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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

 

 

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By Hugo Fair
11th Oct 2021 14:51

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.

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