Company Car Scheme

Scheme to reduce BIK on company car

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One of the Directors and an employee of the company I work for would like to have expensive company cars. Our external accountant has advised that instead of calculating the BIK on the basis of the list price as per HMRC guidelines, that we could set up a DLA and an employee loan account, put all the costs of the vehicles (gross of VAT) to the loan accounts eg car finance lease cost, insurance, servicing, fuel etc and then against this post mileage claims at the 45p / 22p a mile rates. The differnence of the costs v mileage claims would then be a taxable benefit or bonus if the full costs were not covered by the meileage reclaims. I have never heard of this scheme before and am wondering if it is even a  valid scheme. Can someone please advise as I do not wish to challenge our accountant if it is a viable scheme. 

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By MJShone
23rd Nov 2017 16:53

This sounds a bit muddled. I think what is being suggested is that the individual would lease the car, so the car payments are made by the company on behalf of the individual. The individual therefore owes the company money. That in itself is a beneficial loan and results prima facie in a taxable benefit. So you've turned the benefit of the car into the benefit of a loan.
The suggestion seems to be that the amount owed by the individual would be reduced by business mileage payments due from the company to the individual - so the taxable benefit of the loan would be reduced.
I think that's all fine so long as the lease really is entered into by the individual, not the company AND the business mileage claims are genuine and not simply calculated to reduce or eliminate the loan!

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By Jane0904
23rd Nov 2017 17:00

I thought that would be the case. However the finance leases are in the name of the Company not the individuals and that is why I am questioning it.

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Replying to Jane0904:
RLI
By lionofludesch
23rd Nov 2017 17:10

Quote:

I thought that would be the case. However the finance leases are in the name of the Company not the individuals and that is why I am questioning it.

Yes - that's where they've got it wrong.

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By Ruddles
23rd Nov 2017 17:00

Asking the same question more than once doesn't make the scheme any more workable.

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Replying to Ruddles:
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By Jane0904
23rd Nov 2017 17:24

Sorry - I dont know why it has been listed twice !

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By lionofludesch
23rd Nov 2017 17:08

Well, it's sort of OK.

But the leasing contract, insurance, repair bills etc etc would have to be in the name of the director/employee and not the company.

And it would be down to the director/employee to keep mileage records.

What it boils down to is the director/employee having a contract for a car but the company pays all the bills, gives him a 45p a mile allowance and there's a settling up every April.

You may well have some VAT that you wouldn't be able to reclaim as the bills aren't addressed to the company.

Whether it's worthwhile will depend on how many private miles are involved. But then, the driving motive (see what I did there?) seems to be wanting a flash car, rather than saving tax.

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Replying to lionofludesch:
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By Portia Nina Levin
23rd Nov 2017 17:24

Even with the lease in the individual's name, HMRC can still argue that it is available to them by reason of their employment if it is the company that has arranged the lease; particularly if it is on more favourable terms than the employee could arrange for themself.

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Replying to Portia Nina Levin:
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By lionofludesch
23rd Nov 2017 18:24

True. I don't want to give the impression that this scheme is a good idea. But I do see where it's coming from.

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By Wanderer
23rd Nov 2017 17:37

OP

Apollo Fuels Ltd v HMRC & any subsequent blocking would probably be a good start to research this. Some details here:-
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim23910

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