UHY Hacker Young LLP is a national accountancy practice which has tracked the implementation and general acceptance of HMRC’s company car averaging rules within the industry since their introduction in April 2009.
And we have now written to the Chancellor George Osborne to seek acceptance of an alternative and more accurate and efficient method of calculating an employee’s annual benefit in kind charge using the long-accepted ‘actual’ basis.
HMRC’s car averaging rules were introduced in acknowledgement of the unique business model employed by automotive retailers, which involves employees frequently changing vehicles throughout working and non-working hours.
The pre-existing company car benefit rules were not designed to accommodate such frequent changes of cars, and the benefit in kind treatment was largely left to the discretion of the local HMRC inspector.
The UK’s automotive retail industry contributes approximately £22 billion to the UK’s annual GVA and directly employs more than half a million people*.
The average dealership makes 2% return on sales.
It is clearly a major and important industry and employer in the UK, and one which suffered significantly in the recent recession as car sales declined dramatically.
An automotive retail business requires its employees to be constantly in and out of its product (cars), be that through moving them from site to site, customer test drives or travel outside of the workplace.
A dealership’s best form of advertising is for a customer to see one of their latest, and typically higher model cars being driven on the roads, but employees are generally loathe to drive these due to the higher attributable benefit in kind charge.
The car averaging basis is restrictive in this regard and doesn’t allow an employee to go above his or her averaged ‘band’ or model range, and hence has a direct business impact.
Having consulted with a number of regional and national automotive retail groups over the last 12 months, the overwhelming feedback we are receiving is that whilst their finance teams believe they have implemented and are operating HMRC’s car averaging rules correctly, they are at best uncertain.
This uncertainty arises from the fact that since their introduction, HMRC has not (to our knowledge) carried out a wide-ranging review/enquiry into the industry’s compliance with these rules, and secondly the rules themselves are open to a certain level of interpretation by the taxpayer.
Each dealer group we have spoken to has implemented and is operating the car averaging rules differently to one another, which gives us significant cause for concern.
In addition, the administrative burden associated with tracking each employee’s movements and car use throughout their working day is extremely onerous, and hence individual record-keeping is difficult to control and time-consuming.
‘Actual’ basis of recording
As alluded to previously, a long-accepted method of recording an employee’s company car related benefit in kind charge is the ‘actual’ basis.
We are aware of a software application which allows an employer to accurately log an employee’s aggregated ‘actual’ benefit in kind charge on a monthly basis.
The result is a completely accurate benefit in kind calculation based upon accurate records of each car an employee has driven in each year.
In most cases, upon comparison to a calculation using the car averaging method, the result is a marginally higher benefit in kind charge per employee.
This application can also track mileage on a per car basis.
A number of national dealer groups are already using such software applications as a tool to track car use and provide evidence of such car use, should HMRC ever choose to enquire into their car averaging methodology and calculations.
There is understandable frustration that the aggregated ‘actual’ calculation isn’t currently accepted by HMRC as a valid basis upon which to calculate an employee’s benefit in kind charge.
We believe this aggregated ‘actual’ calculation to be a significant improvement to the hypothetical ‘average car’ charge currently required by HMRC.
There is wide support within the motor retail industry for this method to be allowed.
The ‘aggregated actual’ basis will also allow an employee to use a higher model car without receiving a punitive benefit in kind charge, which as referred to above is good for business in a number of respects.
We trust that the information we have outlined above is sufficient to gain a better understanding from Mr Osborne of this issue faced by the UK’s motor retail industry.
At this stage we are simply looking to open a dialogue in relation to this industry-wide issue, with a view to agreeing a proposed route towards acceptance of the ‘aggregated actual’ basis of calculation.
*Statistics taken from attached IMI industry fact sheet
Author: Matthew Hodgson (pictured), partner UHY Hacker Young