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avoiding company car BIK

Avoiding company car BIK

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Clients employee who works in the business does not have a good enough credit rating to get finance on a second hand car. Client is proposing that the finance is taken out in Ltd Company name to secure the deal but finance payments are reimbursed by the employee each month so the car is not shown as asset with HP liability in the accounts and neither are any tax reliefs claimed in the Company. Would this be acceptable to HMRC or is the mere fact that the company has bought a car and provided it to the employee enough to trigger BIK ?

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By lesley.barnes
05th Jun 2019 13:57

But wouldn't the car and the debt belong to the limited company? If the employee defaults the debt is with the limited company. Although not a lease like Apollo Fuels
I would look at the Finance Bill 2016. This clarifies that there is no requirement for there to be any benefit transferred to the employee for a benefit in kind charge to arise.

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RLI
By lionofludesch
05th Jun 2019 14:01

You're right. He'll have a company car - probably at a very high emissions rate and a huge list price compared to the current value of the car.

Only way out is for the employee to buy the car and the employer to guarantee the loan.

With all that that entails in terms of risk that the employee will leave before the loan is paid off.

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By kestrepo
05th Jun 2019 14:32

An employee can be lent up to £10K without it becoming a Benefit In Kind. Would have thought your clients employee could pick up a more than reasonable car for that sort of money (or less!).

https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/wha...

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Replying to kestrepo:
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By Accountant A
05th Jun 2019 14:43

Quote:

An employee can be lent up to £10K without it becoming a Benefit In Kind. Would have thought your clients employee could pick up a more than reasonable car for that sort of money (or less!).

https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/wha...

Still doesn't get round the fact that the employee "does not have a good enough credit rating to get finance on a second hand car". It's a financial risk lending to the uncreditworthy.

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Replying to Accountant A:
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By jcace
05th Jun 2019 16:29

Although if the employer has lent the money to the employee, the employee would then not need to obtain finance for the car.

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Replying to jcace:
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By dmitchell
06th Jun 2019 10:23

But the company would still need to get the money back from the employee!

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Replying to dmitchell:
RLI
By lionofludesch
06th Jun 2019 10:37

Sure - but the risk is up to the employer. In the OP's proposal, he could be saddled with a car the sale proceeds of which won't cover the debt, should the employee leave. None of the "solutions" are risk free.

Nevertheless, some simple written agreement needs to be drawn up. At the very least.

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Replying to dmitchell:
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By kestrepo
06th Jun 2019 13:06

Yes. They would.

Agreed deductions from net salary with a clause for if the employee leaves the company would work.

If the company acted as a guarantor of the finance loan as suggested in a comment above I think it would be harder to get the money back if there was a default.

A written loan agreement between the company and employee would be a lot easier walk into court with than a defaulted guarantee and a frown!!

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By paul.benny
05th Jun 2019 14:44

Or for the employer to make a loan to the employee. It would have to be interest bearing to avoid a bik charge on the low rate and of course there are all the risks associated with making loans to employees.

Above all make sure the loan conditions are properly documented and that the client has considered what happens if/when the employee leaves/is fired/is sick.

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Replying to paul.benny:
RLI
By lionofludesch
05th Jun 2019 14:53

Quote:

Or for the employer to make a loan to the employee. It would have to be interest bearing to avoid a bik charge on the low rate .....

Would it ?

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Replying to lionofludesch:
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By C Graham
10th Jun 2019 10:25

Salary advance?

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Replying to C Graham:
RLI
By lionofludesch
14th Jun 2019 16:38

Quote:

Salary advance?

I'm not seeing a one-off advance of a loan to buy a car as a salary advance in any shape or form.

I would regard such advice as overly cautious.

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Replying to lionofludesch:
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By C Graham
16th Jun 2019 14:25

Why? It's no different to a season ticket loan - which can be for a few £££ . And many companies do it. amount is recovered through monthly payroll - and yes balance is still repayable in full if employee leaves.

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Replying to paul.benny:
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By dmitchell
06th Jun 2019 10:42

Only needs to be interest bearing if the loan is £10k or more?

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Replying to dmitchell:
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By C Graham
10th Jun 2019 10:36

correct

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By Vile Nortin Naipaan
06th Jun 2019 10:47

If the employer is granting the employee (by definition consumer) credit in excess of £1K, they will need a credit licence.

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Replying to Vile Nortin Naipaan:
RLI
By lionofludesch
06th Jun 2019 11:01

The more you look at it, the more attractive the benefit in kind seems.

No hassle.

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Replying to Vile Nortin Naipaan:
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By raycad
10th Jun 2019 10:46

Don't agree. Would make all director/employee loans technically illegal then! Not researched it in depth but I would expect the consumer credit rules apply to consumers (= customers), not non-consumers, such as employees!

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Replying to raycad:
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By Vile Nortin Naipaan
10th Jun 2019 11:40

Quote:

... Not researched it in depth but I would expect the consumer credit rules apply to consumers .

Well, I have researched it, and you're right; it does indeed apply to consumers, who are defined as individuals (other than high net worth individuals) taking credit in a non-business capacity. That's why it applies to the so-called cycle to work scheme for employees!

https://www.cyclescheme.co.uk/community/how-to/how-to-know-how-much-to-s...

And I see that the £1,000 limit is not simply a de mninimis, but is the amount set out in a "blanket" credit licence. So, yes. Many employer/employee loans will be unlawful (as opposed to illegal).

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Replying to Vile Nortin Naipaan:
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By raycad
10th Jun 2019 11:46

I still disagree. Under the CTW scheme the bike is owned by the employer and so is being HIRED to the employee. That makes it more like HP, not a loan.

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Replying to raycad:
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By Vile Nortin Naipaan
10th Jun 2019 11:57

Oh, really? There's a definition of credit in the Act as well.

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Replying to Vile Nortin Naipaan:
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By raycad
10th Jun 2019 12:13

We're not going to agree on this. Please note the following from the CCA 1974 Official Guidance:

Importantly, where the agreement is a non-commercial agreement (under section 74(1), CCA 1974), Part V largely does not apply. Therefore, in most cases of non-commercial employee loans, the onerous formalities required by Part V of the CCA 1974 described below can be dispensed with. Non-commercial agreements should cover transactions that are merely occasional (for more information, see Is a consumer credit licence required?).

Furthermore, interest has to be charged to require a Consumer Credit licence. As I read it, the Act doesn't apply (or I should say a licence isn't required) as regards interest-free loans.

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Replying to raycad:
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By Vile Nortin Naipaan
10th Jun 2019 12:31

Oh come on! It's hardly official guidance!

https://3yf6pp3bqg8c3rycgf1gbn9w-wpengine.netdna-ssl.com/wp-content/uplo...

And it relies on pre FSMA 2000/CCA 2006 case law. Someone is carrying out consumer credit business TO THE EXTENT THAT they make regulated agreements.

Any sensible solution to the OP would involve a regulated agreement, as will many other employer/employee loan arrangements.

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Replying to raycad:
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By C Graham
10th Jun 2019 18:53

yes and which is why the employer has to charge vat on the 'hire charge' on the CTW scheme if they are vat registered. Whereas a loan would not incur vat.

and which is why the CTW scheme is so rubbish as can end up costing the employee more despite the buy back options after x years.

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Replying to Vile Nortin Naipaan:
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By C Graham
10th Jun 2019 18:49

it is normally done as a salary advance. not credit but employment-related loan

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RLI
By lionofludesch
07th Jun 2019 18:50

Have a look at ITEPA 2003, s114(1A), introduced by FA 2016.

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By James Geary
10th Jun 2019 10:41

Interestingly I am just finalising a long running enquiry where this is the final point. Even the HMRC Inspector does not seem sure of his ground on this one, suggesting in one place that there is a benefit but the reimbursement to the company are payments for private use, but elsewhere in the same paragraph suggesting that the benefit will only be the difference between what the employee would have paid under a PCP arrangement and the company's Contract Hire payments.
I have made a proposal and await their reply!

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By SimonLever
10th Jun 2019 11:14

Check out the case of Mr Paul Harrison, Mr Lee Solway & Harrison Solway Logistics Ltd v HMRC (TC06956).
Case is about debits to directors' loan accounts to cover leasing payments on cars. Although the case is about the debits to the loan accounts it was held that the directors were effectively leasing the cars in their own names and there was no benefit under s.114 ITEPA 2003 depite payments going through the limited company.
You would have to read through the details of the case but if there is enough similarity then there could be no BIK.
Not sure if this would be the case if the employee defaulted on a payment.

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Replying to SimonLever:
Psycho
By Wilson Philips
10th Jun 2019 11:21

Similar or not, section 114(1A) has rendered that decision irrelevant.

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7om
By Tom 7000
10th Jun 2019 11:49

The employee should borrow the money from his dad.

You cant recommend to a client company they lend money to an employee with a rubbish credit history.....

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By [email protected]
10th Jun 2019 19:06

Thing is its an employee not a consumer
Loans to employees of less than £10k can be given without interest or BIK
obvious to put a clause in employment contract re repayment term and what happens if employee leaves
one employer I have worked for even had this stated in the employee handbook CEO's reasoning was he'd rather lend to his employees than them go to loan sharks/wonga... we had an internal limit of £5k though

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Replying to [email protected]:
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By Tax Dragon
14th Jun 2019 17:15

Vile has even provided a link that explains why an employee is a consumer for the purpose of the Act. A basic internet search provides many more in the same vein.

Back on Vile's, the exemption at the bottom of page 3 could be utilised.

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