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Contractor provided with car by client

Tax and IR35 implications if contractor provided with car by client

Trying to work out the implications - in terms of both tax and IR35 status - of a contractor (limited company) on a long term contract with a client, being provided with a lease car paid for by the client, but where the contractor then reimburses the client for the cost of the vehicle.  The advantage to the contractor being that the lease risk remains with the client, and the client's existing (and therefore cost effective) relationship with the lease car provider.

Presumably if the car was just provided with no reimbursement of cost there would be a question over employment status (since cars are also provided to senior employees of the client), but does that fall away if the client is reimbursed?  

Also I assume that the BIK to the contractor would still accrue and be an income tax liability of the contractor personally?  And the cost of reimbursing the client would be a deductable (corporation tax) expense. 

Any help / advice would be much appreciated.

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By DJKL
05th Apr 2017 17:57

Surely re your client his company is in effect hiring car from his client (supplier) and paying a rental re same.

Seems to me your client has a BIK charge from his own company re it providing him with a car. Also assume re supplier he issues vat invoice to client's company and it pays same.

What happens re insurance/running costs/repairs, who pays?

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05th Apr 2017 18:06

Thanks for the speedy reply.
I see what you mean - so the contractor is just effectively using his client as if it were a lease company?

Yes the contractor raises vat invoices to his client and it pays the same. The insurance, maintenance, reps etc would be included in the lease cost (ie paid initially by the client company, the reimbursed by the contractor).

Agree that the contractor will have a BIK charge from his own company.

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By DJKL
to mikepark
05th Apr 2017 19:59

The customer hires to your client's company and I guess charges vat on the invoices it provides to said company, and your client's company then pays these? These include the insurance?

I think the insurance here may be a big problem, unless the customer doing the hiring is a car hire company I doubt the insurance it has re the car covers the car when hired to your client's company, most insurance is pretty specific re not covering hiring.

Your client could effectively be driving uninsured. He/his customer need to carefully look at the legality of what they are doing, for instance if his customer leases the car from a finance house that agreement may have a prohibition re onward hiring.

If the customer is a Car Hire Business ignore the above, if not your client, and his customer, probably should examine all the small print .

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06th Apr 2017 09:29

I think the intention would be to show the payment of lease costs as a deduction in the monthly invoice from the contractor to his client.

The client will also need to check the paperwork in the 'header' lease agreement which may well restrict 'sub-leasing'.

With regard to insurance, the client has a policy which allows any driver whom it authorises to drive.

It all looks quite messy and seems to have a few potential pot-holes...

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06th Apr 2017 15:10

My client has confirmed the following:

* he would be making a contribution (by reducing his monthly fees) to his client that covers the to his client of the lease, rather than taking on the lease (so no sub-lease). All the risks and obligations remain with his client. So if the 'contribution' ceases his client retains full responsibility for the ongoing lease.

* the insurance policy covers any driver with owner (ie his client) consent. No distinction about having to be an employee.

Apologies for long discussion thread but he is being insistent and I am trying to be definitive.

Could this work?

Thx

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By DJKL
to mikepark
06th Apr 2017 15:24

I think it really is mere contra, surely the consideration for the work done (notwithstanding the invoice) is the cash re the fee plus the value of the use of the car.

HMRC somewhere have details re treatment of barter transactions.

If this was not the case I would be doing the accounts for my travel agent client in exchange for a free holiday.

https://www.gov.uk/guidance/vat-part-exchanges-barters-and-set-offs

http://www.taxadvisermagazine.com/article/vat-and-barter-transactions

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06th Apr 2017 16:27

Yes agreed, the consideration for work done is the total of time cost plus the cost of the car (so the contractor's income would have to be disclosed gross). Also VAT liability correctly reflected in the books of both the contractor and his client.

So maybe the cleanest roue is for the contractor to continue to invoice for his time (as at present), and for his client to invoice him for the car cost - both invoices including VAT

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07th Apr 2017 11:30

So the main, possibly sole driver, is only insured "with the insured person's permission" to drive the vehicle, isn't a family member and there's a financial arrangement in place between the insured person and the driver? What address does the insurance company have for the place where the vehicle is usually kept? Are the insurance company fully aware of these facts? Never mind barter or IR35 or the legality of sub-hiring, his biggest problem is no valid insurance.

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07th Apr 2017 17:36

Thanks all for the helpful input - much appreciated.

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28th Apr 2017 09:57

The car issue sounds like it might be the least of the contractors worries re IR35. It doesn't really figure in the three main tests of employment (personal service, control, mutuality of obligation), and is more in the part and parcel zone.

My crystal ball says that a possible area of concern might be that the client has provided a car and is then directing them WHERE to work, indicating a heavy level of control. But, this is just one factor in the whole picture of course.

"Long term contractor" sends alarm bells too. Are they on a project? Do they have deliverables? Or are they a tail-end charlie having turned up with a set of skills and are then told what to work on, perhaps with minimum hours per week.

They could start by getting a free IR35 Review on IR35Testing.co.uk [excuse the plug] then go from there. We don't ask about use of cars and so on - for a reason - there are much bigger concerns. Also, it's never come up in the case law specifically.

Dave Chaplin
CEO, ContractorCalculator / IR35Testing

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