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The Tax Trap of Cars Leased via Companies

6 March 2019

There is a commonly held belief that cars leased in a company’s name do not attract any benefit in kind charge if the employee, usually a director, repays the cost of the lease to the company.

This belief received some short-lived encouragement in 2016 when HMRC lost the ‘Apollo Fuels’ case, with the Court of Appeal ruling that no benefit was transferred to employees when they reimbursed the market value of a lease car.

As is often the way when HMRC lose significant cases, however, the law was quickly changed.

As a result of the changes made in the Finance Act 2016, even where the full cost of a lease is reimbursed, a company car benefit must be assessed. Payments made by the employee/director will reduce the taxable amount, but not necessarily to zero and there can easily be significant tax charges even where there is no real monetary benefit.

Many owner-managed businesses can find themselves inadvertently caught by this legislation, with a lease car being paid for through the company and recharged to the Directors Loan Account.

With a recent case going against HMRC in this area, it would be easy to mistakenly believe that this topic was up for debate again, however, it is important to note that HMRC only lost the Harrison Solway Logistics case due to timing, with the years under dispute being before the 2016 change to the legislation.

This case serves as a good reminder of the changes to the legislation and the importance of reviewing how lease cars are being treated within your business.

If you would like to discuss the tax implications of lease cars or arrange a review of your own arrangements please contact me or speak with your regular UHY contact.

Alternatively, fill out our contact form here.