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75% of dealership employees overpay company car tax, calculates Cooper Solutions

75% of dealership employees overpay company car tax, calculates Cooper Solutions

An audit, claimed to be the first of its kind, of HM Revenue and Customs’ (HMRC) ‘averaging agreement’ for motor dealership employees paying benefit-in-kind tax on company cars has highlighted that 75% could be overpaying.  

Cooper Solutions, which provides a range of integrated dealer management solutions and systems for the automotive industry, says its audit highlights the shortcomings of HMRC’s ‘averaging agreement’.

The company says its findings that three out of four dealership employees overpay benefit-in- kind tax equates to a collective overpayment of £2 million.  

Cooper Solutions is now calling on HMRC to introduce fairer methods of taxation for the benefit of motor industry employees and their employers.

The ‘averaging agreement’ scheme was introduced in 2009, specifically for the benefit of the motor industry, however, no formal review of its performance has been undertaken by HMRC since its implementation, according to Cooper Solutions, which offers the motor industry a range of online solutions covering financial management, fleet management, daily rate insurance provision, benefit-in-kind tax compliance, trade car disposal, and used car stock control.  
Cooper Solutions said it undertook the audit in a move to “better understand the implications of the scheme”, relating to the private use of company cars using its web-based, real-time solution for record keeping for dealership drivers - FullCompliance.  

Dean Pipitone, director of Cooper Solutions, said: “When the ‘averaging agreement’ was first introduced, it seemed like a reasonable solution for franchised dealers. They would simply need to calculate the average vehicle benefit-in-kind tax per price band and allocate employees to a band. However, eight years on and we can see that whilst most franchised dealerships try to comply with the ‘agreement’, due to the demand placed on dealership vehicles, overpayment of tax is the reality.”

Based on analysis of data gathered over the last seven years by FullCompliance, more than 1.3 million nightly records of private vehicle use, across nearly 7,000 company car drivers were recorded by dealers. Of those nights, 26% were spent by employees in vehicles banded below the employees’ allocation.  

Mr Pipitone said: “Due to customer demonstrations, courtesy loans or other business factors, employees can only take home the car that is made available to them each night. This equates to more than £2 million worth of benefit-in-kind tax overpayments made by employees. For employers, this means they paid more than necessary on National Insurance contributions and VAT.  

“We are campaigning on behalf of the industry to see a formal review by HMRC of the shortcomings of the ‘averaging agreement’, and call upon it to consider how technology solutions that record, in real time, the actual use of vehicles based on availability, can produce a fairer means of taxing employees and their employers.”  

FullCompliance is a web-based system designed to meet national HMRC requirements that dealers account for company car user activity. The tool manages the ‘averaging agreement’ and calculates vehicle and fuel benefit-in-kind tax per driver. FullCompliance then creates driver reports to prove actual vehicle use aligns with driver benefit-in-kind tax and banding. 

Cooper Solutions says that by adopting a real time tool to manage driver and vehicle record keeping, helps dealerships demonstrate they have a robust process in place to comply with HMRC requirements and avoid potential exposure to significant financial penalties.