Company car for non working director

Feels wrong but not sure why

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Company has two directors, husband and wife.  Wife runs the business, draws a salary, etc.  She has a company car (EV) which is fine.

Husband has nothing to do with the business.  He has his own separate business (self employed).  He is a director but is not paid.  They want to add a second company car for him.  I understand it will obviously be BIK for him, but surely the 100% FYA on a car with zero business use must be slightly suspect?  Would HMRC disallow?

Replies (27)

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By rmillaree
30th Jan 2024 09:56

the lack of business use really isnt too relevant thats what tehn benfit charge does.

What is relevant is getting corporation tax deduction for salary/benefits not commercial in nature.

Would it not be better for wife to have 2 company cars ?

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By David Ex
30th Jan 2024 10:03

There was a thread last year and I was a bit surprised at the concensus expressed there that simply being a director justified a four figure salary.

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Replying to David Ex:
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By rmillaree
30th Jan 2024 10:30

i would be surprised if many peeps argued that - other than an obstinate op perhaps

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Replying to rmillaree:
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By Mr_awol
30th Jan 2024 15:01

I'm not sure its so rare/unbelievable. I have a limited company. I could do with a second director. They wont have to do an awful lot, but might need to have say one meeting a month and naturally they will take on all of the legal responsibilities that a company director has. I am willing to pay and can assure you it's likely to be easy money, but if something goes wrong it could be a complete nightmare.

If this isn't a service you provide, imagine for a moment it is. How much would you charge me?

Or, keeping in our field - a corporate practice wants a senior manager/partner designate. You take the job and are running a portfolio very successfully when they decide to promote you to director. How small a payrise do you want?

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Replying to Mr_awol:
paddle steamer
By DJKL
31st Jan 2024 11:02

Yep- you would want paid for the risk., how much, well certainly a few thousand a year minimum. My Dad had one non exec directorship for years where his annual fee was a case of wine and his obligation to turn up to the AGM (quick meeting then food and drink), simpler times.

I get round the risk position (to a degree) by normally being a Company Secretary rather than a Director (think I have 7 of these at present), this lets me sign various docs like leases etc and our banks will talk to me etc, but I am not totally exposed as a director (in all honesty given I am quasi day to day running most of these entities anyway there would be very little risk to me anyway except that caused by myself)

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Replying to DJKL:
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By kim.shaw-and-co.com
31st Jan 2024 21:22

DJKL wrote:

but I am not totally exposed as a director (in all honesty given I am quasi day to day running most of these entities anyway there would be very little risk to me anyway except that caused by myself)

Would you say, in all honesty, that you were a person in accordance with whose directions or instructions the Board are - in realty - accustomed to act ?

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Danny Kent
By Viciuno
30th Jan 2024 10:15

The car is being purchased for business use - to remunerate the director.

The personal use of which is a red herring; that is reported on the P11D.

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Replying to Viciuno:
RLI
By lionofludesch
30th Jan 2024 10:19

Viciuno wrote:

The car is being purchased for business use - to remunerate the director.

The personal use of which is a red herring; that is reported on the P11D.

Absolutely.

And often overlooked.

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By paul.benny
30th Jan 2024 10:43

Let's not forget that directors have duties and responsibilities and the Companies Act does not recognise the concept of a non-executive director.

Those duties and responsibilities may be modest in many small businesses but breach can still lead to penalties. So I would absolutely argue that a director should be remunerated.

As I recall P11d were originally required for directors and higher paid employees (when higher paid meant earnings over £8,500), which very much speaks to the idea of directors receiving benefits but little or no other remuneration.

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Replying to paul.benny:
RLI
By lionofludesch
30th Jan 2024 12:17

Originally, it was less than £8500. I can remember it being £5000. Might have been £2000 when first enacted.

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Replying to lionofludesch:
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By Mr_awol
30th Jan 2024 15:04

How did they measure the BIK on the horse and cart though? Not Co2 emmissions surely! ;)

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Replying to Mr_awol:
RLI
By lionofludesch
30th Jan 2024 15:36

[chuckle]

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Replying to Mr_awol:
Routemaster image
By tom123
30th Jan 2024 15:49

Did the horses not breathe then? What about the other end..

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Replying to tom123:
boxfile
By spilly
30th Jan 2024 20:11

.....produced manure that was excellent for growing stuff, especially roses. The sweet smell of success perhaps?

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Replying to spilly:
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By Blofeld
31st Jan 2024 10:19

Shurely shome methane gas or similar "greenhouse gas" was produced...?

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Replying to tom123:
paddle steamer
By DJKL
31st Jan 2024 11:03

Methane?

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Replying to Mr_awol:
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By Dib
31st Jan 2024 13:17

It was just a horse in ICTA 1970, no cart. Presumably it would be CH4 emissions (methane to the non-chemists) :o)

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By Ruddles
30th Jan 2024 12:39

Just playing Devil's Advocate here - what do other respondents think the qualifying activity is in this case, given that the director "has nothing to do with the business"?

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Replying to Ruddles:
Stepurhan
By stepurhan
30th Jan 2024 13:08

Enabling company business to still take place if the main active director is indisposed. It's a safeguard that a lot of one-man band companies are missing, leading to issues for their families if something happens to them.

Whether the provision of the car is an appropriate level of remuneration for such a position is another matter.

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Replying to stepurhan:
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By Rgab1947
31st Jan 2024 10:38

I advise all single director companies to appoint another director and a 2nd bank signatory. Imagine what would happen if a single director popped off due to heart/stroke/being hit by a bus.

Often its the wife who ends up being the 2nd director. I do also advise that being a director has considerable responsibilities. That is worth getting paid for.

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Replying to Rgab1947:
Stepurhan
By stepurhan
31st Jan 2024 13:03

Rgab1947 wrote:
Imagine what would happen if a single director popped off due to heart/stroke/being hit by a bus.

Sadly I don't have to imagine. I have seen it happen. Twice.
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By paulwakefield1
30th Jan 2024 13:58

I also wonder if he really does have nothing to do with the business. I have an H&W client, both directors, where the husband states he has nothing to do with the company; it is true his involvement is minimal compared with a few years ago but it ain't nothing.

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By raycad
31st Jan 2024 13:49

One you accept that the car is a form of remuneration and subject to BIK, Class 1A NICs etc then (all other things being equal) there is no possible reason why the 100% FYA should be in jeopardy.

There is no fiscal legislation that requires a test of "appropriateness" in testing a director's remuneration package. If there were, I suspect most of our MPs would be in trouble. And people like Jeff Fairbairn of Persimmon wouldn't get paid Zillions in supposedly profit-related bonuses!

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Replying to raycad:
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By rmillaree
31st Jan 2024 15:13

There is no fiscal legislation that requires a test of "appropriateness" in testing a director's remuneration package.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47105

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Replying to raycad:
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By rmillaree
31st Jan 2024 15:13

There is no fiscal legislation that requires a test of "appropriateness" in testing a director's remuneration package.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47105

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Replying to rmillaree:
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By raycad
01st Feb 2024 16:07

Replying to R Millaree

What I said was that there is no fiscal legislation which requires any kind of assessment of the appropriateness of a director's remuneration. I would add that nor is there any Case Law requirement. Notwithstanding HMRC's claim in BIM47105 that this could apply in the case of a 'related' director, none of the cases cited therein give any support for such an assertion; that is where the individual receiving the remuneration is himself or herself a director of the company in question (unless they were a minor, which was what most of the cases concerned.)

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By cfield
03rd Feb 2024 14:45

There is unfortunately a very good reason why a one-person company might need a 2nd director. You might remember a few years back some High Court Judge came to the ridiculous conclusion that the Model Articles were unsuitable for sole directors as they didn't grant them the power to run their own companies.

This was all because Article 11(2) stipulates that the quorum for a directors meeting must never be less than 2. For some daft reason, he thought this trumped Article 7(2) which says a single director has the right to take decisions. Which one did Parliament have in mind when they allowed companies to have just 1 director and enacted the legislation for the Model Articles, I wonder!

In response to this, firms of solicitors gleefully laid leaflets on chairs telling us our clients had to change their Articles and they'd be only too happy to oblige. They failed to mention that you could simply appoint a 2nd director instead, your wife or dad for instance.

Of course, the only ones who took any notice of this stupid ruling were box-ticking organisations like mortgage lenders, who said they wouldn't lend otherwise. Can't blame them I suppose, as the same judge would probably have ruled that they had no right to get their money back.

Anyway, getting back to the question, it is for the company itself to decide how many directors it needs and how much they should be paid, so the company car is approved remuneration and hence tax deductible. It's a bit like pension contributions. The HMRC Manual (BIM 47105-6) pretty much says that controlling directors whose work generates the company's income can pay themselves more or less what they want. This extends to other directors too if their pay is in line with unconnected employees, but if there are none doing similar duties, there is no basis for comparison. I think it's highly unlikely HMRC would challenge a capital allowance claim for a company car so long as the BIK is declared. For one thing, it would be well below their radar.

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