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Private Car or Company Car - BiK Dispute
Posted by Anonymous on Mon, 08/02/2010 - 16:56
One of my fellow Directors credit history was not squeaky clean when he agreed to buy a new car, so the HP agreement was made with the Company. The full cost of the monthly loan repayments are then deducted from his salary after tax. Following a compliance review, HMRC are saying that the car is effectively a company car and that tax is due as a Benefit in Kind. Any argument to this, as he pays the full cost so where is the benefit ???
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Whose is it?
Who owns the car? (Not who is the registered keeper)
If it's owned by the company, it's a BIK if he uses it. (And the HP payments are loans to the company because they apply to a company vehicle)
If he owns it then it can't be a BIK. (Running costs may give an insight here as well as returns already made!)
There can be no dispute
As "the HP agreement was made with the Company", it is definitely (not just effectively) a company car and a BIK applies, calculated in the usual way as a percentage (dependent on the CO2 emmissions) of the list price of the car when new.
However, the BIK is reduced for contributions by the employee in one or both of two ways:
1. Before applying the appropriate percentage, the list price is reduced by the lower of £5,000 and the capital contribution made by the employee to the cost of the car. As the car is under HP, the employee could be considered to be making contributions every month equal to the capital element, excluding the finance charges, of the monthly HP instalments. The problem is that relief for his contributions under this heading is restricted to £5,000 off the list price.
2. The BIK charge, as calculated normally or with a reduction for a capital contribution, is reduced by contributions made by the employee to the company for the private use of the car. This relief is unrestricted and could in theory reduce the BIK to nil.
Further complication
While I agree with the gist of Euan's reply, there is a further complication in that the supply of the vehicle to the employee may be regarded as a taxable supply for VAT purposes. Basically, this type of set up is so fraught with complications that it is best avoided.
Payment in respect of private use of the car
I don't disagree with the second para of Euan's reply but would like to expand upon it. First of all, HMRC will usually want to see some form of written agreement to the effect that the payments made by the employee are specifically for the private use of the vehicle and not for some other purpose. If no such evidence can be produced, they may argue that the payments cannot be used to reduce the car benefit charge and impose it in full.
Secondly, depending upon the cash equivalent of the car, there may still be a car benefit liability if the amount paid by the employee falls short of the cash equivalent.
Just out of interest ...
... in principle, can an incorporated body act as a bare trustee of a settlement in which the legal ownership is vested in the name of the company but all beneficial rights are vested in an individual (ie participator)? Leave aside for this purpose the s.419 and benefit in kind legisation, and also the paper trail that may be required to demonstrate it, not to mention the accounting entries and companies act disclosure requirements, I am just interested to know if it is a feasible legal structure.
With kind regards
Clint Westwood
It works
The other way round, hence my first post. HMRC even accepted that the cars belonged to the company although registered in the individual's name.