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Company Car Benefit for Nanny employed by Ltd Comp

BIK but on who

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Individual Client has engaged the services of a Nanny.  She has decided to put the nanny on her company's payroll so that the company effectively employs her.  She is aware that the nanny's salary will give rise to a BIK on her - the director.

The nanny will also be provided with a company car available for private use.  The provision of the car is a taxable BIJK - but on the nanny - by virtue of her employment? Or on the director?

Replies (43)

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By paul.benny
04th Feb 2021 16:30

Starter suggestion:
- BIK on employee at scale rate; AND
- BIK on director for the cost of providing car. This is part of the employee's remuneration that the company is paying on behalf of director.

Others with more expertise may have different views

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Replying to paul.benny:
RLI
By lionofludesch
04th Feb 2021 16:36

paul.benny wrote:

Starter suggestion:
- BIK on employee at scale rate; AND
- BIK on director for the cost of providing car. This is part of the employee's remuneration that the company is paying on behalf of director.

Others with more expertise may have different views

Agree with Paul.

Crazy idea.

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Replying to lionofludesch:
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By Wall1690
04th Feb 2021 17:12

Sorry - just to clarify - the nanny would be taxed on the cash equivalent BIK of the car based on list price, Co2 etc etc AND the director would also be taxed on the cost of actually providing the car, purchase/lease, running costs etc?

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Replying to Wall1690:
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By Tax Dragon
04th Feb 2021 17:35

Wall1690 wrote:

Sorry - just to clarify - the nanny would be taxed on the cash equivalent BIK of the car based on list price, Co2 etc etc AND the director would also be taxed on the cost of actually providing the car, purchase/lease, running costs etc?

Because the nanny is provided with a car and the director is saved (has passed onto the company) the cost of providing the car. Two separate benefits, not double tax on one benefit.

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Replying to Wall1690:
RLI
By lionofludesch
04th Feb 2021 17:39

Wall1690 wrote:

Sorry - just to clarify - the nanny would be taxed on the cash equivalent BIK of the car based on list price, Co2 etc etc AND the director would also be taxed on the cost of actually providing the car, purchase/lease, running costs etc?

That's the way I see it.

Director has the benefit of private expenditure being covered at no cost to her.

Nanny has benefit of a free car.

Less, of course, any contributions which either of them make good.

It's an expensive way to run a payroll but, doubtless the director sees it as a cunning cost-saving wheeze.

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Replying to lionofludesch:
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By Paul Crowley
04th Feb 2021 17:25

Agree all
Double BIK

Directors can at times demonstrate their unfitness for office
No idea what the real business is but my guess is I would be charged twice if ever I became their client

Looking forward to breaking the news?

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By Hugo Fair
04th Feb 2021 16:59

What do you mean "so that the company effectively employs her"?

Either it does or it doesn't. If it does, it also takes on all employment liabilities (e.g. all types of statutory pay, paid leave, and so on). And yet the nanny isn't performing any services either to the benefit of, nor under the direction of, the company!

This is a nonsense scenario. Director (as an individual) is the employer and needs to set-up a PAYE scheme in order to process payroll/benefits for her employee (the nanny) ... and needs to ensure all other employer responsibilities are covered (like liability insurance etc).

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Replying to Hugo Fair:
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By Wall1690
04th Feb 2021 17:14

In this scenario she is employed by the company - the company pays her wages. But the work that she does is for the individual director. The director doesn't want to set up a separate payroll.

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Replying to Wall1690:
paddle steamer
By DJKL
04th Feb 2021 17:20

So is the director making good the cost to his employer?

I have employed a gardener on a partnership payroll who worked for one of my employers (a partner) but in that case the partner repaid the gross, NIER and pension costs to the partnership and no BIK considerations came into play.

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Replying to DJKL:
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By Tax Dragon
05th Feb 2021 06:19

DJKL wrote:

...the partner repaid the gross, NIER and pension costs to the partnership and no BIK considerations came into play.

It's more accurate to say that you had to consider BIK but the reimbursement reduced the BIK to £Nil (there being specific provision within the BIK code for such a reduction). Presumably it can be worth doing this, as your boss demonstrated (and it can be cheaper to add one employee to an existing payroll than to pay for a separate payroll - especially at Paul's rates), so I don't deride the director as others have. (Might have to consider that additional company payroll cost - Pepper v Hart etc.)

Specifically on making good, remember the 2017/18 rule changes. HMRC explains in EIM21119.

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Replying to Tax Dragon:
RLI
By lionofludesch
05th Feb 2021 06:56

Quote:
.... (and it can be cheaper to add one employee to an existing payroll than to pay for a separate payroll - especially at Paul's rates).........

[chuckle]

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Replying to Tax Dragon:
RLI
By lionofludesch
05th Feb 2021 08:18

Tax Dragon wrote:
...(and it can be cheaper to add one employee to an existing payroll than to pay for a separate payroll - especially at Paul's rates)....

If the director draws extra income to cover the cost of the nanny and we take into account the tax cost of that, Paul's fee might not be as outrageous as it first appears.

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Replying to lionofludesch:
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By Tax Dragon
05th Feb 2021 09:17

Maybe the real point is that, if you see how much you would have to pay to reduce the BIK to £nil, you appreciate the true cost (and, in turn, in your more honest [less outraged] moments, you appreciate why there's a tax charge on you - why there's a BIK). Your choice is between finding that money yourself (out of after-tax income, of course) and paying tax for the privilege of someone else (your employer) bearing your cost.

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Replying to Tax Dragon:
RLI
By lionofludesch
05th Feb 2021 10:29

Tax Dragon wrote:

Maybe the real point is that, if you see how much you would have to pay to reduce the BIK to £nil, you appreciate the true cost (and, in turn, in your more honest [less outraged] moments, you appreciate why there's a tax charge on you - why there's a BIK). Your choice is between finding that money yourself (out of after-tax income, of course) and paying tax for the privilege of someone else (your employer) bearing your cost.

Yes - I agree. We don't have nearly enough information to make a wild stab at estimating that but I suspect that the difference between the two options won't be as huge as some of us are supposing.

Especially after deducting Paul's payroll fee.

I still say the biggest issues are HR.

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Replying to Tax Dragon:
paddle steamer
By DJKL
08th Feb 2021 15:51

No BIK in my example as not a company but a partnership and was for benefit of a partner, at worst it would have been a disallowable cost in the tax comp if not recovered.

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Replying to DJKL:
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By Tax Dragon
08th Feb 2021 15:54

Good point well made.

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Replying to Wall1690:
paddle steamer
By DJKL
04th Feb 2021 17:21

Duplicate

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Replying to Wall1690:
Melchett
By thestudyman
04th Feb 2021 17:22

Wall1690 wrote:

In this scenario she is employed by the company - the company pays her wages. But the work that she does is for the individual director. The director doesn't want to set up a separate payroll.

She is employed by the company and she does work for the company. Even if she was paid less than £120 a week, a company paye scheme must exist as she is getting the company car as a benefit.

https://www.gov.uk/paye-for-employers

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Replying to Wall1690:
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By Hugo Fair
04th Feb 2021 17:22

I understand what she doesn't want, but there's lots of things that I don't want but will happen anyway!

The fact that the company is paying her wages does not automatically translate into her becoming an employee of theirs (even if they're prepared to take on all the associated liabilities).
Can one of the other directors arbitrarily decide what work (and where) the nanny will do on a particular day?
Who is issuing the employment contract (and what does it say about the nanny's working hours/conditions/etc)?

The director is unequivocally employing the nanny - and therefore must follow the rules appertaining to being an employer!

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Replying to Wall1690:
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By Paul Crowley
04th Feb 2021 17:27

Get her to give me a call
I will run the payroll for 50% of the extra BIK

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Replying to Wall1690:
RLI
By lionofludesch
04th Feb 2021 17:40

Wall1690 wrote:
The director doesn't want to set up a separate payroll.

And there we have it.

The director can't be bothered.

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Replying to Wall1690:
RLI
By lionofludesch
04th Feb 2021 17:46

Wall1690 wrote:

In this scenario she is employed by the company - the company pays her wages. But the work that she does is for the individual director. The director doesn't want to set up a separate payroll.

Just to be clear, the nanny's wages are a BIK to the director as well.

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Replying to Hugo Fair:
Psycho
By Wilson Philips
04th Feb 2021 17:38

Well, depending on the facts, might it be argued that the company now has a new trade, being the provision of nanny services? If yes, then normal car BIK on the nanny and BIK on the director to the extent that they don't pay the company for the service provided. I'd like to see the contract of employment between company and nanny and the contract for services between company and director before offering any other opinion.

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Replying to Wilson Philips:
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By Hugo Fair
04th Feb 2021 17:50

Certainly a valid option ... IF all the employment aspects (as opposed to accounting ones) are also thought through and treated appropriately.
But OP said "Individual Client has engaged the services of a Nanny" - which I take to mean has either employed her (direct) or, as you're positing, has contracted for her services from a 3rd-party supplier of such services.
If the company wants to set-up that additional wing of its business then that's fine ... but they will incur a lot more hassle and costs than merely processing a payroll - and, as other have pointed out, the combined tax (on individual director and nanny) will be greater than it needs to be if this miasma isn't created!

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Replying to Hugo Fair:
RLI
By lionofludesch
04th Feb 2021 17:53

Miasma !

There's a word you don't see on Aweb every day !!

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By frankfx
04th Feb 2021 17:55

Pension AE?

OP says Director does not want to set up separate payroll.

OP. present a scenario to the director of the cash effect of her viewpoint.

For all we know this may be petty cash in the scheme of things.

Share with us some broad brush numbers.

And your calculation of the overall cash loss of spending power to the director.

Know your client.!

You know the director, and may conclude that £xx, identified in your calculation, is indeed not worth the inconvenience of a separate payroll.

Other clients may take a different view.

.

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By nick farrow
04th Feb 2021 17:59

Is there really a problem with a company supplying a Director with a nanny for her children and say a chauffeur as well if the entire costs is reported on the P11D as a fully taxable and Class 1A benefit in kind as part of her overall compensation package - where is the loss of tax . On the rare occasions I have dealt with nannies I recall they along with some professional footballers are only interested in net pay - so when the PAYE code is adjusted for the car benefit the gross pay will increase tremendously!

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By nick farrow
04th Feb 2021 18:00

Is there really a problem with a company supplying a Director with a nanny for her children and say a chauffeur as well if the entire costs is reported on the P11D as a fully taxable and Class 1A benefit in kind as part of her overall compensation package - where is the loss of tax . On the rare occasions I have dealt with nannies I recall they along with some professional footballers are only interested in net pay - so when the PAYE code is adjusted for the car benefit the gross pay will increase tremendously!

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Replying to nick farrow:
Psycho
By Wilson Philips
04th Feb 2021 18:56

I guess it depends on whether you consider having to deal with the non-tax obligations of employing someone to be a problem or just a administrative (and potentially costly) inconvenience.

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RLI
By lionofludesch
04th Feb 2021 18:51

If the alternative is for this director to draw more income from the company to pay her nanny with, this arrangement might not be disastrous. But you can only crunch the numbers on that. It may be that there's not much in it either way.

The bigger issue might be the employment law. Who is employing whom ? If it turns out to be the company employing the nanny, is that a good idea ? I don't have the skills to comment on that point beyond saying that I'd be toey about it and would recommend taking legal advice.

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By Paul Crowley
04th Feb 2021 19:11

Still have not yet read all replies but BIK comes with (in most cases ) national insurance added to the tax liability on the employee

The daft level of extra costs really is increasing the fee I would charge to do the VERY very simple PAYE scheme

Get her to phone me today
I make a big fee, she saves the same amount. We both win in quite big figures.

We do not know Directors income. But this Miasma certainly increases it and tax rate if just over £100,000 will be entertaining

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7om
By Tom 7000
08th Feb 2021 11:43

Give her a tesla and you haven't got a benefit :):):)

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Replying to Tom 7000:
RLI
By lionofludesch
08th Feb 2021 12:04

The nanny might not have.

Can't say that for the director.

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Replying to lionofludesch:
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By Paul Crowley
08th Feb 2021 13:44

Agree

Co still paying something out for personal benefit

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Replying to Tom 7000:
Psycho
By Wilson Philips
08th Feb 2021 13:35

But we are heading towards 6 April 2021.

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By Silver Birch Accts
08th Feb 2021 13:24

There are numerous specialist Nanny Payroll Providers (Nanny Tax, springs to mind) out there, who do all the work. This Director should be guided towards them, it will save a lot of trouble.

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Replying to Silver Birch Accts:
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By Hugo Fair
08th Feb 2021 14:07

True ... but only if she accepts that she is the employer (which according to OP in a response above she "doesn't want to do").

The effort of running a 'nanny payroll' for one employee is not really the issue ... which is that some body has to be the employer.
If that is the director's company then the result is likely to be inefficient & costly (as well as raising a host of employment issues alluded to above); whereas if it is the director (in her capacity as an individual) then everything's simple - other than that not being what she apparently wants to do!

She has the right to choose her preferred solution, but only one of the two seems to make sense to most of the readers here.

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By David Gordon FCCA
08th Feb 2021 15:01

Oh, come on, this is one of the oldest tricks in the business.
The nanny performs no services for the company (Hint) her Gross cost is a benefit on the director benefiting from her services. Likewise the car.

In 1962 she was called the "Welfare officer". The audit staff were warned, on pain of execution, not to ask to see her.
The denouement came when the director's wife found out he had used the same caterer for the Welfare Officer's 21st birthday, and their 25th wedding anniversary.
I do enjoy it when I am reminded of my innocent youth.

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Replying to David Gordon FCCA:
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By Paul Crowley
08th Feb 2021 15:36

If all this stuff it had not even occurred to me

But your possible suggestion would explain all this

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By paul.benny
08th Feb 2021 15:44

We've all had a nice time discussing this but it seems that the OP has lost interest in participating in the thread.

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Replying to paul.benny:
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By Wall1690
08th Feb 2021 15:55

Not at all. I found all the comments very helpful.

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Replying to Wall1690:
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By Paul Crowley
09th Feb 2021 21:17

My offer still stands

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By Tax Dragon
08th Feb 2021 15:55

Shouldn't it be "on whom"?

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