Ian Lawrence
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Company car BIK

Company car BIK

My client has a company car that will not be used for private purposes.  Mileage log retained, keys locked away, memos issued to staff to prevent private use etc. etc. However he has asked if he can drive it to the golf course to play golf and entertain clients or potential clients, without the car triggering a BIK.  I said yes because although business entertaining is not deductible, it is still business expenditure.  Do readers agree or believe HMRC would use that to argue BIK?

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06th Feb 2013 19:27

Interesting to see what others say, but I would give the same advise. It is not private mileage, or journey home to work.

 

I suppose the question would be is is it from the "office" work location to the golf club and then back again, or would it go to the "home" after the golf course had finished!

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07th Feb 2013 08:14

Not a BIK

But he'll have to make sure he doesn't abuse it and also notes the name of the client or prospect as if the prime purpose is personal rather than business he'll have a problem.

Also, there is an argument for saying that the cost of the trip is entertaining, ie the fuel & motor running costs?  Might be insignificant but worth considering a disallowance using say 45p per mile if it's material.

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07th Feb 2013 09:15

Thanks Paul yes I agree on the 45p.  A good idea to retain clien/potential client names.  Arthur the place of work is a study in his own house (external staff work there too) so I think that is OK

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07th Feb 2013 10:44

I essentially agree with Arthur and Paul

To not be private travel it must be business travel (S.118(2) ITEPA 2003), which means that if the employee bore the cost of the travel (S.171(1)) it would have to qualify for a deduction under Ss. 337-342.

That effectively means that either:

the director must be obliged as office holder to undertake the travel and it must be necessary to the performance of his duties, orit must be travel to a temporary workplace, not being substantially ordinary commuting.

You're essentially arguing point 2.  In the circumstances described (and assuming, as Paul says, it's not a regular occurrence, particularly with the same "cronies"), you seem to have a good case.

I don't think you need to make a disallowance though.  It is the cost of entertaining itself that are disallowable, rather than costs incidental to providing the entertaining.

For example, if you hold an event for promotional purposes, and hire a room and lay on food and drink.  All of the costs are promotional costs incurred wholly and exclusively for the business, but the food and drink costs are disallowable entertaining expenditure.  The room hire is an allowable cost.

I've had this argument with HMRC on a first night party for a theatrical production company.

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By BKD
07th Feb 2013 11:00

I have a slight concern

The work premises are the director's home, so presumably that is where the car is garaged. We're told that the keys are locked away - but locked away by whom and where? Regardless of actual use, I can see an Inspector trying to argue that the car is nevertheless available to the director for private use.

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07th Feb 2013 11:08

Oh I hadn't noticed...

... Ian's additional information!  I agree with BKD that you already have a need to get this within Gilbert v Hemsley, before the golf trip.

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07th Feb 2013 11:13

Yes it worries me too and I have said this to the client.  Also asked him to make sure the key to the drawer (where the car keys are kept) is retained by the employee that comes to the house each day.  But yes I could still see an inspector arguing that "availability" to private use is still there.  However I would hope any tribunal would agree that there is little more we can do given the office is at the home.

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11th Feb 2013 13:31

Travel to entertainment

Whilst there is case law on the cost of hiring a venue as part of entertainment, the key point was that the venue was hired for (allowable) promotional activity where food and drink was provided as an ancillary matter.

Travelling to non-staff entertainment events would be disallowed as not wholly and exclusively incurred.

Malcolm

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11th Feb 2013 13:45

just begs the question

why have the car in the company in the first place?

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11th Feb 2013 13:47

come to think of it....

make it available to all staff as a 'pool' car and you needn't worry about these sort of issues...(but i am guessing there are 'reasons' why this is not an option)

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11th Feb 2013 13:55

Sorry Malcolm I disagree

It's accepted by HMRC that entertaining expenditure of this sort (promotional activity - golf days, the first night party I referred to and the like) and the expenditure on it is incurred wholly and exclusively for the purposes of the trade.

It's just that S.45 ITTOIA 2005 and S.1298 CTA 2010 then expressly deny deduction for the "expenses incurred in providing entertaiment". Motor expenses incurred by an employee or director to get to the location at which entertainment will be provided is not an expense incurred in providing the entertainment.

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11th Feb 2013 14:39

Thank you all.  Yes the

Thank you all.  Yes the Malcom/Steve Kesby debate is crucial here so I am hoping and believing that Steve is correct - ie even if entertaining is disallowed it is still wholly and exclusive.  (The car can be used as a pool car but the argument isn't particularly effectively because in actual fact only the director uses it (100% business of course, aside the golf point))

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11th Feb 2013 15:05

Steve - you are correct on the facts presented, but.....

My apologies to all. If an employee travels to an entertainment event on their own then it is allowable business expenditure, but if, for example the business pays for a customer/potential customer to travel to be entertained, then the travel is incidental to the entertainment and is disallowed.

Entertainment is 'hospitality of any kind' and my interpretation is that this would cover a round of golf and food and drink before or afterwards.

If the employee drives the customer to the golf course, then the main purpose is business entertaining and the cost would not be deductible.

I hope this clarifies my position on this.

Malcolm

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11th Feb 2013 15:08

and presumably the car insurance

is for private and business (although of course the car is only actually used for 100% business). Sorry but i do take a rather cynical view of these set ups - technically I find Steve provides comprehensive answers (far beyond my expertise) - but i always look at the whole picture rather than the specific query....company car.....parked at home - which is the office.....not provided for staff only the director...but not used for private motoring....you can see why the revenue may struggle to see the validity even with the best will in the world (a log book isn't particularly difficult to 'make up' if one wanted to and a memo to staff re private use seems particularly ineffective given it is only the director who has access to the car).  

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11th Feb 2013 15:40

Agreed Malcolm

Yes. I agree that where hospitality is being provided to a non-employee at a particular place, and the host lays on transport to/from that place for the non-employee, it's pretty difficult to argue that that's not itself hospitality.

Malcolm is probably aware, but for others HMRC deal with this particular point at BIM45025. Ian might take some comfort from the final paragraph. The employee's journey to the restaurant referred to is analogous to his client's journey to the golf club.

@justosotax. If I remember correctly, the driver in Gilbert v Helmsley was an executive director (but not a director shareholder), so had a certain amount of ability to do as he pleased. He had been advised that he wasn't permitted to use the car for private use and kept the car at home. He'd got his own car and had a driveway large enough to accommodate the two cars side by side on his drive. He had a permanent workplace that was an area and lived within that area, such that all of his driving for work purposes was business travel.

So it's not impossible to have a situation where there is evidenced non-availability.  What's fatal to most people (within your field of cynicism) is actual private use. HMRC can and do carry out surveillance activities (see para 74 of the Industrial Doors pool cars case).

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11th Feb 2013 16:11

Quite agree Steve....

I have no doubt in exceptional circumstances this particular scenario may arise (and as said I applaud the detail you are able to add - something that I cannot add) - but my cynical nature (and experience) tell me that a revenue inspector parked outside this guys house will establish within a  week private use to the local supermarket (as you eluded to)....

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11th Feb 2013 16:22

I have advised the client that even the slightest private use will trigger the benefit. I have to believe him when he tells me there is none (if I am cynical about his answer it doesn't change my advice).  So that leads onto the discussion about if/when an inspector doesn't believe him.  Hence the other controls in place.  There is still a risk that these controls will not convince the inspector and this risk is accepted by the client.  There are private vehicles for private use in the household already - no requirement to use this company vehicle.  Problem is that this is quite an expensive car (because of the rich clients that the company has) and an inspector could argue that there is motivation to use the more expensive car for private purposes rather than the standard family car.  Thanks to all for their contribution.

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11th Feb 2013 17:29

It always worries me...

It always worries me when I read a thread where a director wants to state that a car kept at home is used 100% for busines use.

It does seem that in this case as many safeguards as posible have been put in place to try to show that there is no private use but it does still feel artifical.

Presumably if the car is 100% private use then input VAT would be reclaimed on its purchase. HMRC VAT manuals give details about when VAT can be recovered. It states that the car msut be exclusively for business use.

I believe there have been cases taken to tribunal which have failed as the insurance allows for private use, even if there has been none. If the tribunals can block the input recovery in these cases then they would no doubt try to extend the principal to the benfit in kind as well.

If the client does not want to try to reclaim the input VAT as he does not think he will win then you have to ask if he would win at tribunal on the same details in other taxes.

I know you are probably trying to avoid it but if you write to HMRC giving them all of the facts and say that in your opinion no BIK should be charged and do they agree you will be forcing them to make a decision and to give you their reasons why there should be no BIK if they disagree. At least then these reasons could be addressed if your client wanted to. 

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11th Feb 2013 17:37

Thanks Simon.  The company is

Thanks Simon.  The company is not VAT registered (IFA) so the company has not recovered VAT.  However not a bad idea to write to HMRC and prompt the issue.  I suspect the client will not want to draw attention to himself but I will recommend it, . Also worth checking (and if necessary amending) the insurance too. 

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