Administration of Company Cars
Background
Many employers provide employees with a company car. Most employees who have been provided with a car are familiar with the process of receiving a form P11D from their employer, informing HMRC of the taxable benefit via their Self-Assessment Tax Return and having the benefit included in their PAYE tax code in order to collect the tax due.
Sometimes this administration does not run smoothly, particularly when there is a change in car, which can lead to an unexpected tax bill for the employee.
We have seen this on a few occasions recently so thought it would be useful to remind readers of the administrative process to deal with the taxation of company cars.
Detail
Who is required to inform HMRC of the provision of a company car?
Upon the initial provision of a company car, the employer must inform HMRC by the 2nd of the month following a tax quarter end. This is done via form P46 (CAR) and can be completed either as a paper copy or online using PAYE online services for employers. Once the form is received and processed by HMRC, they will issue the employee with a new tax coding notice that includes the cash equivalent of the benefit-in-kind.
Who is required to inform HMRC of the change of a company car?
The employer has an obligation to report the change to HMRC at the year-end however they have no obligation to do this earlier even though it may be beneficial to their employee. The employer may notify HMRC during the year however this must be done using PAYE online services or via payroll software. Similarly the employee does not have to report a change in car although it may be beneficial to do so to avoid an underpayment of tax building up.
In order for an employee to have their tax code amended and the correct tax collected, they must inform HMRC of the change themselves. This can be done in one of two ways; either by phoning HMRC on 0300 200 3300 or by logging in to their personal tax account on HMRC’s website (https://www.gov.uk/personal-tax-account). The latter is HMRC’s preferred method as it generally means the change will go through more quickly however both are acceptable. Alternatively if the employee has an agent then they can request the change. It is important to note however that agents do not receive copies of coding notices automatically.
Finally, if a company car is a “payrolled” benefit-in-kind then any changes will be reported to HRMC in real-time via the normal payroll submissions and therefore once they are done, no further action should be taken by either the employer or the employee.
If you require more information regarding any of the above, or assistance with the administration element of benefits being provided to employees, please contact our Tax Director, Jenny Marks.
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