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Nullifying possible benefits in kind liability

Question from somebody running a small company, but who is not an accountant...

If an employee has a liability to additional income tax arising from the provision of fringe benefits by the company to the employee (e.g. something like the cost of membership of a local health club for example, or private medical insurance), can the employee nullify that liability by repaying the cost of the benefit to the company in full out of their normal taxed income (in the same tax year as the potential liability arises)?

Logic would seem to dictate that if the employee has paid back to the company what it (the Company) paid for the fringe benefit, then the employee has had no benefit, therefore no benefit-in-kind tax for the employee or additional NI liability on the company would arise. Would you agree?

By extension, therefore, there would be nothing for the company to have to declare on a P11D for the employee at the end of the tax year? (PS - the employee is otherwise paid at a basic salary below the rate of £8,500 per annum).

Also, what about VAT? If the cost of the fringe benefit purchased by the company carried VAT, and this has already been claimed back by the company, is what the employee has to pay back to the company to nullify the benefit being a benefit-in-kind taxable liability the cost to the company with or without the VAT it paid and has claimed back?

I would be very pleased if somebody out there could throw some light onto this little conumdrum...

Peter Jones

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By neileg
28th Feb 2001 10:04

Jonathan...
There have been some high profile cases around employee sponsored car leasing (British Aerospace was the largest in recent times) where the revenue have effectively argued that the provision of a car to an employee, via an employer in any way, triggers the car BIK rules, regardless of who stands the cost.

My own organisation has been trying to find ways around the BIK legislation, without success.

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27th Feb 2001 10:59

Neil's comment re car benefits
I understood that if an employee reimbursed the employer for all private use, then no car benefit would arise since the employee was not PROVIDED with a car for private use. I know that, in the case of fuel, partial reimbursement does not reduce the scale charge.

But surely if the employee pays for the full cost of the car, then there can be no benefit ?

I am very interested in this since we have some staff with minimal business mileage, and where the BIK is far above the cost of the lease contract plus insurance.

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By Anonymous
26th Feb 2001 09:12

P11d's & p9d's
Expense and benefit forms
P11'd for directors and employees earning over £8,500 per year
p9d's for employees earning under £8,500 per year.

You will note on the forms that there are boxes to show the amounts made good by the employees. If the company is reimbursed in full (including VAT) there will no additional liability to income tax for the employee or class 1a national insurance for the company.

hope this helps

mary w

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By neileg
26th Feb 2001 09:38

Tread carefully
Mary's answer is not the whole story. The general rule is that the taxable amount is reduced by employee contributions, but the amount assessed as a benefit is not always the cost to the employer.
An example of this is car benefit. In cases I have looked at recently, the cost to the employer can be considerably less that the car benefit. In this case, even full reimbursement of the cost to the employer would not exempt the employee from the benefit charge.

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By admin
26th Feb 2001 10:25

VAT
As far as I am aware the VAT on the health club subscription should not have been reclaimed in the first place since it was for private use.

This is regardless of whether the subscription will be taxed as a BIK.

One exception to this rule is VAT on private fuel where an output scale charge is paid.

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