Section F - Cars and Car Fuel - HMRC Averaging for Motor Traders

Modified on Tue, 11 Mar at 4:29 PM

Background

HMRC have distinct 'rules' for the way averaging is used by motor traders, and this is covered in EIM23815. It is strongly recommended that those pages are reviewed and understood before using the car averaging scheme

Summary

From 6 April 2009, a new national arrangement replaced all previous local arrangements regarding company car benefits. This change followed consultations with major trade bodies and aimed to streamline the process. The key points of this are:

All previous local arrangements were superseded
Staff are no longer authorized to create local variants
Employers must either adopt the national arrangement or fully comply with statutory obligations

Rationale for Special Arrangements

Industry Practices

In motor manufacturing, car sales (new and used), daily car rental, and fleet operations, it's common for employees to have:

A contractual right to take a car home
No right to a specific car

Administrative Challenges

Strict application of car benefit charges based on price and CO2 emissions could lead to:

Excessive record-keeping
Significant administrative work, especially with frequent car changes

HMRC's Response

To address these challenges, HMRC implemented arrangements that:

Accommodate administrative difficulties within car benefit legislation
Aim for simplicity in calculating car benefit charges
Are not intended to alter the tax liability for affected employees

P11D Organiser

The P11D Organiser offers the ability to utilise the averaging scheme as part of the standard software provision by using a car allocation property of 'Cars and Car Fuel - Motor Trade Vehicle'.

When using this functionality the user needs to first define the 'bands' that are in use. Usually a dealer or manufacturer will have an HMRC approved set of vehicle bandings to apply - these are basically vehicles that can be provided to multiple employees at the same time.

An example banding list is provided below:

Description	List Price Bracket	Average Price	Average CO2	Fuel Type	CC	Reg Year	Registration Number
Group 1	£9,000-£12,000	£11,258.96	91	Petrol	2000	01/01/2012	GRP01
Group 2	£12,001-£17,000	£13,270.97	94	Petrol	2000	01/01/2012	GRP02
Group 3	£17,001-£23,000	£20,673.78	110	Petrol	2000	01/01/2012	GRP03
Group 4	£23,001-£31,000	£27,168.87	112	Petrol	2000	01/01/2012	GRP04
Group 5	£31,001-£40,000	£35,926.86	119	Petrol	2000	01/01/2012	GRP05

Reporting of ULEV cars from 2020

For car averaging purposes in tax year 2020-2021 onwards any notional CO2 between 1-50g/km will require a zero emission mileage figure. If this scenario applies a default figure of 50 should be entered in the zero emission mileage field when submitting the company car details to HMRC.

These bands will be defined as vehicles that can then be allocated to employees - the vehicles can either be created manually, or imported from a conforming CSV/Excel file. Below is an example of a manual creation:

Once the vehicles are created, these can be allocated to employees, again either manually or via the standard import routines. It is important to remember that these need to be assigned as a 'Cars and Car Fuel - Motor Trade Vehicle' and not a standard company car.

Assigning Manually

Ensure the correct selection is made in the interface:

Assigning via Import

Ensure the correct import routine is selected:

Please note:

Assigning a car as a Motor Trade Vehicle means that the system will no longer check for exclusive use of vehicles (necessary so the same vehicle can be allocated to multiple employees concurrently), however, the system will still check for overlaps/conflicts on an employee level (see the warning below created during a manual assignment).