SE23055 - Car benefits: employee car purchase schemes

Background

Broadly an employee car purchase scheme is a set of arrangements whereby employees acquire cars from a specified, normally single, source and within a specified financing framework.

So an "employee car purchase scheme" is something more organised than the straightforward cashing out scenario where the employer simply stops providing a company car, (normally) increases taxable pay and leaves the employee to get a car from any reputable source.

A scheme may be designed and administered by the employer, a company within the same group as the employer, or by a third party that specialises in provision of alternative packages to the company car.

In essence an employee car purchase scheme is designed to give employees some of the benefits of a company car (for example new car on a regular basis, central organisation of insurance and servicing) in a way that will avoid the application of the car benefit provisions.

Reviewing employee car purchase schemes

The phrase "employee car purchase scheme" is used to cover various different types of scheme. So, on its own, it is incapable of telling you a great deal about how any particular scheme works. In order to decide the tax consequences of any given scheme you will need to gain a detailed understanding of how it works. This means you will need to see the scheme documentation, which may include all or some of the following:

• document or brochure outlining the scheme
• scheme rules
• agreements between employee and employer
• agreements between employee and finance provider
• agreements between employee and car provider
• correspondence and agreements between the employer and any third parties involved, such as the finance provider and/ or car provider.

This list is not intended to be exhaustive, so there may be other documentation that is relevant to understanding any given scheme.

As the transactions in the scheme depend on the agreements actually entered into by the various parties involved, you will be unable to form any definitive view of the tax consequences of a particular scheme until it has actually been introduced.

Structure of employee car purchase schemes

These schemes typically rely on one of the following conditions being satisfied

• The car is made available to employees in circumstances such that ownership is transferred to the employees at the outset (see SE23053)
• Ownership is not transferred to the employee, but the car is not made available by reason of the employee's employment (see SE23060 to SE23062).

So, in reviewing a scheme, the first point to establish is whether the employee has become the owner of the car at the outset. You only need to go on to consider the "by reason of the employment" condition if ownership is not transferred at the outset.

Other tax consequences if there is no car benefit charge

If there is no car benefit charge, the prohibition on other charges on the provision of a car or on items in connection with a car no longer apply. Accordingly, some points you may need to consider (depending on the structure of the particular scheme) are:

• Is there any tax charge in respect of a sale of the car at undervalue to the employee? (See SE21640 onwards)
• Is there any tax charge in respect of a resale of the car at overvalue by the employee? (See SE21660 onwards)
• Is the employee making good the full cost to the provider of items such as insurance, servicing and repairs, vehicle recovery assistance? (See SE21001 onwards)
• Is there a free or low interest loan? (See SE26101 onwards).
• Is any fuel provided for the car? (See SE21001 onwards, or SE16000 onwards if provided by way of voucher or credit token)
• Are any mileage payments made for the car? (See SE10150 onwards).

This list is not intended to be exhaustive, so there may be other tax consequences that are relevant to particular employee car purchase schemes. Neither is it intended to be an inclusive list. Not all of these consequences will be relevant in every case. Further advice can be obtained from Employment Income Technical, in cases of difficulty.