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Sole director/shareholder insists company cars parked at his house are not a BIK

Client recently incorporated at his own request (I wanted him to prove he could get me his data accurately and on time for a change first, but he was in a hurry). He is a sole director and the cars he uses for work, that were previously owned by the business, are still parked outside his house. His view is that his girlfriend has a car that he uses for all his personal journeys, and that he can therefore make a good case that the cars are never used for personal journeys and are therefore not BIKs.  I understand that any claim that they are not BIKs will fail, even if he signs an agreement with the company forbidding any personal use, as their being outside his house makes them available for use by him.

I have explained this to him, including the difference between the rules for an employee/director and a sole trader, and his response is (quite typically for him):

"thats ridiculous. everyone that does my job gets releif on vehicles and motor expenses. i have for 15 years.  i dont want to change now."

Is it worth adopting the treatment he wants, and warning him that it could be challenged by HMRC, or should I insist on keeping the vehicles outside the company and claiming AMAPs for his motor expenses?

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A hard argument

I think it will be a hard argument to win.  are they insured just for business?

You can't tell some clients though...who see a company as some kind of car savings vehicle!

Please don't tell me VAT was claimed too?!

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By chatman
22nd Feb 2013 23:41

Insurance

Good point about the insurance. Will check. I doubt it.

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23rd Feb 2013 10:48

Company car options

I am not clear from what you have written if there is a separate business office/site or if the director works from home.

Separate business site

If the cars are parked at home, and he is driving to work at a different site, then he has private mileage for the commuting. End of story.

So yes, he can have tax relief for business mileage, just like “everyone” who does his job, but he must then pay tax on the benefit in kind if it is a company car.

Option 1. He retains private ownership and claims AMAPs.

Option 2. The cars are in the company. The company gets tax relief. He has a benefit in kind because he is using the cars for private purposes in commuting to and from work. I would show him the amount of the taxable benefit, including the additional fuel charge that will almost certainly arise. It is not a question of “could be challenged” but of “this is the tax outcome” as you would have to report the full benefit on the P11D (and complete form P46(Car)).

Works from home

Option 1. AMAPs as before.

Option 2. Company car treatment: more nuanced as to how it would work. Being parked at home is an issue for pooled car status but, in theory, it is perhaps just possible to say that the cars are not available for private use, though it is in reality notoriously difficult for a director to impose a private use restriction on himself. I believe it is also difficult in practice to get insurance cover that excludes private use.

In statutory terms, a car that is made available to the employee at all (or to a member of the family or household) is automatically treated as being made available for private use unless the terms on which the car is made available specifically prohibit such use and there is in fact no private use in the year. So you would certainly need a formal prohibition.

You should explain to him that HMRC would probe the facts very carefully. Remind him that it is not a question of actual use but of whether the car is available for private use. What happens if his girlfriend is out in her car? Suppose she had a prang in the town centre car park and rang him up at home – would he be able to get into his own car and go to help her? If so, it is available for private use. What does he do if his girlfriend’s car is being serviced? Would he be prepared to give a written statement that the car has not been used for a single private journey in the year?

If the benefit (including fuel) is not declared, and HMRC win the argument in – say – three years from now, the total tax cost will be huge. You indicate that there is more than one such car, and you will be looking at car benefit plus fuel benefit, times at least two cars, times several years. Add on some interest and penalties, and he is looking at a big tax bill.

Ray

www.claritaxbooks.com

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By BKD
23rd Feb 2013 12:57

Sounds like ...

... he simply doesn't understand all the implications of running his business through a company. Does "everyone that does his job" operate via ltd companies.?

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By chatman
27th Feb 2013 16:32

"everyone that does his job"

BKD wrote:
Does "everyone that does his job" operate via ltd companies.?

Apparently "everyone that does his job" pays virtually no tax and puts whatever they want through their expenses. Given how much he complains about my fees, I imagine they pay less in accountancy fees too.

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By cfield
27th Feb 2013 11:37

Why argue?

I don't know why this argument even had to arise. Clients look for their accountants to take the lead in a situation like this and do what is best for them. Trying to explain the intricacies of the PAYE rules and why a company director is treated differently to a sole trader is just asking for trouble with people like that. Best to avoid arguments and just continue to treat them as his own cars.

They may not be company cars anyway. Were they included in the valuation of the sole trader business? Were they formally sold to the company and DVLA informed? If not, then why treat them as though they were? 

Just work out the balancing allowance on the cessation of his sole trader business and give him 45p a mile for business mileage. If he doesn't keep a mileage log or furnish proper expense claims, then don't give him the 45p until he does.

And if he pays for petrol, insurance, garage bills, etc, from company funds, just debit his loan account. There should be enough credit on there from the sale of his business to swallow them up anyway. Assuming there was a proper valuation of the business and a sale/purchase agreement of course.

Incidentally, they weren't "previously owned by the business". They were previously owned by him. All he did was claim a fair share of the running costs as business expenses. So the status quo is that the cars are still in his name. 

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By E Scott
27th Feb 2013 13:54

If he does introduce the cars to the company and fails to declare a BIK on the basis they are 100% business use then from my experience he will definitely lose his argument!  I had a 4 year long case with HMRC over cars used as body collection vehicles which were taken home by employees only when they were on call. The cars were not permanently adapted. The argument was lost on the basis that if there was an emergency and that car was parked at the back of the driveway then they would in all likelihood lift the keys and use it!  I mean who wants to take their family on holiday or put their food for a week in the back of a car that has been carrying corpses around??!  It's all about ABLE to use though, not actually using.

 

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By cfield
27th Feb 2013 14:08

@ E Scott

E Scott wrote:

I mean who wants to take their family on holiday or put their food for a week in the back of a car that has been carrying corpses around??! 

Sounds dead unreasonable to me! Sorry, couldn't resist that one.

Safest bet in on-call situations is to a) put a clause in the employee contracts banning any private use whatsoever, and b) keep meticulous mileage records regularly checked and reconciled to demonstrate beyond any reasonable doubt that there was actually no private use. I'm sure a Tribunal would allow an appeal in those circumstances.

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By E Scott
27th Feb 2013 15:13

@cfield

Couldn't agree more!!  That was an insured client and the case was eventually taken over by the insurance company's 'team of experts!'  What do I know!!

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By mumpin
27th Feb 2013 15:30

Ownership of the cars...

Has he transferred ownership of the cars to the new limited company then?

Do the log books now show the limited company as owner?

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By BKD
27th Feb 2013 15:33

Ownership

mumpin wrote:

Do the log books now show the limited company as owner?

It's not usually an issue, but it can be (I've seen it) - log books do not prove ownership. They might imply ownership, but that is not the same thing.

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By mumpin
27th Feb 2013 15:50

@ BKD

So would you do a p11d showing a car benefit when the company didn't own the vehicle, the Director did?

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By BKD
27th Feb 2013 17:06

What a stange question

mumpin wrote:

So would you do a p11d showing a car benefit when the company didn't own the vehicle, the Director did?

Of course I wouldn't. Unless he was leasing it to the company which in turn made it available to him for private use. But that's not a piece of tax planning that I would normally recommend.

Or are you referring to someone else using the car?

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Surely the point is...

... the V5 doesn't show the owner, it shows the registered keeper.  The registered keeper is supposed to be a real person. See THIS.

So the fact that the individual is still correctly shown as the registered keeper on the V5 demonstrates nothing.

When the business was transferred to the company, was there any agreement that showed that ownership was transferred to the company.

Only if the company is the owner should they be shown on the P11D, but looking at the V5 isn't going to help.

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27th Feb 2013 16:31

Revenue law is clear

For an automobile (learn the definition) except and unless the home is also the place of work, having the car at your house is "Private use", car benefit charges and all else follows.

To the extent that a client who profession is being mostly a horses VET and uses a Land Rover Discovery, is nevertheless to be charged car benefit-for private use- because the beast (defined as an automobile for tax purposes) is kept at his home. This despite he does some work from home, home is his base,  and he requires instant access to the vehicle to deal with emergencies. 

So, some years ago I made a rule. Except in very special circumstances, if my clients want automobiles- they personally own them and charge the company / business statutory mileage allowance.

Saves oodles of trouble, and when you take car benefit rates into account does not cost very much.

If the client does lots of business miles- the SMA will cover the car costs. If he does very little then the car benefit charges would not justify the company owning the automobile..

I found it almost impossible to explain the logic of the tax rules re automobiles to clients. So my way we are not happy, but we understand.

 

 

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27th Feb 2013 16:37

and also

The difference in insurance costs between insuring a private owned vehicle for private use only - bearing in mind that most current insurance policies allow home to work travel- and insuring for defined business use is wholly and exclusively a business expense.

 

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By chatman
27th Feb 2013 16:43

Thank you all. Will stick with AMAPs.

Only just seen the AWeb notification of responses to my question.

Thank you all for your responses, especially Ray for such a detailed one.

To clarify, he does his admin from home, but works on sites all over the country.

It looks like I will have to stand firm on the AMAPS. I think I will lose him as a a client but who needs the hassle?

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By Old Greying Accountant
28th Feb 2013 20:34

I generally find ...

... if business miles are low and the car is financed, paying tax on the BIK's is cheapest overall, especially as manufacturers are bringing CO2 emissions down.

I was explaining to a client with examples recently and discovered this

"a Mercedes S350 Diesel at £60595 has an emission band of 24%, so would only cost a maximum £6544.26 tax."

A highest rate taxpayer funding this through net pay or dividends would pay a lot more personal tax than that, and that is before you take in to account the effect of capital allowances, VAT reclaim on servicing and repairs (and half of VAT on premiums if leased), and the CT offset of running costs, and HP interest/lease premiums.

There are no hard and fast rules these days on company cars - basically you have to get the costs together, the estimated business miles and then do the maths.

 

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