Employer paying employee benefit in kind tax

A director needs to pay benefit in kind tax, can the limited company pay the BIK tax for them

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Client a director, lives in a rented accommodation. Up until now the company has been paying the rents and utilities for this. In my opinion the director should pay benefit in kind tax as not all of the expense is business related. I can work out the % based on the number of rooms and the hours worked for business. Just wanted to find out if the company agrees to pay the benefit in kind tax for the employee then what would the implications be. If anyone can advice then will really appreciate.

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By jonharris999
07th Aug 2021 12:27

The company can pay its employee whatever it wants to pay them. And that pay is taxable.

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Replying to jonharris999:
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By Lisa09
07th Aug 2021 12:42

Thank you for the reply Jon, I do appreciate. Does this mean that if elect for employer to pay the tax then the employee will end up paying a bit more tax as consequence. Also, can employer deduct this payment as expense.

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By Hugo Fair
07th Aug 2021 12:32

Well at the risk of stating the obvious ... if the company pays the (BiK) tax for the employee, then the payment will by default be treated as earnings of the employee (and therefore subject to PAYE).
You can't use a PSA, because the payment would not be seen as "minor, irregular or impracticable expenses or benefits for your employees" ... and I can't see any other way in which to escape it being labelled employee earnings.
I'd also be wary of "working out the % based on the number of rooms and the hours worked for business" as a means of reducing the benefit value. There would have to be some very specific conditions in place to exclude any of the whole benefit value.
If this is not an area in which you are experienced, then you (or your client) need to appoint someone who is ... as there are far too many variables to explore here.

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Replying to Hugo Fair:
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By Lisa09
07th Aug 2021 12:44

Thank you for the reply Hugo, appreciated.

I was checking the rules for rental expenses and the property has 3 rooms. I was going to divide the whole rent by three i.e. to work out per room. He uses living room 12 hours a day (per email from him). I was then going to apportion that one room by 12/24 over 5 days a week. This comp will give the business cost element and the rest will be BIK. Am I correct ?

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Replying to Lisa09:
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By Paul Crowley
07th Aug 2021 13:11

This is not an area that you want to get involved with.
The company is paying rent and utilities for a house that the director lives in
He then claims that he works 12 hours a day?

Consider whether you were happy explaining your reasoning to HMRC at an enquiry meeting.

They start with work from home allowance of £312

Why does company need to rent a house and not a single office in a serviced commercial office building?

House was rented because director needed somewhere to live
Not much more to it than that

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Replying to Paul Crowley:
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By Lisa09
07th Aug 2021 13:21

Thank you Paul and I do take your advice because far too many directors argue that they work every hour from home and so rent should be allowed expense. HMRC argues that it has tto be wholly and necessary and rent is a complicated one because the director would have had to pay anyway. However, due to the pandemic the director worked from home and did not rent a short term office. Is there a argument here that he should be allowed to claim some rent as business expense ?

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Replying to Lisa09:
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By Hugo Fair
07th Aug 2021 13:26

Basically, no ... see Paul's response.
Property's primary purpose is to provide living accommodation, with any WFH being a relatively minor side issue (he still needs somewhere to live even if he's not working).
As I said before, there are a few specific scenarios (such as Director having other home in normal circumstances but just staying here for a limited period as an alternative to a hotel for a particular project) where *some* costs might be excluded ... but your client needs to speak to a specialist and provide all the salient facts.

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Replying to Hugo Fair:
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By Lisa09
07th Aug 2021 13:31

Thank you Hugo, I get the consensus that the answer is no. Is the consensus also that the director should pay the BIK tax too. If the company pays the tax then the director will end up paying additional tax a consequence.

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Replying to Lisa09:
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By Paul Crowley
07th Aug 2021 13:38

If there are profits then director better off taking a dividend and paying Dividend tax rather than extra wages with EENIC and ERNIC

But company can pay work from home allowance Tax and NIC free
For this year and last year and continuing

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Replying to Paul Crowley:
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By Lisa09
07th Aug 2021 13:39

He's already taken £40k dividends

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Replying to Lisa09:
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By Hugo Fair
07th Aug 2021 13:49

Correct ... Not necessarily (see Paul's comment re Divs) ... Correct.

Basically, Director is getting the benefit* and has to pay for it ... so the underlying question (as so often) was really how he can best extract money from company (meaning at cost of least tax) in order to be able to pay the rent/etc.
[* benefit as in accommodation, irrespective of whether that is a BiK or via direct rental by Director as an individual].

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Replying to Hugo Fair:
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By Lisa09
07th Aug 2021 14:03

Thank you Hugo, appreciated

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By DKB-Sheffield
07th Aug 2021 14:12

Hi Lisa,

Quick question (may or may not be relevant)...

When you say the company pays the rent on the director's accommodation, who is the rental agreement with? Director? Company? If it's the director, I'd want to carry out further checks as to whether this qualifies as provision of accommodation or a "cash" payment to help with rent.

If the contract is in the director's name, yet rent is claimed (recharged) through (to) the company, this may be deemed as subletting which is a breach of tenancy in most AST agreements (assuming this is the agreement in place). Same goes for utility contract, council tax etc.

Regardless of the above...

The company is liable to, and will pay the Class 1A NICs (assuming relevant) and can claim relief.
The director is liable to, and will pay the tax through PAYE (i.e. through a lower tax code) or their SATR. If the company pays this on behalf of the director this will be payrolled earnings (and taxed accordingly) l, dividends (taxed accordingly) or carried to the DLA in the short term (s455 tax and beneficial interest). Earnings will attract CT relief, dividends or loan will not.

Incidentally, your client says they use, what must be the only reception room in the house (3 rooms, less bedroom and bathroom - assumes kitchen/ living room), 12 hours per day, 7 days per week?! He also (effectively) argues that the company should pay the rent because, if he wasn't running a business from home, he wouldn't need a house, wouldn't have to pay rent, wouldn't have to pay council tax, and wouldn't have to pay contents insurance (all things HMRC specifically oppose for employee WFH claims)?

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Replying to DKB-Sheffield:
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By Lisa09
07th Aug 2021 14:20

Thank you DKB, thee rental agreement for the apartment is under the company's name and so the company pays the rents and utilities.

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Replying to Lisa09:
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By DKB-Sheffield
07th Aug 2021 14:57

Hi Lisa

Thanks for the confirmation. That certainly clears up the first 2 parts of my post.

I would still question the 1/3 x 12/24 allocation particularly as the room he works from doubles as the living room. In the same vane, what differentiates the value if this WFH agreement from that of a "normal employee" - i.e. why is 1/6 of the rent, council tax & utilities allowable against the BIK but, a similar claim for an employee's own home costs would almost certainly be restricted to flat rate expenses?

I don't think the pandemic would count as a justified reason for renting a home. Just because a company rents the property, it doesn't mean it is now primarily a business premise with living accomodation.

However, there may well be more to this than we know (e.g. he is a caretaker, the house is part of a pub in which he is the manager etc.).

Finally, and just to confirm, when mention BIK tax - you are referring to tax paid by the director through SATR or tax code and not Class 1A NICs per P11D(b)?

Please note, the questions above are those I would consider when reviewing such a situation with a client. Any suggestions are just that (suggestions). We don't know the full details of you client position, or the conversations you have had with the client.

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Replying to DKB-Sheffield:
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By Lisa09
07th Aug 2021 15:44

I totally appreciate that these are just general replies from anyone and they do not know the true facts. In this instance the director does a payroll and completes the SATR too. The director runs an IT company and so claims can work from anywhere

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Replying to Lisa09:
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By Paul Crowley
07th Aug 2021 16:10

Duplicate

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Replying to Lisa09:
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By Paul Crowley
07th Aug 2021 16:16

Director clealy knew what he was doing in deliberately renting residential accomodation in company name.
If running payroll should know that p11d needed completion for taxable benefits
company did not need a house for its trade
Company rented house as a benefit in kind for the director

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Replying to Lisa09:
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By DKB-Sheffield
07th Aug 2021 16:16

Hi Lisa

I'd be very mindful that this client is trying to justify that his home is not a home at all l. He is trying to suggest it is primarily his office where he also happens to sleep/ wash/ eat. There is no doubt in my mind that this is primarily his home and he just so happens to work from it. Put another way, if his company no longer needed the office, would he no longer need the house?

Whilst it is true, he can work from anywhere, this does not detract from the fact that, if he couldn't work from anywhere, he would still need somewhere to live.

My reference to pub managers, caretakers etc. is that HMRC accept that they must live on business premises (their accommodation being self-contained within the business property, grounds of a school etc.) and hence offer a level of exemption. The examples were not suggesting they are the only people who need to work from home.

Faced with your situation, and based purely on the information provided, I'd be very reluctant to allow a substantial 1/6 deduction for business use - if at all, any!

Finally, and regarding the actual question of tax payments, my reason for asking about PAYE and SATR is to understand why the issue of a "tax payment" has come about. Generally the director's tax on a BIK will form part of the SATR (and be part of his annual tax liability) or will be collected through his tax code (hence through PAYE). The only separate payment specific to BIK is the Class 1a payment which is a company expense, is paid through tje company and is relieved by the company. Your question, therefore, should start with either;

1. If the company pays the director's self assessment tax bill...
2. If the company increases a director's salary to account for a decreased tax code...
3. If a company pays the Class 1a NIC liability...

If you csn confirm the above, you will confirm your answer.

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Replying to DKB-Sheffield:
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By Lisa09
07th Aug 2021 17:33

Sorry for the delayed reply, busy with the kids too.

The company does not pay the directors self-assessment tax. They pay themselves.

The co.pany has not increased the salary to cover for the tax

The company does pay class 1a NIC at present on the normal salary.

I agree the directors did know what they were doing and tried to get away. HMRC has inquired in the company's tax return and hence this point has come up I.e. to check now before HMRC ask. Since this point has come up so I thought I need to be clear in my mind as what to do, because will not like to like to do anything incorrectly

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Replying to Lisa09:
By petersaxton
07th Aug 2021 17:47

Lisa09 wrote:

The company does pay class 1a NIC at present on the normal salary.

Why does the company pay class 1A NIC on the normal salary?

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Replying to Lisa09:
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By Hugo Fair
07th Aug 2021 18:07

This thread has rapidly changed from a specific question (and answers) into a slow car-crash of new info and worrying statements.

I've no idea whether OP is a book-keeper or a friend but the client is in urgent need of an experienced accountant:
* "The company has not increased the salary to cover for the tax" doesn't have any clear meaning.
* "The company does pay class 1a NIC at present on the normal salary" cannot be true ... ER & EE pay class 1 NICs (depending on earnings) on salary via PAYE; whereas ER may (but does not appear to be) pay class 1A NICs on benefits (not earnings) provided to employees.
* "HMRC has inquired in the company's tax return" is a brand new bit of info ... do you mean they've opened a formal Enquiry (in which case it's a bit late "to check now before HMRC ask")!
* "I agree the directors did know what they were doing" ... so now there's more than one Director (whereas previous indications were of a one person director / shareholder company).

As it's no longer safe to assume which activities are performed by the client (RTI filing for instance?) and what services are being provided by OP ... I'm out!
Client definitely needs the services of an experienced accountant - and urgently if HMRC have already opened an Enquiry.

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Replying to Hugo Fair:
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By Paul Crowley
07th Aug 2021 18:52

Agree
This is a car crash
Too late to make a voluntary disclosure
Once HMRC start enquiries the company and its directors are liable in penalties for their deliberate and concealed actions.

@OP did this client come to you only after the enquiry started ?
If so then quite a vital bit of information missing from the first post
Get money up front and do no work past the value of the money held
Once you fail to get them out of their hole you will find the company has no money and will not pay a penny
IT man will just start a new company and do the same thing all over again

How often have you dealt with enquiries?
HMRC are incredibly well informed and rarely start enquiries without solid evidence of wrong doing
And they have it on this one
Request copies of all correspondance from HMRC and all replies to HMRC to date
I would not start any enquiry on a brand new client without holding £2,000 befors doing any substantial work.
If I sort it in £1000 plus VAT time they get their £800 back
First interview free of course, even if it is two hours

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Replying to Paul Crowley:
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By DKB-Sheffield
07th Aug 2021 23:23

Agree completely. This thread is now out of control. It seemed like such a simple Q&A at first but it's been more like peeling an onion (in more ways than one... he cries...). Why important things like CT compliance check, how long this has been goin on, and "brand new client" were left out, I don't know.

I am confused how a CT compliance check has come about because HMRC have identified the rent/ BIK issues from a CT Return. Clearly the rental value must be completely dispproportionate to the overall P&L and out of line with commercial rental prices.

@OP - I suspect this is the tip of the iceberg. HMRC do not challenge CT submissions lightly. And, in the face of it, what has been suggested as the reason for query is, to my mind, almost certainly not the sum total of their concerns. I would anticipate this leading to a full-scale combined taxes review - and a massive headache for you as the advisor (not worth the £1 or £2 extra money you mention). Certainly not worth "giving it a go" if you're not confident in your knowledge - it could easily backfire on you, the client or both!

Either, you have been sparing with the detail or, as I suspect, the new client has failed to tell you some very important details or show you some critical correspondance.

Either way, if this was my new client, I'd be having a good hard look at this case and potentially look to reject the client.

Good luck!

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By Lisa09
07th Aug 2021 18:54

Apologies, for turning this inti a murder mystery entertainment for Sat eve.

Yes, he has only come over now. I have not done anything previously. I thought let me look into a P11D for 20/21 which has not be done previously. I also agree that I need to be very careful and not let anything bite me afterwards.

I am sure in our profession we all come across clever clogs trying to avoid taxes. We will be very careful with them but if there is a £1 or £2 from the services then worth a go. I'll stop before told to shut up :)

I think let's keep it simple. I will advice on the HMRC guidance note on home expenses and if they agree then fine. Else I cant's do that.

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