Company car expenses and benefits – what’s exempt?

While company cars often come with tax implications, there are specific situations where the associated benefits may be exempt. There are circumstances where it can be possible to offer employees car benefits that are exempt from tax.

Exempt expenses and benefits include the following:

• Business-only use: This rule has been the subject of much case law over the years, but it has generally been established that to qualify for VAT recovery the car must not be available for any private use. This means that the car should only be available to staff during working hours for employment related duties or to travel to a temporary workplace. The business must also clearly tell their employees not to use the vehicle for private journeys and check that they don’t.
• Adapted vehicles for disabled employees: These cars are exempt if the only private use is for journeys between home and work and for travel to work-related training.
• Fuel paid by employees: The fuel benefit is removed when an employee pays for all their private fuel use or if the employer pays and the employee reimburses the amount (during the tax year).
• ‘Pool’ cars: Employers are not required to pay or report on 'pool' cars. These are cars that are shared by employees for business purposes only and normally kept on your premises. Employers must ensure the ‘pool’ car rules are properly adhered to.
• Privately owned vehicles: Employers do not have to pay anything on cars that directors or employees own privately.

Proper documentation and compliance are required in order to maintain these exemptions.

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