Close company and giving company car to relative

by **Adviceneeded** on Mon Jun 20, 2011 10:45 am

I was hoping that someone could advise on the position:

Close company owns a motor vehicle. An employee (daughter of director) was given the car. However the daughter then leaves the company for another job and the company allows her to keep the car.

What is the exact tax position for the company and the individual?

Does this become a benefit in kind to a participant? So the car benefit charge then becomes treated as a dividend to the individual or is it still classed as employment income as the individual has another job.

Does the company lose its capital allowance on the car and still have to pay class 1a national insurance for providing the benefit?

Thanks.

by **collich** on Tue Jun 21, 2011 12:13 pm

When you say the company allowed her to keep the car - do you mean the ownership of the car was transferred to the daughter or that she was allowed to keep using it (with ownership remaining with the company)?

by **Adviceneeded** on Wed Jun 22, 2011 2:33 pm

The ownership remains with the Ltd company but she was allowed to keep using it.

by **mullet** on Sat Jun 25, 2011 12:16 pm

The ownership remains with the Ltd company but she was allowed to keep using it.

It sounds like a situation where the car is being provided by virtue of the driver's relationship to the director ... so the benefit is assessable on the director. Class 1A NICs will be payable in the usual way and running costs/capital allowances will remain available. There may even be an argument that the car was originally provided by virtue of Dad being a director - you have to consider whether a similar employee NOT related to a director would have had the benefit of a company car in their own right.

The alternative for a car provided by virtue of a family connection etc is that all costs and CAs are disallowed.

HMRC guidance starts here. http://www.hmrc.gov.uk/manuals/eimanual/EIM23550.htm
But some has been withheld.