Share this content

BIK valuation for luxury goods

Luxury gods manufacturer transfers own goods (gifts + sold at discount) to employees: how to value?

Didn't find your answer?

My client is a luxury goods manufacturer (high end very expensive jewellery etc).

Some of the items are obsolete, damanged and are sold to staff at less than cost value. On other ocassions staff will receive gifts (e.g. as a long service award) or be able to purchase goods using a staff discount (so paying more than cost price but less than RRP).

HMRC are arguing the cost of the goods should be in accordance with either s62 or s206 ITEPA 2003, on the basis the luxury goods can be exchanged for money or money's worth quite easily and/or that the market value should be used which is more than what the individuals will have paid (if payment was made by them).

I have pointed HMRC to EIM21110 and the rules surrounding inhouse benefits and the fact the intangible value associated with the physical items provided by my client should be ignored - it should be the marginal cost basis (advertising, branding etc would still be a cost regardless of how many units my client produced).

HMRC are arguing that s206 and s62 ITEPA override s203/s204 and are not budging. Furthermore they have said that in order to not be a readily convertible asset that my client needs to demonstrate goods are not resold and how they monitor this. Each employee has a contract which strictly prohibits them from selling any items - they are intended for personal use only.

There will be specialist sites on which the goods can be sold but they are so high in value that they are unlikely to be readily sold due to the price point. It also then in my mind invalidates the provision of any inhouse benefit being based on marginal cost as you have the likes of eBay and Amazon where you can list anything you want to then resell.

Any thoughts would be welcomed.

 

 

 

Replies (6)

Please login or register to join the discussion.

avatar
By Paul Crowley
20th Oct 2021 16:20

RRP is not market value
Last year's must have gets sold at less than cost if fashion is a factor
Are these items made by the seller?

Thanks (0)
Replying to Paul Crowley:
avatar
By ITEPA2003
20th Oct 2021 16:38

Yes and no in that it is jewellery/purses etc. and on some lines only a certain number of units would be made.

HMRC accept that market value will be less than RRP but they are arguing that market value should be used as opposed to the marginal cost principle. I am trying to argue that the cost of the good is inflated due to its label - a non-designer equivalent would be a lot cheaper if you looked at the raw materials and the actual cost to produce an extra unit.

Thanks (0)
Replying to ITEPA2003:
avatar
By Hugo Fair
20th Oct 2021 17:30

Wow, Aweb has gone up in the world ... can't think when an Act of Parliament last signed-up as a member!

But I don't think you'll get far by arguing "a non-designer equivalent would be a lot cheaper if you looked at the raw materials and the actual cost to produce an extra unit."
An haute-couture designer frock immediately loses a substantial quantum of value if the labels are removed ... so having the labels is a major component (of the item and of its value). And the same is the case for anything where brand/label is a major justification for MV.

My understanding (and I can hardly believe that I'm agreeing with HMRC) is that 'the marginal cost principle' only applies to mass-market products (where in theory anyone else with access to the same base materials could make a similar end product for that marginal cost).
So if your client chose to manufacture a line of employee-only jewellery (outside of the company's brand), then it might have a chance ... but even then I foresee murky waters if items are gifted.

Thanks (1)
Replying to Hugo Fair:
avatar
By Bobbo
20th Oct 2021 17:38

Hugo Fair wrote:

Wow, Aweb has gone up in the world ... can't think when an Act of Parliament last signed-up as a member!

fantastic

Thanks (0)
avatar
By Tax Dragon
21st Oct 2021 14:34

It's lovely that you are telling HMRC about EIM21110. But EIM21110 is of no relevance.

I'm not sure where Hugo gets his mass-market point from, but anyway I don't think it's relevant either.

What is relevant is the law. You say "HMRC are arguing that s206 and s62 ITEPA override s203/s204 and are not budging". That's probably not quite what they are saying. Clearly, s203(3) disapplies s204 (and therefore EIM21110 etc) if s206 applies - which it will, in relation to the obsolete or damaged goods. The argument is different in relation to gifts of or discounts on current, undamaged goods. S206 doesn't apply, so HMRC go back to basics - see EIM00550, discussing s62(3)(b) and Wilkins v Rogerson (39TC344). You'll need to go to court if you want a different outcome. You'll need a more convincing argument than you have mustered in this thread if you are to succeed in obtaining a contrary judgment.

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
21st Oct 2021 15:59

For completeness I should also refer to EIM21640. This explains that the s203/4 charge is on the excess (if any) over the amount taxable under s62. (So EIM21110 etc would potentially be relevant in relation to that excess... except it's pretty clear there isn't an excess, so, even by my high standards of pedantry, this clarification is going some.)

Thanks (0)
Share this content