From 6 April 2017 there are changes to the tax rules for directors or employees who have an asset made available to them for their private use. HMRC has published guidance explaining how to calculate the chargeable value of the benefit (the ‘cash equivalent’), which is a new requirement.

It also covers specific rules to be included in Finance Act 2017 that state how to work out the cash equivalent of the asset if it is used for both private and business purposes. The same chargeable amount is used as the basis for calculating the tax and Class 1A NICs even if the asset is used for both private and business purposes.

The guidance states that term asset is a general term used for things like a motorcycle, laptop, clothing, fridge, quad bike, yacht, plane, land, cars, and house.

The new rules only apply to assets where other chapters of the benefits code do not apply. This means that these rules do not apply to cars, vans or living accommodation.

HMRC explains that the asset being made available does not just mean use, it means the ability to use the asset even if the employee or director (or family or household) decide not to use it.

The legislation allows for an exception to the ‘made available for private use’ rule, which applies only if the terms under which the asset is made available prohibit private use and no private use is made of the asset. In such instances, both parties need to understand the ban and the prohibition needs to be an effective one.

There are three steps to calculating the cash equivalent of the benefit of the use of an asset made available for private use: calculating the annual cost; deducting any amounts for the days when the asset was unavailable for private use; and applying the sharing rules if appropriate.

The annual cost of the benefit of an asset (but not land) is 20% of the market value of the asset at the time when the asset is first applied as an employment-related benefit. The annual cost of a benefit that is land is the rent that might reasonably be expected to be obtained on a letting from year to year.

Days when the asset is unavailable for private use are those days when it was not in a fit condition for use, undergoing repair, or could not lawfully be used. This means that if on any day there is both private and business use the unavailable for private use rules do not apply.

The sharing rules only apply if during the relevant tax year the asset is available to more than one employee or director for private use at the same time (including their respective family and household). Where this is the case the combined total of the chargeable benefits for each employee or director should be no greater than the annual cost of the benefit.

The sharing rules do not apply if the asset is made available for private use to different employees on some form of rota (or something similar). In other words, the employees do not have the asset available for private use at the same time.

HMRC’s guidance includes a number of worked examples to illustrate how the new rules will operate, including where an employee has the use of a games console or a moped, and a director of a company has use of a private jet or a painting. It also provides a table listing the changes between the existing legislation and the rules applicable from April 2017.

Guidance: Assets made available without transfer is here.