Relocating a company car overseas does not automatically bring the UK benefit charge to an end, as the legislation focuses on availability for private use, not geography. Whether an employer’s payment of transportation costs gives rise to a separate taxable benefit is a distinct and less straightforward question that depends heavily on the facts.
By Phil Kinzett-Evans – Tax Director
For internationally mobile employees, it is often assumed that taking a company car overseas brings the UK company car benefit to an end. Equally, where an employer pays to transport a vehicle abroad, it is frequently assumed that those costs are simply absorbed within the existing car benefit charge.
Neither proposition is necessarily correct.
The tax treatment of a company car that is relocated overseas requires consideration of two separate questions:
- Does the normal UK company car benefit continue once the vehicle is taken overseas?
- If the employer pays to transport the vehicle overseas, does that create an additional taxable benefit for the employee?
Whilst the first issue is governed by the company car benefit legislation, the second potentially raises broader benefit-in-kind considerations that are not expressly addressed by statute or HMRC guidance.
The starting point: the car benefit rules focus on availability
The company car benefit rules in Part 3, Chapter 6 ITEPA 2003 are concerned primarily with whether a car is made available to an employee or director for private use by reason of their employment.
A common misconception is that the benefit depends on where the vehicle is physically located. In practice, the legislation focuses on availability rather than geography.
Accordingly, transporting a company-owned vehicle overseas will not, in itself, bring the car benefit charge to an end.
If an employee continues to enjoy unrestricted private use of the vehicle after relocation overseas, there is a strong argument that the normal company car benefit continues to apply in exactly the same way as if the vehicle remained in the UK.
With regards to benefit, the location of the car is generally less important than whether the employee continues to have access to it.
Certainly if the employee has relocated on assignment overseas and the car remains in the UK, then the individual circumstances as to whether that car has indeed been ‘made available’ for private use will be pertinent. For example, if the individual comes home to the car every month and it is available at a UK home, then it’s arguable that the car is continually made available for their private use regardless of the fact that it is not in use all the time.
In practice, one might want to consider arrangements that keep the car at (or near the place of) work and available for the use of others whilst the particular individual is abroad. Then, ‘made available’ becomes a question of car-pooling and when the car is actually used by the overseas individual whilst being back in the UK.
Does taking a company car overseas end the benefit charge?
In many cases, the answer will be no. Consider a typical expatriate assignment:
- a UK company owns a vehicle
- an employee relocates overseas
- the vehicle is transported overseas by the employer
- the employee continues to use the vehicle privately.
The fact that the vehicle is now based overseas does not automatically prevent the company car rules from applying. If the employee still has private use of the vehicle, the statutory car benefit may continue.
However, this is only part of the analysis.
The employee’s broader employment tax position may also need to be considered, including:
- UK tax residence status
- the location of the employee’s duties
- whether the employment remains within the scope of UK taxation
- any applicable double taxation agreement, and
- whether taxing rights have shifted to another jurisdiction.
In expatriate cases, the residence and employment income analysis may ultimately prove more important than the location of the vehicle itself.
Can the car benefit be reduced during transportation?
Where a vehicle is unavailable for a continuous period of at least 30 days, the benefit may potentially be reduced.
This can be relevant where a vehicle is in transit between countries and the employee is genuinely unable to use it.
The availability rules are fact-sensitive and employers should retain evidence of:
- shipping dates
- collection and delivery records
- insurance arrangements
- periods during which the employee could not access the vehicle, and
- the date the vehicle was returned to use.
Careful documentation may therefore provide partial relief where a vehicle is unavailable during transportation.
The less obvious question: what about the shipping costs?
The more difficult issue is whether an employer’s payment of the transportation costs gives rise to a separate taxable benefit.
Many employers instinctively assume that these costs are already covered by the company car benefit charge. After all, the employee is already taxed on the provision of the vehicle itself.
However, the legislation is not entirely clear.
The company car benefit is calculated using a statutory formula based on the vehicle’s list price and CO2 emissions. The actual costs incurred by the employer do not directly determine the amount of the benefit.
This raises an interesting question: If an employer incurs a substantial cost transporting a vehicle overseas, has the employer merely incurred part of the cost of providing the company car, or has it met a separate personal expense of the employee?
The argument that no additional benefit arises
There is a strong argument that transportation costs are simply another element of the overall cost of providing the company car. After all, employers routinely incur costs on:
- insurance
- servicing
- repairs
- maintenance
- breakdown cover
- road fund licence, and
- vehicle administration.
None of these items gives rise to a separate taxable benefit because they are generally regarded as part of providing the vehicle that is already taxed under the company car benefit code.
Viewed through this lens, shipping costs may simply represent an additional expense incurred in making the vehicle available to the employee.
Where the relocation forms part of a genuine overseas assignment and the employer wishes the employee to continue using the vehicle, it can be argued that the transportation costs are merely incidental to the provision of the company car.
The argument that an additional benefit may arise
There is, however, a contrary view.
Where an employer incurs a significant cost transporting a vehicle overseas primarily for the employee’s personal benefit, HMRC could potentially argue that the expenditure goes beyond merely providing a company car.
For example:
- the employee wishes to retain a particular vehicle overseas
- a local replacement vehicle could have been provided more economically
- the transport cost is several thousand pounds, and
- the expenditure primarily benefits the employee rather than the employer.
In those circumstances, it could be argued that the employer is meeting a personal expense of the employee.
If that analysis were accepted, HMRC could potentially contend that a separate benefit arises under the residual benefit provisions, independent of the existing company car charge.
Why the facts matter
The legislation does not specifically address overseas vehicle transportation costs and there appears to be little direct HMRC guidance dealing with the issue. As a result, the outcome is likely to depend heavily on the facts.
Relevant factors may include:
- whether the overseas assignment is employer-driven or employee-driven;
- the purpose of transporting the vehicle;
- whether the employer required the vehicle overseas for business purposes;
- whether a local replacement vehicle was available;
- the amount of transportation costs incurred;
- whether the vehicle remains company-owned throughout; and
- the extent to which the expenditure principally benefits the employer or the employee.
The stronger the business rationale for relocating the vehicle, the stronger the argument that the transportation costs merely form part of the cost of providing the company car.
Practical conclusion
Taking a company car overseas does not automatically end the UK company car benefit charge. The key question remains whether the vehicle continues to be available for the employee’s private use.
A separate and more nuanced question arises where the employer pays the cost of transporting the vehicle overseas. There are credible arguments both that these costs are absorbed within the company car benefit regime and that, in some circumstances, they could constitute a separate taxable benefit.
Our view on this matter
In our view, where a company-owned vehicle remains a company car throughout and is transported overseas as part of a genuine overseas assignment, the stronger practical argument is that the transportation costs form part of the overall cost of providing the vehicle and should not give rise to a separate benefit. However, the absence of direct legislative wording or HMRC guidance means that the position cannot be regarded as entirely free from doubt.
The principal risk lies in assuming that transport costs are automatically covered by the company car benefit rules. Whilst this may be the better view in many commercial situations, there is no specific statutory provision dealing with overseas transportation expenses. Consequently, cases involving substantial shipping costs, particularly where the expenditure appears primarily to benefit the employee personally, may attract greater HMRC scrutiny and should be considered carefully before a position is adopted.
With directors and high-earning employees relocating overseas and altering their residence, and where they ultimately pay their taxes, the question may well be scholastic, but it is certainly interesting to consider that a case could well be uncertain if the facts were unclear.
The next step
If you have employees relocating overseas with a company vehicle, or you have questions about the tax treatment of company car benefits and transportation costs, please get in touch. We can help you assess the position based on your specific circumstances and ensure the appropriate treatment is adopted before any issues arise.
