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Our client is experienced in this matter and is a retired racing motorcyclist himself. He conducts his business via a limited company.
Our client intends to visit racing circuits and operate as the administrative centre for events, usually over long weekends. We imagine that this will mean Friday to Monday inclusive, and the company will be purchasing a ‘mobile home’. The cost involved here will be around £50,000 and the touring vehicle will be reasonably comfortable. It will of course operate as an administration office when in use.
Our client believes that his use of the motor-home at these motor-cycle events will be regarded as entirely business. We, of course, have to consider whether or not any benefits in kind should apply. Our client is adamant that there will be no private use of the vehicle. The use will simply be for the motor-cycle racing events on the relevant weekends throughout the current calendar year.
Readers’ views would be welcome.
Query T16,577 – Silver Stone
Reply from Jim
The client’s naivety is not surprising – but may be of surprise to Silver Stone for the wrong reasons. Under ITEPA 2003, s 205(1)(a)(1), an asset placed at the disposal of a director or employee represents a benefit regardless of the director/employee’s usage of the asset. Even if wholly for business, the provision of an asset is still a benefit. The benefit is simply nullified if the employment-related provisions under ITEPA 2003, s 365(1) are satisfied.
Here, the client has an admirable idea to provide on the spot administration and organisational activities for the motorcycle events, which not surprisingly take up considerable more time than the actual races. There is little left of a 24-hour day with these events. The alternative would be the allowable cost of travel to each circuit and the usual hotel expenses, which are usually bumped up for the weekends in question. The mobile home might probably pay for itself with such savings, not to mention the obvious advantages, in a few years.
One can imagine the Revenue’s response: ‘So that’s an average 18 weekends, or 54 days, per annum business. Let’s say 300 days private at 20% annual value of £50,000. How long did you say the company had the mobile home...’.
This is the area in which Silver Stone must now plan to ensure his client is not wrongly penalised. If adamant there is no private usage, a board minute meeting should be drawn up to ensure this prohibition is rigidly followed, not only to the client, but any others within and connected to the company. A further step might be for the insurance company to provide cover for only the business element – on the basis that there is no private usage, and for the vehicle to be suitably garaged for the remaining spell.
Hostility may still be expected from the Revenue. Although it was a VAT case involving a reclaim of input tax, the recent case of Customs and Excise Commissioners v Elm Milk Ltd would be a suitable decision to quote in support of any argument. The tribunal decided that the taxpayer had satisfied the ‘relevant condition’ in that there was no intention for the vehicle to be used privately and had taken suitable steps for this purpose. As an aside, I do wonder if, with the imminent harmonisation of Customs and the Revenue, their draft advice note will be followed so that such decisions will be passed from one department to another?
Silver Stone is fortunate in that the idea has not yet come to fruition. Go ahead with the client’s proposals. Get some watertight rules in place – and stick to them – and very important, tell the Revenue immediately by presenting the full facts and seeking a dispensation for this particular item. Best to get these matters sorted at the outset. Furthermore, if the odd weekend is envisaged for a holiday, do not be put off by a reduced tax/NIC bill for the pleasure. Simply ensure the full availability trap is not fallen into by ensuring all paperwork is in order and followed to the letter.
Repy from Southern Man
The problem is that a charge arises if an asset is ‘placed at the disposal of the employee’, i.e. it is available for use, ‘whether or not it is used is immaterial’. In those circumstances, the well-known 20% charge (plus the perhaps sometimes ignored expenditure on running costs, etc.) comes into play and that would primarily seem to be the case here.
There is a good example in the Revenue’s Schedule E Manual at SE21628. That concerns a plane used for business and personal purposes and it does include an apportionment for the days when the asset is used for business purposes.
I would have felt that the use at, and getting to and from the race meetings would be clearly business; the problem will come for the rest of the year. If the client is adamant that there will be no further use, the company should minute this.
The difficulty will be proving this to the Revenue and I would suggest that a detailed mileage log be kept with evidence of races attended. It is occasionally suggested that such vehicles be insured only for business purposes, but from my conversations with insurance brokers this tends not to be practical and insurers are naturally reluctant to leave people uninsured, so I think that the client would have to rely on a board minute and detailed records.
In the event that he did use the motorhome for private purposes, a benefit could be avoided if there was a ‘fair bargain’ rather than a benefit or ‘special bounty’. I think that if the client established what it would cost him to rent a similar motorhome for the period of private use and paid this to the company, there would not be a benefit in kind as mentioned by the Revenue at SE21004. An interesting point in that paragraph is that ‘it is not necessary that the employer actually does deal with members of the public for this principle to apply’.
Editorial note
Respondents to this question assumed that there would be a 20% asset charge, rather than a car benefit in kind, which from a review of the legislation appears to apply. ITEPA 2003, s 115 describes a ‘car’ in terms of what it is not; the only grounds for argument would seem to be via s 115(d), i.e. that a motorhome is ‘a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used’.
The Revenue’s view is that a car benefit charge would apply to a motorhome, such as a ‘Winnebago’. We would be interested in hearing from any readers who have practical experience here, especially in rebutting such a claim.
