Benefit in kind when limited company goes dormant

Didn't find your answer?

If you go dormant but your business was home-based (e.g. IT contractor who works from home) you're going to have assets around like computers etc. that are no longer being used for trading.

Do you need to pay benefit in kind taxes on these assets while dormant, since they're technically available for personal use 24/7 now?

Replies (9)

Please login or register to join the discussion.

avatar
By Tax Dragon
23rd Jun 2024 05:44

If the exemption in s316 does not apply then a benefit in kind will arise.

See https://www.legislation.gov.uk/ukpga/2003/1/section/316 (note 5(b) - the exemption does not apply if the thing provided alters the living accommodation).

HMRC's view: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21611 - worth following the links at the end.

Thanks (2)
Replying to Tax Dragon:
avatar
By FactChecker
23rd Jun 2024 13:21

All true and helpful where the company has an ongoing life - so I feel OP needs to be clearer (in their own mind) as to what is meant by "go dormant".

The relevance of having "assets around like computers etc. that are no longer being used for trading" would IMHO be rather different for instance where:
a) 'dormant' = no trade for 2 months whilst OP takes extended holiday; or
b) 'dormant' = no trade for 2 months whilst OP applies to close company.
Presumably it's neither scenario, but what is meant likely matters.

Also, as indicated within those links, the kind of asset matters ... as in if it's just a laptop & printer then it would be (theoretically) possible to ensure they were not "available for personal use".

In short, if OP can determine whether the 'dormancy' is a temporary attribute or intended to become permanent then a range of options will be available to avoid the whole BiK issue.

Thanks (2)
Replying to FactChecker:
avatar
By Tax Dragon
23rd Jun 2024 14:08

If I may make your point more briefly, it's that, in applying tax law to his specific situation, OP needs to take account of his specific situation.

It's hard to disagree with that.

Remember that trading does not mean that there's no BIK; being dormant [whatever OP means by that] does not mean that there is. Trading or dormant, there is a BIK unless s316 removes it.

It's more likely, I posit, that the test in s316(4)(a) will not be met if the company is dormant, ergo more likely that there is a BIK.

Thanks (2)
Replying to Tax Dragon:
RLI
By lionofludesch
24th Jun 2024 22:03

I would question whether a company which is providing a remuneration package, albeit small, is, in fact, dormant.

Just sell the stuff to whoever wants it.

Thanks (1)
Replying to Tax Dragon:
avatar
By mcaccounting
25th Jun 2024 13:08

Thanks for all the replies. I'm not an accounting expert but yes my reading of the guidance tallies with what you're all saying, that BIK would be incurred.

By dormancy here I meant if say I want to suspend trading in my limited company for a year or two to take on permanent/PAYE work, with an intention to return to contracting when possible, which is not an uncommon scenario with the state of the market.

In terms of strategies to avoid BIK I can think of two:
1. Selling/rebuying the equipment - possible but likely a bad deal in terms of the hit you'd take on selling and rebuying (not to mention the time spent)
2. Paying for separate storage so you can't access the equipment - might be cheaper than (1) but seems to be an economically inefficient use of money to avoid BIK

While a lot of accounting providers will happily sell you on their dormancy services (mine will reduce fees by 80%), and tell you about the conditions for dormancy (no trading/expenses etc.), they seem to neglect to mention the BIK aspect, which seems pretty important

Thanks (0)
Replying to mcaccounting:
RLI
By lionofludesch
25th Jun 2024 15:03

Yeah - I think you're making it harder than it is.

Maybe the company could sell the equipment - whatever it is - to a director, for example.

However, imho, if the company is paying folk - albeit with benefits in kind - it's not dormant and your dormancy problem disappears.

Thanks (0)
Replying to lionofludesch:
avatar
By mcaccounting
25th Jun 2024 15:25

Well I disagree that the company is actually paying folk with BIK in this case, but I accept that HMRC would see it that way.

If I paid for someone else to store the items I would avoid BIK.

If I don't use, but just store it myself in my personal home I have to pay BIK, because the rules are not based on usage, but "potential availability for usage".

So it's not that there aren't workarounds, and it's not that you're incorrect about the rules, it's that the rules either penalise home-based businesses or force them to make decisions that are a waste of economic activity.

Thanks (0)
Replying to mcaccounting:
RLI
By lionofludesch
25th Jun 2024 16:35

mcaccounting wrote:

Well I disagree that the company is actually paying folk with BIK in this case, but I accept that HMRC would see it that way.

If I paid for someone else to store the items I would avoid BIK.

If you paid somebody else, the company wouldn't be dormant either.

Thanks (0)
Replying to mcaccounting:
avatar
By FactChecker
25th Jun 2024 17:50

I'm not sure why you seem intent on making this as complicated as possible (assuming that you're interested in practicalities and not just an intellectual learning exercise).

One of the options you mentioned (Selling the equipment and replacing it later if necessary) is the cleanest and easiest to achieve.

Your concern that this would be "possible but likely a bad deal in terms of the hit taken on selling and rebuying" seems misplaced - given that you say "I want to suspend trading in my limited company for a year or two to take on permanent PAYE work".
Of course it depends on the scale & cost of these assets (and maybe their degree of specialism), but most "assets like computers etc." have a relatively short shelf-life ... and as you must know can be more expensive to upgrade than replace after a couple of years.

[And as hinted at by others ... the sale could be to you, the individual, so you could even get some more use out of them - but that's where you'd need professional advice.]

Thanks (1)