SE23071 - Car benefits: cars provided by the employer for members of the employee's family or household - removal of tax charge in certain circumstances - further guidance on ESC A71

Extra Statutory Concession A71

The text on this page provides guidance on how to apply the tests in the second part of ESC A71. The text of the concession is set out at SE23070.

The first point to check is that the first part of ESC A71 is not in point. You therefore need to have fully considered whether or not the family member is subject to the benefit rules of Part V Chapter II ICTA 1988 in respect of that employment. (See SE20100 onwards).

If the family member is not chargeable on the car benefit in their own right, you can move on to consider the second part of ESC A71. The benefit of the concession can only be given if either;

• both conditions (a) and (b) are satisfied, or
• both conditions (a) and (c) are satisfied

Condition (a) - person to whom the car is made available receives the car in his or her own right as an employee

Key points about this condition are:

• It cannot be satisfied if the person in question is not an employee of the relevant employer
• It cannot be satisfied if the car is in also directly available to the employee who is within the benefits legislation of Part V Chapter II. Merely calling a car a "spouse's car" is not sufficient to satisfy this part of the test
• It cannot be satisfied if it is clear from the terms under which the car is made available that it is made available to the employee who is within the benefits legislation of Part V Chapter II, who in turn passes it on to the family member.

Condition (b) - equivalent cars made available to other employees of same employer

The concession will only apply if the car made available to the member of the relevant employee's family or household is

• "equivalent" to one provided to someone where such a personal relationship does not exist
• actually made available ( a hypothetical statement that a car would be made available in the event that there was a similar employee is insufficient)
• equivalent - in terms of size, status, age, list price (but does not need to be the same model)
• made available on the same terms - e.g. if the car for the member of the relevant employee's family or household is provided taxed, insured and serviced, the car for the comparable employee will need to include these items. Similar considerations will apply to the presence or absence of private use payments or capital contributions.

The comparable employee must be

• in similar employment with the same employer - duties, hours of work and level of remuneration need to be similar in order for this condition to be satisfied.
• unrelated to directors and those earning £8,500 a year or more.

Condition (c) - normal commercial practice

It is often argued that this condition is satisfied because

• it suits the business aims of the employer for this employee to have a car, or
• the employee's cash salary is set at a level that is low in relation to the duties performed. Therefore the overall remuneration package of cash salary plus a car is set at a commercial level and is commensurate to the value of the duties performed by the employee

But neither of these arguments on their own will succeed in demonstrating that condition (c) is satisfied.

This condition is not directed at ascertaining whether or not the overall remuneration package was set at a commercial level or whether it was in some way commercially convenient for the company to ensure that the employee in question was provided with a company car.

Instead, the test quite specifically tells us to focus on the provision of the car alone. Is it the case "that the provision of an equivalent car is in accordance with the normal commercial practice for a job of that kind?"

So, if condition (c) is to be satisfied, it must be shown that it is normal commercial practice for an employee carrying out a job of the kind held by the member of the relevant employee's family or household to be provided with a company car.

Sometimes it is argued that it is highly significant that the member of the relevant employee's family or household holds the position of "company secretary." But unless the employer is a large company, usually this involves little more than relatively routine administrative duties. If the employer is a relatively small company, the post is not in any way analogous to the same position as the company secretary of a large concern, where it would possibly be more usual for a car to be provided.

In general it is for the taxpayer to produce evidence in support of his or her claim to concessionary treatment. If the taxpayer is unable to do so, or if the evidence which is produced is unacceptable, do not apply the Concession.

Make a report to Employment Income Technical, giving full facts regarding the provision and use of the cars before listing an appeal for hearing by the Commissioners in a case where

• the employee does not accept that there is a liability to the car benefit charge in respect of a car provided for a member of his/her family or household, and
• the application of Extra Statutory Concession A71 has been refused.