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...