As a result of the COVID-19 lockdown measures, although numerous relief packages have been put forward by Government, there are still a number of issues surrounding the fact that a significant proportion of employees are now either working from home or unable to work due to the Alert Level 4 lockdown. One such matter employers are turning their minds to is Fringe Benefit Tax (FBT), with one of the common questions coming through being “What is the effect of the lockdown on my FBT payable on motor vehicles provided to employees?”.
In this update we want to provide some guidance around the FBT treatment of motor vehicles which are unable to be used due to the Alert Level 4 lockdown.
Where an employee is allowed to use an employer’s vehicle for their own private purposes, the employer will have to pay FBT on the number of days the vehicle is available for private use, not the actual number of days it has been used privately. This requires the employer to give permission and to give practical and unconditional physical access to the vehicle. For more information, refer to our FBT article here.
Uncertainty has arisen over whether a vehicle is actually available for private use in the lockdown, or if it is, if the value of the benefit is severely reduced because of travel restrictions.
There are no specific changes to legislation for FBT and the use of motor vehicles as a result of the COVID-19 lockdown, however, given the limited ability to actually use the vehicle for anything during this time, there is a basis for a full prohibition of private use by the employer. This makes sense from a public benefit perspective with the point of lockdown being to stay at home, rather than it being purely a tax-saving mechanism. This issue has been raised with Inland Revenue and we understand that they are considering what potential relief could be offered to employers, however as the legislation currently stands, there is still an opportunity for employers to prohibit all private use in the lockdown period by having a prohibition or exemption letter in place which is acknowledged in writing by the employee. This letter would mean the vehicle is not being ‘made available’ as the employee does not have permission, however would only be effective if the employee has access to another vehicle for private use and would apply equally to shareholder employees. Our advice is that if you currently have vehicle restriction letters in place, then another prohibition or exemption letter should be given to employees and acknowledged by them in writing that it overrides the original vehicle restriction letter for the period of the lockdown.
For further guidance around whether you should be putting such prohibition or exemption letters in place in your business, get in contact with one of our Business Advisors.