A benefit in kind tax charge arises where a company car is available for an employee’s use. Once a car has been made available to an employee, the charge is reduced proportionately for period of unavailability of at least 30 days. This period can span two tax years.

The legislation (ITEPA 2003, s. 118) provides that a car is treated as being available for private use unless the terms on which it is made available prohibit such use and it is not so used.

During the Covid-19 pandemic, employees with company cars may have been furloughed or shielding. In guidance published on how to treat expenses and benefits provided to employees during the pandemic, HMRC address the issue of company car availability.

In the guidance they state that:

`You should treat a car as being made ‘’available for private use’’ during this period even if your employee is:

  • instructed to not use the car
  • asked to take and keep a photographic image of the mileage both before and after a period of furlough
  • unable to physically return the car or the car cannot be collected from the employee’.

However, HMRC concede that where restriction on movement applied because of coronavirus which prevent the car from being handed back, they will accept that a car is unavailable where the contract is terminated from the date that the keys, including tabs or fobs, are returned. Where the contract is not terminated, HMRC will regard the car as being unavailable 30 days after the returns of the keys, tabs or fobs.

HMRC’s test of availability goes beyond that set by the legislation. If an employee is instructed not to use the car and does not do so (for example, as shown by photographic evidence), under the terms of the legislation, the car is not ‘available’ for the employee’s private use, and where the period of unavailability exceeds 30 days a reduction in the tax charge should be forthcoming. Attempts by HMRC to impose a stricter test than that required by the legislation (e.g. the return of keys) should be challenged.

It should be noted, however, the test is whether the car is unavailable for the employee’s private use, not whether the employee is able to use it. Thus, an employee who is shielding may be unable to leave the house and drive a company car. However, unless private use is prohibited, the car remains available for private use and there is no reduction in the tax charge, despite the fact there is no actual private use.