a car if it is provided to him by his employer for private use as well as business use. The value of the benefit is then calculated with reference to the car’s list price, CO2 emissions, less any capital improvements paid for by the employee, plus any additional costs borne by the employer and so forth.
However in a few cases – most typically where the employee works in the motor industry – the normal car benefit rules do not apply. Guidance has been provided by HMRC on their treatment of such cases for 2009/10 onwards. The exceptional cases fall into three categories:
Test and experimental cars
This must involve testing in a documented research programme run by the manufacturer. Test engineers are often required to test cars under driving conditions, including sometimes for private journeys. In theory, car benefit is chargeable under these circumstances, but where the primary use is for testing and any private use is clearly secondary to those tests, HMRC will not apply car benefit.
Demonstrator and courtesy cars
This will occur rarely, where a salesperson or demonstrator takes a car home for the sole purpose of calling on or delivering to a customer as part of a demonstration or delivery arrangement. Provided no private use has occurred beyond this, HMRC will not apply car benefit.
Employees with frequent changes of car
Where an employer operates a pool system with each employee being entitled to use of a car, but not a particular car, from the pool, the calculation for car benefit must be simplified. The normal method of calculation, with reference to list price and CO2 emissions, would be far too administratively time-consuming. An alternative “averaging” system is used in such cases. In outline, this involves identifying the cars to be “averaged” and separating them into groups according to various criteria, calculating the average price and CO2 emissions per group and using these to calculate one car benefit charge per group using the usual calculation method. Employees are then allocated to their best-fit group.