Having attended many HMRC PAYE and VAT visits at clients premises over the years there is a common theme of “easy pickings” for HMRC to discover and then raise assessments in respect of under-declared Tax.
If we begin with a typical PAYE visit and indeed VAT visit, a client can guarantee that they will be asked to provide details of all Company owned vehicles both cars and vans. Clients should be prepared to be quizzed about the allocation of vehicles and this is where they can “trip up” if they refer to a pool vehicle as being “Dave’s car”
Purchase of Company cars
Apologies for stating the obvious but I am surprised at how many clients reclaim the VAT at the time of the initial purchase without asking for advice then make an adjustment on a subsequent VAT return once the advisor has told them that it is disallowed. It is surprising however that despite advice some still “slip through the net” and once found by HMRC the perception is that they have made such a careless error inevitably wanting to pick everything apart in the greatest of detail as what else is there to discover?
Due to the debate of what constitutes a van for HMRC purposes; according to HMRC car derived vans are
• Designed to weigh no more than 2 tonnes when loaded fully
• As a general rule, there will be no rear seats, rear seat belts or mountings
• There will be a payload area with floor panel in the rear of the vehicle
• There will be no side windows in the rear of the vehicle-or if present, side windows will be opaque and fixed
Vehicles such as VW Transporters and Twin Cab Pick-ups can be defined as a van as they are constructed to carry a payload of one tonne or more but care must be taken. (I have advised clients to take photographs to demonstrate their use to keep as future evidence if required)!!
Depending upon the attitude of the officer, clients may be asked for an inspection of the vans during a visit to establish whether the client has chosen the correct treatment for Benefit in Kind purposes as undoubtedly it makes a huge difference to the Tax and Class 1a NIC liability. Of course, the intention is also to seek evidence of private use. This may sound extreme but absolutely true! Children’s toys, car-seats and roof-racks for surfboard transportation is not recommended!
Private Use Exclusions
HMRC will also expect there to be a written vehicle policy explaining the circumstances of accepted use and specific exclusions such as ordinary commuting in respect of a car, which is yet another area where a client will be caught out.
As a reminder, allowable business journeys and commuting is defined as:
(1) through the performance of business duties or
(2) to a temporary workplace
In practice the definition of temporary is where a client or his workers carry out less than 40% of their duties.
Despite the fact that ordinary commuting is allowed for vans, the danger is that a benefit still arises if the van is “available for private use”
Therefore, I would advise that there is a clear policy in place which clearly prohibits any private use for all vans, otherwise HMRC can argue that in the absence of anything enforceable by the Company, there is still a benefit by virtue of the availability issue.
Contracts of employment may be examined to ascertain that the terms above are reflected and for example, if a company provides that the individual is taking a vehicle home for on-call purposes, that the requirement to be on-call is part and parcel of their contract.
HMRC will expect to see formal control procedures in place. Most commercial vans will have tracking systems and HMRC will ordinarily be satisfied that the mere existence of them means that they are monitored although ideally the monthly or weekly tracking logs should be signed off by a designated person.
If an individual has a vehicle assigned to them, there is an expectation that they have access to their own vehicle for private purposes. It is impossible to argue that there is no private use if they have no other way of doing their weekly grocery shopping or social travel. The strict prohibition of this within a Company policy is significant towards supporting the clients position.
The use of a pool vehicle within a business needs to be regulated and controlled.
There should be a log of daily use which should include entries of the mileage and purpose of travel together with details of clients/customers visited, if appropriate.
The pool vehicle should ordinarily be kept at the business premises overnight unless the client can demonstrate this is unavoidable for security purposes or if an individual requires to use the vehicle as they are on-call and their contract and company vehicle use policy as described above should reflect this.
Both PAYE and VAT Inspectors take the same stance on the requirement for evidence and control systems as summarised above.
For business owners, the onus is on them to provide HMRC with evidence that that have treated the vehicle correctly for both VAT and NIC purposes and where there is a benefit, that the individuals have been assessed on the correct basis i.e. as a car or as a van.
If you'd like any advice on this topic please don't hesitate to contact me
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