Banning private use of a company car: proving it

Q: How does this work in practice?

Illustration only. A service engineer is given a car under written terms that forbid all private use, including commuting. The car is kept in the company yard; the keys stay in a key safe and are signed out each morning; the engineer fills in a journey log that is checked monthly against fuel card data. One Saturday the engineer uses it to move furniture. Even though the policy is sound, the car has been used privately in that tax year, so a car benefit charge arises for the whole period the car was available that year. Had the engineer instead taken the car home each evening for an early start, the outcome would have been the same, because home to the yard is ordinary commuting.

A company car escapes the benefit charge only if the terms on which it is provided prohibit private use and the car is not in fact used privately during the tax year. HMRC insists on both: a written ban with no evidence of how the car was actually used will not stop the charge, and a single private journey, including the commute to a permanent workplace, defeats it for the year.

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What does the law actually require?

Section 118(1) ITEPA 2003 says a car made available to an employee in a tax year is treated as available for private use unless, in that year, the terms on which it is made available prohibit private use and it is not so used. The starting point is therefore a deemed charge. HMRC’s guidance at EIM23400 describes this as an escape with two parts, both of which must be satisfied:

there must be an express, legally enforceable ban on private use
the taxpayer must be able to show, as a matter of fact, that there was no private use

HMRC’s employer guide 480 (chapter 11) lists this as one of only a handful of exceptions to the car benefit charge, alongside pool cars, adapted cars for disabled employees and certain emergency vehicles.

What makes a ban effective?

The leading case is Gilbert v Hemsley, discussed at EIM23405. An employee of a plant hire company, on call at all times, was told by the managing director not to use the car privately. The commissioners accepted that the ban was real and that he never used the car for private motoring, and the High Court did not interfere. The principles HMRC takes from the case are that the ban must be explicit, not implied, and must be legally enforceable. Depending on the context, a verbal ban can count.

The facts in Gilbert v Hemsley included that the employee, although a director, had no material interest in the company and was an ordinary but trusted employee. Where the person under the ban owns or controls the company, it is harder to show that anyone could or would enforce it, so the evidence of actual use carries even more weight.

The ban must also use the tax meaning of private use. Private use is any use other than business travel (section 118(2)), and business travel only covers journeys the employee could claim as travel expenses (section 171(1)). EIM23400 warns that if an employer bans what it calls private use but leaves out travel between home and the permanent workplace, the ban is not effective for tax.

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Why is a written ban alone often not enough?

Because the second condition is about facts, not paperwork. EIM23410 says that even where the employer has imposed a meaningful ban, there is still a charge if there was any private use during the year. It also puts the burden on the taxpayer: the onus in law is on them to demonstrate there was no private use, and HMRC says the best way is to keep contemporaneous records of each journey, including the reason, the details and the mileage.

The commonest failure is the car that goes home every night. An ordinary commuting journey is private use, and HMRC’s guidance at EIM23305 says that remains true even when the employee has to take the car home because they are on call (Gurney v Richards). In Gilbert v Hemsley the taxpayer succeeded only because his home was found to be his work base, so trips to the company premises were business travel. EIM23410 notes that without that finding the car benefit charge would have applied whatever ban the employer imposed.

What evidence helps show the ban is real?

HMRC says it will look at all the facts about the claimed prohibition and, separately, at how the car was used (EIM23400). In practice, the following help build that picture:

written terms in the employment contract or car policy, signed by the employee, that use the tax definition of private use and say what happens on breach
the car and its keys kept at the business premises overnight and at weekends, with a record of who took it out
a journey log completed at the time, showing date, purpose, start and finish and mileage, reconciled to odometer readings, fuel receipts and the diary
telematics or tracker data, where fitted
evidence that the employee has their own vehicle for personal journeys
motor insurance arranged for business use only (see car insurance classes of use)
evidence that breaches are acted on, for example warnings or recharges

None of these is decisive on its own. A clean log is undermined if the car is regularly parked at the employee’s home, and a well drafted policy is undermined by fuel receipts from holiday destinations.

How does this compare with vans and pool cars?

Cars are treated more strictly than vans. Section 114(3A) switches off the van benefit rules if the employee’s private use in the year is insignificant (see company van benefit). There is no equivalent test for cars: any private use counts.

Pool cars are the other route. A pool car can be used privately if that use is merely incidental to business use, but it must be shared by several employees, not ordinarily used by one of them, and not normally kept overnight at homes (EIM23450). If one person has the car most of the time, the pool car route fails and the prohibition test is all that is left. See pool cars.

Two narrower exceptions exist. An adapted car provided to a disabled employee for business travel, home to work travel and certain training travel is exempt if other private use is prohibited and does not happen, and emergency vehicles have their own exemption (480 chapter 11). In the motor trade, a demonstrator taken home for the express purpose of calling on a prospective customer is not regarded as available for private use on that account alone, but it is if it is otherwise available at weekends or on holiday.

What happens if HMRC finds private use?

Because section 118 looks at the whole tax year, one private journey means the car is treated as available for private use for that year, and the full car benefit calculation applies for the days the car was available (see company car tax). If the employer paid for any fuel, the fuel benefit charge under section 149 follows, and the employer owes Class 1A National Insurance on both (EIM23055). The employer may also face penalties for an incorrect P11D; see late or wrong P11D penalties.

How does this work in practice?

Illustration only. A service engineer is given a car under written terms that forbid all private use, including commuting. The car is kept in the company yard; the keys stay in a key safe and are signed out each morning; the engineer fills in a journey log that is checked monthly against fuel card data. One Saturday the engineer uses it to move furniture. Even though the policy is sound, the car has been used privately in that tax year, so a car benefit charge arises for the whole period the car was available that year. Had the engineer instead taken the car home each evening for an early start, the outcome would have been the same, because home to the yard is ordinary commuting.

What mistakes come up most often?

Writing a ban that allows commuting, then treating the car as tax free.
Relying on a policy with no journey records to back it up.
A controlling director banning their own private use with nothing to show it was enforced.
Assuming “insignificant” private use is ignored for cars, as it is for vans.
Letting a car “prohibited” from private use sit at the employee’s home most nights.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.