Tribunal highlights SORN not sufficient to prevent treatment of vehicles as company cars

Over the years I’ve seen many franchised motor dealers who also have rather nice prestige cars as company assets. As you can imagine, these tend to be high-value. Steps are therefore usually taken to ensure there can be no suggestion they are available for private use and consequently taxable as a benefit in kind. These steps include measures relating to road tax and insurance, or clauses in a company handbook.

In HMRC’s eyes though, even having no road tax doesn’t necessarily mean that the vehicle is unavailable for the use of the directors. This was highlighted in a recent tribunal case.

Sensible steps to prevent company car benefit?

Tim Norton Motor Services is a Ford dealer who also owned a rare Maserati and a Ford GT40. These vehicles were sometimes used for business purposes and the Ford GT was branded “Tim Norton”.

Before the vehicles were used VED had to be purchased, and after use a SORN declaration was made.

The company handbook stated that company vehicles could only be used with the express permission of management.

At first glance, these all appear sensible ways to prevent a benefit in kind. Unfortunately, HMRC didn’t agree.

HMRC’s alternative view

The company was subject to a PAYE inspection in 2016. HMRC decided that there should have been a company car benefit for both vehicles for periods over and above those already recorded on P11Ds.

The company disagreed and took its case to both the First Tier and Upper Tribunal. The final judgement was issued last month but did not completely go the taxpayer’s way. Putting aside a procedural point regarding issues of assessments, it was decided there weren’t sufficient barriers in place to prevent private use from occurring for the following reasons:

• Although the vehicles were usually subject to a SORN and therefore had to be taxed before use, this was an easy thing to sort. It was likened to if you had to get a flat tyre fixed before you could drive off.
• The company handbook did state that management approval for use of the company vehicles was required, but this could be provided by the director’s wife and therefore unlikely to be denied. In addition, as an officer of the company, the director could simply have approved his own use.

Conclusions and recommendations

The position adopted by the company would seem reasonable to many dealers and therein lies the risk. The crucial word in the legislation is “availability” and the balance of proof has to cover many points and be fairly overwhelming to make HMRC back down. Get it wrong and a very expensive car and perhaps fuel benefit assessment could result.

This is an area where everyone’s exact circumstances will be very different and professional advice is recommended to reduce the considerable risk from a HMRC enquiry.