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Benefit in Kind -Sport equipment. How to account

Staff getting sport equipment worth approx. 800 when they join. Have right to keep item after 2 year

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My company wants to give all permanent employees a piece of sports equipment worth approx £800 when they join with the right to own after 2 years stay at the company and the obligation to return if they leave within 2 years. The equipment is purchased by the company. It is not leased. How do I handle the following:

  • What BIK value should state to the employee? 
  • Will this have employer NI and employee income tax on whatever the full Bik is?
  • Is it best to report through P11D rather than payroll?
  • If the BIK is £800, is the full amount taxed once declared (whether on payslip or P11D) to HMRC? Or is the tax spread over 2 years given the employee won't own the item until the end of the second year?
  • Is the accounting entry - Dr. Payroll expense, Cr. Inventory(this is an inventory item typically sold to customers)
  • If the employee leaves within 2 year. Is the entry dr. stock (depreciated value), cr. payroll expense?

Thanks, Margaret

 

 

Replies (11)

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Replying to David Ex:
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By [email protected]
11th Oct 2021 14:19

Thanks Davi. I had this. This https://support.p11dorganiser.co.uk/support/solutions/articles/800002307...
explanation helpedmore. Once ownership transfers then the amount chargeable to tax on the employee is the market value of the asset when first applied as a benefit less any sums already taken into account in taxing benefits derived from the use of the asset less any amount paid by the employee for the acquisition of the asset.

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By Hugo Fair
11th Oct 2021 15:18

Only just spotted that this post was published twice - and I responded to the other one! So here it is again ...

I've never encountered such a convoluted scenario ... and so suspect there must be something else going on. For instance, is the employer usually in the business of supplying this kit for sale or providing a service in which the kit is usually used?

But sticking to the BiK angle ... I would have thought that the key date is the 2nd anniversary of the 'gift' - as it is actually a loan until ownership is transferred (only at MV presumably for a 2 year-old item)?

Whether there's a separate BiK during the two years (a bit like gym membership) is more of a mystery - presumably depending on all the missing details here (like what the kit is / where it can or cannot be used / whether it relates directly to employment needs / whether it has indirect business objectives (like advertising the business to third parties) / and so on.

Until you've worked out the answers to those questions (i.e. what is really going on), I don't see how you can tackle the accounting questions.

Thanks (2)
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By [email protected]
11th Oct 2021 20:43

Thanks for getting back to me and asking additional questions.

Yes, the company sells the product plus a monthly subscription which gives access to workouts, etc from the product.
And, of course this benefit would also need to be included. Would 20% of this value be taxed.

The loaning and then gifting is partly to encourage the staff to be motivated about the product and to use it and give feedback so that the product and software behind it can be improved.

I personally wouldn't want this to pay tax on this, but as I'm a short term contractor I don't have to worry about this.

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Replying to [email protected]:
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By Hugo Fair
11th Oct 2021 21:39

Well, as I was hinting in my earlier response ... the fact that the product is what the company sells could make a difference, although what the item is (size, fixed or mobile, general or specialist fitness, etc) may also be a factor.

But by default, the likely position is a BiK for 2 years (during the loan period) followed by a one-off BiK (MV at time of gift).

The difficulty (particularly if this is ground-breaking equipment - not literally just in the sense of limited competitors - is arriving at sensible values.
But it seems there's a benchmark for the 2 year period (based on the commercial subscription). I think it would be acceptable to value this (for tax purposes) at cost, not at the general market rate.
The MV of gift may be harder to know, unless by then there is an established second-hand market.

On the other hand, I can't help wondering whether an alternative approach might not be viable ... whereby the loan period encompasses activities that form part of the employees' tasks (test & provide feedback at a predetermined frequency and format) - in which case the equipment is no longer a loan, but simply provision of tools of the job?
If viable, there would potentially be no (or severely reduced) element of BiK in the first two years.
And if the intention of the company is not stated as 'gift after two years', then the equipment can be an asset with depreciation applied ... which might allow a MV to be established (and possibly at a lower amount than expected).
Of course some employees might then choose not to request the right to buy after two years ... but that's a whole different story!

I'm rambling now, partly because I don't know what the product/service is and partly because we're getting into the realms of guesswork (not a good idea on a public forum) ... but hope it gives you food for thought.

Thanks (1)
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By [email protected]
12th Oct 2021 07:29

Thanks again. Super helpful and great suggestions. I will explain what the product is in a few weeks.

Thanks (0)
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By [email protected]
12th Oct 2021 07:29

Thanks again. Super helpful and great suggestions. I will explain what the product is in a few weeks.

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By OldParkAcct
12th Oct 2021 07:54

Would it not be simpler to make evaluating the company products part of everyone’s job description?
Equipment and subscription then provided with no benefit.

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Replying to OldParkAcct:
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By [email protected]
13th Oct 2021 08:08

Definitely. I've suggested this. Bik work well in parent where BIK is valued at 1% of asset MV. UK IS 20%

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By ireallyshouldknowthisbut
12th Oct 2021 09:28

If I was an employee I would be hacked off having a BIK for some sport kit I didn't want which I then had cluttering up the garage until its been given away to someone who cant keep fit without expensive equipment.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
12th Oct 2021 12:16

True ... but then you are hardly likely to want to work for a company selling the equipment + subscription service, are you?
A happy employee in such a company is often an acolyte of the core philosophy and so may appreciate the benefit - just not being taxed on it.
Hence my suggestion to incorporate use/review of it into the job descriptions!

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