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Clause 25 - Cars and vans: payments for private use

Finance (No. 2) Bill – in a Public Bill Committee at 4:45 pm on 1st May 2014.

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Question proposed, That the clause stand part of the Bill.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I shall be brief, because we have discussed some relevant issues during debates on previous clauses. We have already talked about the implication for employees paying tax on the cash equivalent of a benefit in kind, such as a company car or vans. The clause relates to situations in which an employee has to pay for the private use of a car as a condition of the car being made available. In such cases, the value of the cash equivalent benefit is reduced accordingly on a pound for pound basis. In the same vein, capital contributions of up to £5,000 made by employees towards the cost of a car and/or accessories when the car is first made available will continue to reduce its list price for the purposes of calculating the appropriate percentage.

The clause amends sections of the 2003 Act. According to the tax information and impact note, the changes will be

“putting beyond doubt that payments for private use of a company car or van need to be made in the tax year in which private use was undertaken. The current wording of the legislation does not achieve the policy intention.”

The note suggests that the measure is focused solely upon protecting Exchequer revenue:

“This measure protects Exchequer revenue by ensuring that a car or van benefit is chargeable in full if contributions required for private use are not made before the end of the tax year in which private use was undertaken.”

However, on the next page it suggests that the Exchequer impact of the measure will be negligible. Some suggestion that the Exchequer is losing out must have made the Government bring the changes forward, yet at the same time the TIIN states that the impact is negligible. Will the Minister provide some clarity on that?

The table on page 2 of the note suggests that, aside from the negligible Exchequer impact, the measure will have no discernible impact on employees, businesses, civil society organisations or indeed the economy itself. It would appear that only employers who are misreporting may see some impact. Again, the Government are presumably taking these steps because they have some evidence of business incorrectly reporting the value of the benefits in question. Will the Minister say whether that is the case? Equally, does she believe that the clause is essentially an anti-avoidance measure or that it is simply a tightening up of regulations to put an end to delays in repayments by employees?

Finally, I note the comments on the measure from the Institute of Chartered Accountants in England and Wales, which believes that it is perfectly reasonable for the Government to clarify the deadline by which payments should be made by employees. However, in response to the measures set out in the draft Finance Bill, the ICAEW has suggested that a later deadline, coinciding with the submission of P11D forms, would be more appropriate. Will the Minister respond to those comments? Did she consider the points made by the ICAEW? Will she clarify whether a later deadline to ease the administrative burden has been considered?

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury

I thank the hon. Lady for her questions, which I will do my best to address. Clause 25 makes changes to the 2003 Act to ensure that payment for the private use of a company car or van is made in the tax year in which private use is undertaken. If an employee receives a company car or van and it is made available for private use, there is a taxable benefit. An employee can reduce his or her tax liability on the benefit if they make contributions to their employer for the private use of a company car or van. The original policy intention was that the payments towards the private use of a car or van must be made before the end of the tax year in which private use was undertaken, otherwise the full amount of tax would be payable on the car or van benefit.

The 2003 Act, however, inadvertently allows an employee to make payments or state their intention to make payments for private use of the car or van in any tax year. That could allow an employee to avoid a car or van benefit charge altogether by stating an intention to  make payments, but deferring such payments indefinitely. If everyone with a company car or van decided to manipulate the current wording of the tax legislation, that could remove all tax yield from car and van benefit. The most recently published statistics by HMRC indicate that the yield was some £2 billion in 2010-11.

The hon. Lady asked various questions, and I will give her some answers. The Government have moved to protect future tax revenue by amending the legislation at the earliest opportunity. HMRC is not aware of any tax loss as a result of individuals deferring private use payments of a car or van benefit, so the clause ensures that Exchequer revenue is protected in future and payments are made in the relevant tax year. We do not believe that there has been widespread manipulation of the legislation, but the clause will put beyond doubt when private use payments need to be paid. Employers will need to pay all their contributions for private use before the end of the tax year in which the private use is undertaken. Full updated guidance will be issued by HMRC in the autumn.

The clause is a tightening up of inadvertent drafting in the legislation, just to prevent any future manipulation. The hon. Lady asked about the ICAEW changes, and I will need to go away to see whether the points she made have been addressed. I am happy to write to her on that.

The changes made by the clause will put beyond doubt that payments for private use of a company car or van need to be made before the end of the tax year in which private use is undertaken. That will protect Exchequer revenue. Most individuals and employers will not see any changes, as the clause ensures that the legislation is aligned with existing policy. The changes it makes are wholly in line with the original policy intention of the 2003 Act.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Photo of Martin Caton Martin Caton Labour, Gower

I remind Members that there is no sitting on Tuesday morning and that we next convene at 3.30 pm on that day.

Ordered, That further consideration be now adjourned. —(Amber Rudd.)

Adjourned till Tuesday 6 May at half-past Three o’clock.