In a recent article, I cautioned about the risk of fringe benefit tax by operating a company motor vehicle as part of a small business.
Until recently, if a company car had personal use, it was subject to fringe benefit tax. To be liable, the vehicle only had to be available, whether or not it was actually privately used.
The government has just changed this situation. In one of several measures to reduce compliance costs for small business applying from 1 April 2017, the government has removed the risk of fringe benefit tax on the personal use of company vehicles. This change will significantly benefit small businesses where the owner’s car is used partly for business and partly for private use.
There are a few provisos.
It applies only to close companies (basically small family owned companies) providing no more than two vehicles to shareholder-employees and no other fringe benefits. So, if you want to take advantage of the new rule, make sure there are no other situations which could inadvertently make you labile for fringe benefit tax.
It also applies only to vehicles purchased on or after 1 April 2017. This means a situation applying in the 2016/17 tax year won’t suddenly change.
You still have to apportion your motor vehicle expenses between business and personal use in an acceptable way. This means the keeping of a log book for a representative period to establish percentages, or accepting a 25% minimum.
13 April 2017