Satellite navigation facilities for a company car can be provided in a number of ways:

• pre-fitted by the car manufacturer before delivery
  
  
• installed after delivery, mounted on the dashboard or a replacement for a radio/CD unit
  
  
• mounted on the dashboard or a replacement radio/CD unit, but transferable between cars
  
  
• using a personal digital assistant (PDA) with satellite navigation facilities.

Whether or not the provision of satellite navigation equipment has to be reported on form P11D as a taxable benefit depends on which requirements of the Benefit Code apply to it. The following issues must be considered:

• is the equipment a "qualifying accessory" and, if so, does one of the exclusions apply?
  
  
• is the equipment an asset of the business and, if so, is it made available for personal use?
  
  
• in the case of PDAs, do the exemptions for mobile phones or computers apply?

Accessories

An accessory, in the context of a company car, is a "qualifying accessory" if it is

• made available for use with the car (without title being transferred),
• made available by reason of the employment, and
• attached to the car, permanently or otherwise.

An installed satellite navigation system is clearly "attached". This would include a system that fits into the car's radio/CD player slot. HMRC does not class loose items as "attached", so any system that can be moved from one car to another (or, in the case of a PDA, that can be used other than in a car) is not an accessory and should be treated as an "asset" (see below). But, if the system is intended to be used in just one car and the car has fittings that allow it to be attached while in use, it should be treated as an accessory.

Excluded from the definition of "accessory" is equipment that is "necessarily provided for use in the performance of the duties of the employment". It would be difficult to demonstrate objectively that satellite navigation equipment meets that exemption. It is not enough that the equipment is helpful in performing the duties. The tests that HMRC would apply are:

• can the duties of the employment be performed without the equipment?
  
  
• if the employer did not provide the equipment, would every holder of the employment be obliged to provide the equipment personally in order to perform the duties of the employment?

It may be possible, for example, to argue that satellite navigation equipment would be necessary for an employee whose job constantly involves visiting unfamiliar territory and meeting strict deadlines.

For P11D reporting purposes, qualifying accessories are included in the reported list price of the car. If the equipment is pre-installed by the manufacturer, it will already be included in the list price of the car. If it is installed later, its list or published price is added to the car's list price. Note that the value of an accessory for tax purposes may be more than what the employer paid for it.

Assets

Satellite navigation systems that do not meet the definition of an accessory, such as most PDAs, must be treated as assets of the employer that are made available for the employee's use. If an asset is made available partly or wholly for an employee's personal use, it is a reportable benefit. The reportable value is what it costs the employer to provide it - generally the initial and any ongoing costs incurred by the employer.

Satellite navigation systems that do not qualify as accessories because they can be used in whichever vehicle the employee is currently driving must be taxed under the asset rules.

However, two statutory exemptions are likely to apply to PDAs:

• No tax liability arises on the provision of "accommodation, supplies or services" that are used by employees in performing the duties of their employment, as long as the statutory conditions are satisfied. Where "accommodation, supplies or services" are provided away from the workplace, the conditions are that
  
  
  • any private use is not significant, and
    
    
  • the sole purpose of providing the benefit is to enable the employee to perform the duties of the employment.
    
    

  Unlike accessories, the second of these conditions does not require the supplies to be "necessarily provided".
  
  

• No liability arises on the provision of computer equipment if the reportable value does not exceed £;500 and the provision arrangements do not favour directors. This exemption applies even if the equipment is provided exclusively for private use. If an employee is also provided with other computer equipment, the £;500 limit applies to the combined value of all of the equipment. Most modern PDAs, including those with satellite navigation capability, have functions that are equivalent to computers and, as a result, are not taxable under this exemption if the conditions are met.
  
  
• No liability arises on the provision of mobile phones even if they are provided exclusively for private use. PDAs that are effectively telephones, even if they have additional Internet connectivity, are exempt from tax under this exemption.

Summary

1. Most satellite navigation systems that are "attached" to a company car, i.e. installed to one extent or another, are accessories that are taxable as part of the car benefit charge. The exemption for accessories that are "necessarily provided for use in the performance of the duties of the employment" is unlikely to be met.
   
   
2. Satellite navigation systems that are transportable between vehicles must be taxed using the asset rules.
   
   
3. Most PDA-based satellite navigation systems are exempt from tax under the statutory exemption for the provision of computer equipment.

...back to 9 February 2006

The UK Payroll News is sponsored by HRD & Payroll Solutions

Discuss this news item in the PayPerShop Forum