Company Cars Investigation

Company Cars Investigation

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The Revenue have made an enquiry into one of my limited company clients.
They are arguing very strongly that the Company Secretary should be taxed as a benefit in kind on her company car.
Even though the benefit is well under the benefit level of £8500.
I have argued that the vehicle is her remuneration for being Company Secretary and also doing the book keeping for the company and general admin tasks through out the year.
So instead of wages she has the vehicle.
Has any else has this problem with the Revenue and what has been the outcome?
Thanks
Helen

Helen Dobbs

Replies (13)

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By AnonymousUser
29th May 2008 10:38

If I was HMRC ...
I would say that you can't change what has actually happened which is as follows:

A car has been supplied to person A as a result of director B's employment with the company. This is a P11D benefit.

This has to be the conclusion as there is no employment contract for person A specifying this remuneration / salary sacrifice and even if there was it would be contrary to NMW legislation. Even if it wasn't it would be open to attack as it is hardly a 'normal' practice unless your client happens to be a car lease co. and does this for all employees.

You now say that the car payments were personal and should have gone to the DLA. This part may be OK although there will be implications of an overdrawn loan account. It may not be OK if the lease contract is in the name of the company of course i.e. can't be personal.

Re the wages adjustment. Well, you can't accrue for a liability that didn't exist at the balance sheet date (clearly it is May now) so I think the CT hit will have to be taken. Yes, I know others might be more 'flexible' here but with HMRC already over your client like a rash you could make a bad situation worse.

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By hdobbs
28th May 2008 19:13

Yes, directors wife
Although it is the directors wife, it is genuine payments of salary for work undertaken.
If it was not done by the wife, then the husband would have to employ someone to do the work at the same cost as the car lease cost or probably more!!
Arrrggghhh!!
So, if the company secretary (the directors wife) was paid £4k salary, this would be tax & NI free. But as instead of the £4K salary, she is paid it as £4k car lease cost per year - it should then be deemed as BIK!
Whichever way it is paid to the Com Sec, it is 100% allowable against the company profits, so why should the Revenue go for BIK.
Is it worth changing the company accounts for 2007, putting the car cost through as Directors loan, and putting an adjustment through for £4k salary. There will be no penalty for PAYE Return, as Nil tax. There will be no additional CT due as costs will match?????? Is this a way out of it?
Or do you think I could offer this idea to the Revenue as a way out of their enquiry and hope they decide not to pursue?

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By AnonymousUser
28th May 2008 17:43

It's the directors wife isn't it Helen!?
Can't think of any other circumstances that this would happen and I suspect neither can HMRC!

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By kenmoody
28th May 2008 17:12

Ha, living in the past again ...
Sadly I've reached that time of life

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By ACDWebb
28th May 2008 11:56

The cash alternative option
from Heaton v Bell was stopped by ITEPA s120 from 6/4/1995

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By kenmoody
28th May 2008 10:37

The car might not be a BIK at all
If say the Co Sec was offered £5k salary for a few hours a week or the car, but has the option of taking the salary, she could be assessable on the salary she could have had under Heaton v Bell.

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By neileg
23rd May 2008 09:00

Just to be clear
The only benefit that is counted as remuneration for NMW purposes is accomodation and this has a defined value (can't remember what this is!). Provision of a car or indeed any other benefit is completely irrelevant for NMW calculations.

A Co Sec is an office holder and NMW does not apply to office holders. However, in this case, the individual is also acting in an admin and bookkeeping role which brings her back under NMW.

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By User deleted
22nd May 2008 13:52

Why?
There are many things in life that are not fair and tax is certainly one of them.

To get to the answer you must first go back to basic principles. Is the Company Secretary a shadow director of the company. Does she make business decisions? If she is a shadow director then the car is fully taxable, no £8,500 get out clause applies.

Does the Company Secretary earn at a rate in excess of £8,500 per annum? How the rate of £8,500 per annum is calculated is not as straight forward as you think. Is it on an annual basis, monthly basis or a weekly basis. Annual £8,500 pa, or £708.33pm or £163.46 pw. All it has to do is break the threshold of one of them and the employee is earning at an annual rate in excess of £8,500.

Consider also what constitutes earnings. It is not as you may consider to be the annual benefit in kind, but also includes the payment of any expenses whatsoever, even if they are tax deductible for the employee or covered by a dispensation. For example if private fuel is provided for the employee, this must also be added to the remuneration. Remuneration includes the scale rate level of the benefit in kind for the vehicle (fuel benefit also included if applicable). Does the employee have any other expenses reimbursed by the company which need to be added to the figure? Does the employee pay for servicing of the vehicle and claim a reimbursement from the company? As you can see it is easy to breach the threshold without realising it.

Finally, if you can scrape through that minefield, why has the company opted to provide her remuneration package in this manner? If there is a close relationship with one of the directors it can be deemed for her remuneration package to be provided by virtue of this close relationship and for the other party to be taxed on this.

Is there a contract of employment? NMW will also be an issue. Although the car benefit has a monetary value for tax purposes it does not for NMW. Has the company breached the NMW guidelines and is it also liable to pay salary to the employee? Again the salary will be added to the remuneration package to determine the £8,500 threshold.

What choice was the employee provided with to secure her remuneration package? Was she provided with an option to receive salary or the car? What salary was mentioned? Again there is anti avoidance legislation here to tax the benefit in kind if there is a salary option.

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By AnonymousUser
22nd May 2008 12:36

Ask HMRC
to set out for you under which exact legislation they consider her to be taxable.

You say she is not also a director? is she associated with a shareholder or director in any way? They could be arguing the benefit arises because say her husband is a director irrespective of what she does. It is also possible to assess benefits on a shareholder in a close company.

If she genuinely does work for the company then even if her husband or whoever is a director then I think she could be said to get the car in her own right and if her total package amounts to remuneration at less than a rate of 8.5k per annum then any benefits can only be taxed on their cash or second hand value. Of course a contract or board minute to this effect would be helpful.

I think it helps in a case like this to be very clear exactly what your client's situation is, to be aware of the different ways in which tax law could potentially attach a benefit to her and above all to pin HMRC down on exactly which route applies.


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By hdobbs
22nd May 2008 12:16

Illegal?
Surely as the Company Secretary she is entitled to a wage for services to the company, along with the company's book keeping and general admin duties for the year.
If this wage was say £4000 per annum, then there is nothing to stop the company from paying £333 per month lease costs for a vehicle instead!
The Company Secretary is receiving the same remuneration, but rather than cash, she is receiving a vehicle at the same cost to the company!!!
Do not understand why this would be considered illegal and an unacceptable way to pay the Company Secretary.

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By neileg
22nd May 2008 12:04

Illegal
Under NMW regualtions, benefits are not counted as remuneration, so this arrangement is not legal.

If the Co Sec is associated with anyone else in the comanp, say a director, then the director could be assessable for the benefit. The argument would be that this is an unusual arrangement and is only in place because of the relationship with the director.

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By hdobbs
22nd May 2008 10:45

P11D?
No, they after the taxable benfit amount from Company Secretary and also the NI from the company?
Even though the total remuneration/benefit is under £8500!
?????

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By User deleted
22nd May 2008 10:38

P11D?
Is the company secretary also a director with a material interest in the company in which case a P11D would be required even though salary and benefit(s) are less than £8.5k? is that what HMRC are getting at?

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