Car Benefit and reimbusing employer the costs to reduce benefit in kind

Car Benefit and reimbusing employer the costs...

Didn't find your answer?

In the situation of director shareholders and company cars, is it normally beneficial for the director to reimburse the company for the full cost of the car to eliminate the benefit in kind and Class 1A?

In the scenario where the company is contract hiring the car and claiming 50% VAT back and it is a requirement of the provision of the car to the director that the director reimburses the company the costs in full.

Do the contract hire costs inclusive of all VAT need to reimbursed?

AND all running expenses (except fuel) need to be reimbusred also, again gross of VAT? 

The directors cover the reimbursed cost out of an additional dividend voted.

OR do the full amount of the benefit in kind need to be reimbursed, and if so how is VAT dealt with?

There will be a difference between the running costs and the benefit in kind, which will depend on the particular deal.

The question has arisen from a garage telling a client that reimbursing the company in full is the norm these days, and I'm checking whether or not this is the case.

Thanks 

Replies (2)

Please login or register to join the discussion.

By Steve Kesby
08th Jun 2012 16:57

Careful

Reimbursement of costs won't get you anywhere. You could end up having reimbursed all the costs and still be lumbered with a car benefit.

The only things that will reduce the amount of the benefit are either a capital contribution, or a contribution (however calculated) for private use. I'm of the view that you can't make a capital contribution for a leased car, but if you can, there's a £5K max and it effectively reduces the list price used in the benefit calculation. A contribution for private use reduces the car benefit £1 for £1.

Without a specific set of figures in front of me it's hard to demonstrate, but it can't possibly be better to use a private use contribution to reduce the benefit to nil (assuming the money to fund such a contribution must come out of the company and be taxed, presumably by way of a dividend).

Getting to the right figure requires an accountant with a spreadsheet, rather than a car salesman, in my view.

Thanks (1)
avatar
By Paula Sparrow
08th Jun 2012 16:52

No it's not the norm

That is just a salesman making up a story to sell a car.

Thanks (0)