Dealership employees overpaying company car tax – report

Are your employees overpaying company car tax? According to new research, they could well be.

A study by Cooper Solutions found three in four dealership workers are paying more benefit-in-kind tax on their company vehicle than they need to.

Under law, employers providing company cars or fuel for employees’ private use – including journeys between home and work – need to work out the taxable value, and report it to HMRC.

Cooper Solutions’ audit of HMRC’s Averaging Agreement for company car drivers and found three-quarters of dealership employees overpay company car tax, equating to more than £2 million.

The firm is calling on the taxman to bring in a fairer method of taxation to benefit motor industry employees and their employers.

Introduced in 2009, the Averaging Agreement was brought in specifically for the automotive industry, but no formal review of its efficacy has been done by HMRC.

Dean Pipitone, director of Cooper Solutions, said: “When the Averaging Agreement was first introduced, it seemed like a reasonable solution for franchised dealers.

“They would simply need to calculate the average vehicle BIK per price band and allocate employees to a band.

“However, eight years on and we can see that whilst most franchised dealerships try to comply with the Agreement, due to the demand placed on dealership vehicles, overpayment of tax is the reality.”

Cooper Solutions analysed data gathered over the past seven years and found that of 1.3 million nightly records of private vehicle use, nearly 7,000 company car drivers were recorded by dealers.

Of these nights, 26 per cent were spent by employees in vehicles banded below the employees’ allocation.
Pipitone added: “Due to customer demonstrations, courtesy loans or other business factors, employees can only take home the car that is made available to them each night.

“This equates to more than £2 million worth of benefit-in-kind overpayments made by employees. For employers, this means they paid more than necessary on National Insurance Contributions and VAT.”

“We are campaigning on behalf of the industry to see a formal review by HMRC of the shortcomings of the Averaging Agreement, and call upon it to consider how technology solutions that record, in real time, the actual use of vehicles based on availability, can produce a fairer means of taxing employees and their employers."