A directors purchased a VAN in his own name but the HP payments are made from the company
I can bring the asset into the company plus claim AIA but struggling how to account for the payments and interest.
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Really?
I can bring the asset into the company plus claim AIA
The finance company has sold a van to Joe Bloggs on HP terms. If he has a trade, he could claim AIA, but I suspect that he has not. If he transfers his van to his company (despite the HP agreement probably specifying that he cannot sell the van until title passes on completion of the payments), the company cannot claim AIA because Mr Bloggs is a connected person - it can claim only WDA.
I agree with the above, but would just add that you may find on closer examination that the director has commenced a new trade of van hire.
A little lesson
The director needs to decide if he's trading or whether he works for a company of which he is a director.
He is not the company - that's how companies work.
As things stand it looks like the company is paying the director's personal debt. So either the payments should be debited to his director's loan account or treated as a BIK. And of course, advise him that he mustn't try to include any of the input VAT in his company VAT return.
Rental
But as I said he can charge the company rental for its use of his van. So the DLA will be in credit not overdrawn.
Defo no AIA. The transfer at market value would work and leave an amount in the DLA to draw on to cover finance monthly payments but as connected it would only be WDA as stated above.
You could explore the van rental route. If going down the route of Van hire make sure you get a basic agreement in place for your file,
Director would then claim AIA on capital cost of the van, rental receipts would be income , finance interest payments would be expensed over the course of the agreement. Company could claim full relief on the annual rental amounts charged. I use an equation so most of the interest is charged in the first couple of years but straight line would do too.
Cant imagine window cleaner would be trading above the vat threshold if he is doing a standard residential window run so vat shouldnt be recoverable anyway.
Quite a straight forward matter to add extra page to his personal tax return to deal with the rental business route.
Other option would be no CA claims and he claims back mileage allowances which depending on the amount of miles might cover the finance and run costs of the van. Tax free to the director if he pays the approved rates and full tax relief for the company on the mileage payments made.
Crunch some figures on the different options based on the persons expected income, the companies profits and expected use of the van and see what one is the best fit.
Ps
The only problem i can see with the van business rental route could be a possible challenge by HMRC under ....... " was the trade carried on with a view to making a profit" i mention this as literally just read a first tier tribunal case in taxtaion magazine which has similar hall marks. To avoid a challenge get a basic agreement inplace and charge the rentals to create a modest profit. Make sure you include this on the self employment pages of the clients personal tax return and obviously the rentals charged on the companies accounts/return
Surely the "view to making a profit" point is only relevant when there are losses. HMRC don't argue that profits are exempt from tax when they are an unintended consequence of an activity that they say is not a trade.
Of course there will be losses. Year 1 when AIA and 1st year finance interest is claimed against one years rental charges to the company.
Leaves the option in the 1st year to offset against other income or to carry forward against losses of same trade only.
I was thinking claim AIA etc in year one and carry forward losses against same trade over next couple of years. Year 2 would see rental charged offset against finance interest. Surely proft which would be offset against loss brought forward.
I was thinking over the course of the finance agreement it would end up tax netrual ie no profit or loss
What were you thinking John based on your last comment???
Front end
Of course there will be losses. Year 1 when AIA and 1st year finance interest is claimed against one years rental charges to the company. Leaves the option in the 1st year to offset against other income or to carry forward against losses of same trade only. I was thinking claim AIA etc in year one and carry forward losses against same trade over next couple of years. Year 2 would see rental charged offset against finance interest. Surely proft which would be offset against loss brought forward. I was thinking over the course of the finance agreement it would end up tax netrual ie no profit or loss What were you thinking John based on your last comment???
What if the rental charges are front end loaded ?
There's no "of course" about it. This taxpayer is free to make up his own terms.
A loss created by an AIA claim wouldn't be a loss in a true commercial sense, so wouldn't tenable HMRC to argue that there was no profit motive.
It's up to the director how much rent he charges his company and common sense says that he should be advised to set it at a level to cover all his outgoings plus a margin on top.
come on behave yourself.
The person asked for a way to make his situation happen. Read above job done. Im giving him what i would do. If you dont agree fair doos but lets be honest what iv wrote works perfectly. No idea why your nose is out of joint mate.
Its accelarated tax avoidance why wouldnt the person try to put it place a situation that earns him a few extra £££s and safe guards his client from possible HMRC attack.
of course he is free to do what he wants i never said i was the foremost authority on any subject. Like i said merely contributing in a way i hoped would be helpful to the original poster.
Why your jumping all over me is questionable however dont let my comments get your knickers in a twist. Take what you want and leave the rest. Your acting like Portia
Have a lovely weekend
I know it a never never situation but if the cleint was a top rate taxpayer John and the AIA created an allowable loss in year one which could be offset against other income saving 45% then sure in a commercial sense this is creating an artifical loss which would be questioned IF an enquiry was opened in this or the precede years the arrangement was in place.
Regardless the OP can be surely satisfied with the numerous comments and ways to overcome the difficulty posed in his original post.
The comment i posted this morning did infact relate to an artifical loss creating venture with a view of claim relief for the losses against other income as you pointed out.
I merely added it incase it could have been useful and doest really impact the OP or the client in a detremental way
Yes
But all that's required is a beneficial interest (nominee) and an agent acting for an undisclosed principal is more than a nominee (in that both contract and equity law apply), so that should be fine. If that were not right it would be bonkers, but I am happy to be proved wrong with any legislation/case law.
Burden of Proof
As usual, you are working on the principle that what you are saying must be correct if no-one else can provide proof you're wrong. That is, and always has been, false logic. Are you able to prove that such an arrangement has been accepted, when the only evidence of the company's beneficial interest is the payments being made by them?But all that's required is a beneficial interest (nominee) and an agent acting for an undisclosed principal is more than a nominee (in that both contract and equity law apply), so that should be fine. If that were not right it would be bonkers, but I am happy to be proved wrong with any legislation/case law.
Working for the client
I consider that taking such a route would be a slam dunk for HMRC if they looked into it. There is no evidence that a beneficial interest exists, and I really don't think leading the client into inventing one is helpful. (directing a client to a particular response, telling them it will save tax, is not "checking facts") I can only see your route resulting in the client not only paying the tax due under what I see as the current arrangement, but interest and penalties on top. That would seem to be more in HMRC's interests than the client's.Work for HMRC?
But if you are really so confident that this is effective, then surely it must have been tried already. To prove me wrong all you have to do is present a case in which a beneficial interest has been shown with a similar lack of evidence.
If no such case exists, then that doesn't automatically mean I am right. Both I and others have laid out the reason why we think it won't be effective, and it is up to the OP and their client if they want to take the risk in the face of that.
Incidentally, the response above does not address my argument at all but instead seeks to cast doubt on my integrity. That is a perfect example of an ad hominem attack, so it's a bit hypocritical of you accuse others of this.
Wishful thinking
I think everyone knows what the position is if the OP's client acquired the van as nominee for his company. That is not a shaft of light shed by Justin. But the first question surely is whether the OP's client was his company's nominee or not? The OP mentions no facts which suggest that he was. So is all this not wishful thinking?
Not at all
You need to ask the client these kind of questions to understand the legal situation and it appears to me that this is a nominee or agent situation unless the client indicates otherwise (obviously a lay client/accountant won't know about esoteric legal labels, so it is no surprise that the words nominee/agent do not appear above). Also, I see questions on this forum all the time where people have wrongly assumed something without checking.
Well
With respect, if your approach is "I won't bother checking that with the client as it's just wishful thinking", then eventually you'll get sued by an unhappy client where your assumption is wrong and a judge would probably find you negligent. So good luck to you (I have no such risk of being sued with my approach).
Considering that your approach is “make complete [***] up to fit in with the best tax outcome”, I’d rather take my chances with John’s method.
My approach is not failing to check, it's failing to succumb to the temptation to feed a client with leading questions and thinking that the result is meaningful or helpful.
How
Can you make things up or get facts wrong if you are checking things with the client (especially when it involves legal points that they are unlikely to know about)? Anyway, I’ll end there as these comments are just becoming ad hominem.
Trustee
Not quite sure what is meant by the nominee for his company perhaps someone can elaborate and then respond accordingly.
Nominee is just another word for trustee. The suggestion is that the shareholder might have set it up so that he held the legal ownership but the company had the beneficial ownership.
Unclear
Not quite sure what is meant by the nominee for his company perhaps someone can elaborate and then respond accordingly.
Nominee is just another word for trustee. The suggestion is that the shareholder might have set it up so that he held the legal ownership but the company had the beneficial ownership.
I can understand the principal in relation to property jointly owned by a married couple but not with two separate and distinct parties concerning a director and a limited company.
Not sure what you mean by not understanding the principle. The principle could not be simpler. Under English law a person can declare that he holds an asset on trust for the benefit of someone else and expect the courts to uphold that position. So in this case your client could have bought the van in his own name and entered into a declaration of trust in favour of the company. There is of course no indication that he did in your case, so it's just a theoretical point here.
Nominothing
Not sure what you mean by not understanding the principle. The principle could not be simpler. Under English law a person can declare that he holds an asset on trust for the benefit of someone else and expect the courts to uphold that position. So in this case your client could have bought the van in his own name and entered into a declaration of trust in favour of the company. There is of course no indication that he did in your case, so it's just a theoretical point here.
Isn't there another problem. Whilst I can declare that I own something for someone else, I have to own it first - and if I remember the rules I don't own anything bought under an HP agreement until I have paid the option payment (the little extra in the final payment).
And even if I could hold the van as trustee for the company, I am still personally liable under an HP agreement in my name unless and until I get the HP company to agree to change the agreement - so the company cannot claim interest relief.
Just thinking out loud - I may be wrong.
Very expensive money
Just to give more information the VAN cosy 17K and the interest is 8K. The asset was purchased towards the year end.
Are you sure, sounds like he borrowed from a loan shark not a finance company!!!!!!!!!
Your welcome Jim. Its the
Your welcome Jim. You have kicked off a decent stream of comments.
No idea re the nominee stuff myself so would also welcome an explaination of how id go about that if possible for future reference.
Financing the transaction
I would be happy to claim AIA as the asset is being used in the business and for commercial reasons the director has to personally underwrite the transaction. The personal guarantee would be noted in the limited company allowing the reader of the accounts to understand the position and capitalise the asset. When directors personally guarantee their limited company bank overdraft we are happy to allow the related charges here.
False analogy
I would be happy to claim AIA as the asset is being used in the business and for commercial reasons the director has to personally underwrite the transaction. The personal guarantee would be noted in the limited company allowing the reader of the accounts to understand the position and capitalise the asset. When directors personally guarantee their limited company bank overdraft we are happy to allow the related charges here.
A personal guarantee of a company bank overdraft is a false analogy.
There the overdraft is the company's and of course you would not add back the interest on it.
Here the van belongs to the shareholder not the company.
Financing the transaction
Just really looking behind the transaction substance over form?
Consider the reverse of the transaction. A company has sold a van for commercial gain for business purposes. The receipts from the hire purchase firm has underwritten the deal and accepted the capital coming from a limited company. If not this third party payment may be void?
I have lost the plot
Does the mileage idea work out in practice?
The Van Rental sounds interesting although there would be additional accounting costs.
bumpdinkwhallop mentioned front loading of interest. This is the rule of 78. Hopefully all accountants use this when advantageous to the client
The nominee idea may work but there must be a deed. Would HMRC really be difficult about this idea. Not sure they would want to try it in the Tribunals. Imagine the Headline!
I think the rental idea is far safer.
In terms of the trust (disclaimer: My knowledge is limited!), I would make the assumption that the guy has bought the van with the intention of it being a company van. I'd also assume that the only reason he didn't buy it in the company is because he couldn't obtain finance via the company, or just didn't think.
Whether the above constitutes a bare trust I don't know, but I'd say that if you wanted to go down the trust route and do it properly to ensure HMRC couldn't pick it apart, the client would need specialist (and costly) advice.
I therefore think the sensible option, given the relatively small amounts involved would be just to go down the rental route.
this happens a lot and you are sort of both right
The van rental business is perhaps the actual facts of the case
He has bought a van to use in the ltd business.
The business pays the HP which is really the rent to him. He claims interest and CAs. Does it really matter if you claim AIA or WDA allownces come through eventually and make a small profit.
Watch out though when the company is vat registered and the director is not. I belive under the vat rules he then acts as the agent for the company and the company still claim the vat back. ( I remember looking this up 6 months ago)
So I think both rules apply depending on which tax youa re looking at.
Slightly off topic
As an aside... who is insuring the vehicle... the Director alone has an insurable interest doesn't he?
/can of worms
Outgoings
I assume these costs cannot be passed to the company.
Like I keep saying the simple way of dealing with this would have been for the director to have charged the company rental for its use of his van, which rental would have covered all his outgoings in relation to it, and which also by the way would have enabled him to claim AIA.
For whatever reason you have decided to prepare the company's accounts on the basis that the van belongs to the company.