Inland Revenue's Company Car Taxation Policy Under Scrutiny

The Inland Revenue has been criticized by TOUCHE ROSS, a leading chartered accountant, for its interpretation of the 1993 Finance Act, which affects the taxation of company cars. According to TOUCHE ROSS, the Revenue's stance is leading to thousands of company car drivers being taxed more heavily than parliament originally intended. The issue revolves around the calculation of the income-tax benefit of a company car, which is based on its list price when new. However, the list price may not reflect the actual amount paid by the buyer.

Key Takeaways:

• The Inland Revenue has been criticized for its interpretation of the 1993 Finance Act, which affects company car taxation.
• TOUCHE ROSS believes the Revenue's stance is leading to thousands of company car drivers being taxed more heavily than parliament intended.
• The calculation of the income-tax benefit of a company car is based on its list price when new, which may not reflect the actual amount paid by the buyer.
• Maurice Parry-Wingfield, a tax partner at TOUCHE ROSS, suggests that the law refers to the "price published by the car's manufacturer, importer or distributor as the case may be."
• The phrase "as the case may be" implies that the relevant list price is that of the retailer or distributor from whom the car was purchased.
• Using this interpretation, the driver of a "perk" car would pay £1,400 in tax instead of £1,820 under the Revenue's interpretation.
• Employers would also benefit from lower National Insurance contributions.
• TOUCHE ROSS believes that even if the courts decide in favor of the Revenue, it would be unlikely to charge penalties on the extra tax due, although interest would be charged for late payment.

Statistics:

• Thousands of company car drivers are being taxed incorrectly due to the Inland Revenue's interpretation of the 1993 Finance Act.
• The income-tax benefit of a company car is calculated based on its list price when new, which may not reflect the actual amount paid by the buyer.
• £1,820 vs. £1,400: the difference in tax payments under the Revenue's interpretation and TOUCHE ROSS's interpretation.
• 2,500 business miles per year: the threshold for "perk" car drivers under the Revenue's interpretation.
• National Insurance contributions: employers would also save on these due to the lower tax burden.

Sources:

• Touche Ross: leading chartered accountant
• The Sunday Times: "Rebate of thousands after bosses bid higher" (no date provided)
• 1993 Finance Act (no specific date or publication date provided)