Hi all
An impetuous Ltd Co Contractor client has landed herself with an annual Benfit in Kind tax liability of £7,500 after taking out a 4 year business car lease on a CO2 monster before consulting me. She is hoping I can persuade HMRC that the vehicle will only be used for business purposes because a) she will keep her private car that she had intended to sell, and b) she asked me to draw up an Employment Contract which contains the magic clause "no personal use of car allowed". Sadly, yesterday I came across the Minimum Wage exemption problem: my client's current remuneration strategy is NIC threshold level salary, and dividends thereafter. In putting in place the Emplyment Contract I understand she will have to pay herself a salary at the Minimum Wage level, approximately £8k more than now.
Is there a way around this? And if we are succesfull in proving exclusive business useage, do we automatically become entitled to 100% input VAT claims on the lease payments? Many thanks
Replies (71)
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Do you need a contract of employment to proscribe personal use of a car?
Where is this car that isn't used privately kept? Who is insured to drive it and what is the cover?
I'd have thought you would really struggle to convince HMRC if questioned on the point. As a question of fact, is it really likely to be unavailable for private use?
EDIT: I would resist any request to draft any kind of contract. Leave that sort of thing to the lawyers
Her father’s business premises has room for the car overnight/weekends.
Where is this in relation to where she lives? Is the intention that she will drive in her own car to pick up the lease car and then the drop it off on the way home?
I still don't believe that you need a contract of employment to forbid personal use. HMRC presumably mention it in the context of a "normal" employee. I can't see a contract of employment carries any more weight than, say, a board minute where a one person company is involved.
At the end of the day, you need some pretty convincing evidence of what happens in practice to support the paperwork.
I bet she also keeps the car at home? Re trying to convince HMRC, I wouldn't even bother, at the end of the day, the car is almost certainly 'available' for private use. It doesn't matter a jot how many one line clauses she slips into a contract of employment.
An expensive lesson - I'm sure she'll seek your advice before she changes her car next time!
Post the car lease payments to her DLA. Best you can hope for to just remove it from the accounts. No CT relief, no BiK
Post the car lease payments to her DLA. Best you can hope for to just remove it from the accounts. No CT relief, no BiK
Is that correct or am I just getting bogged down in the detail? If the lease and insurance are in the name of the company, it's a company car, isn't it? The suggested DLA route might not even give a private use deduction from the BIK charge. Mind you, we are told there is no private use.
EDIT: https://www.accountingweb.co.uk/any-answers/company-cars-and-p11d
You’re probably technically correct , but if all payments are going to the DLA, no harm no foul in the my eyes.
Or better still, change the DD payment to coming out of her personal bank account. Company doesn’t even see the expense then, so it can forget about it.
Wouldn't do it, unless the lease payments are equal to or greater than the BIK. Any contribution is deducted from the BIK, and not the cost of providing the car, so whilst the BIK would be reduced, there would still be a residue assessable.
You might want to check your own legal position. I have no idea what the rules/consequences are, but it doesn't sound good if you've advised about and provided a contract and then she commits a driving offence, or you advised her to change her insurance and she has an accident on her way home.
Badly put, but you get the drift.
You mean, let the client pay the tax.
I agree completely. You want your clients to value your advice enough to be happy to pay for it. Getting a tax bill for not taking advice in advance might just encourage this one to take advice next time.
Having a parking space available at dad's work place doesn't stop her tax charge and sounds like a potential tax issue for him. Stop multiplying the iniquities.
Can you not vary the employment contract re expected hours of work; in effect the director goes part time?
Can you not vary the employment contract re expected hours of work; in effect the director goes part time?
Not sure that would assist the substantive point about the car benefit, would it?
Fair comment... but my point was if you don't believe her then you obviously have to abandon this approach. If you do, what persuaded you?
Plus AA is absolutely right - it's availability for private use that matters. Andy's comment shows how hard we all expect it to be to stop the vehicle being available for private use. (Sorry I don't mean to sound like I'm speaking for everyone but I for one agree with Andy.)
I perhaps should have made clearer that my client has said she will NOT use the car privately - my worry is how best to enable that to be a successful/ believable claim.
The benefit arises where the car is available for private use. Actual use is irrelevant.
More precisely, mere availability is enough for the tax charge to arise.
Actual use is relevant if the car is supposedly not available to be used privately but nevertheless is so used. Then you get the tax charge plus a whole heap of other potential (and potentially more serious) issues e.g. driving uninsured.
More precisely, mere availability is enough for the tax charge to arise.
Actual use is relevant if the car is supposedly not available to be used privately
Fair point, I expressed myself badly.
Whatever she says now, once the pressure is off she will use it privately. Mark my words.
It's like clients who have a company debit card or credit card and swear they will never use it personally. They do, either for convenience or because they become complacent.
Whatever she says now, once the pressure is off she will use it privately. Mark my words.
This.
Plus - if HMRC pick up on it, it'll be up to her to prove there was no private use.
Her records won't stack up.
OK - give her a month or two and see how she goes.
It's her risk - you can only advise. You said earlier that there's £27000 at stake - how would she feel if she got a bill for that in four or five years' time ?
I'm curious as to why this has surfaced now. It's not P11d season. Just how far through the 4-year lease are we?
Clearly there's nowt can be done re tax already accrued. Maybe your immediate focus should be on reduction of penalties?
I'm not sure what penalties have to do with it? Aren't you giving your client the opportunity to consider the financial risk and come down on the side of flouting the system?
If you are sure of your ground and you communicate that to the client either your client takes your advice or she doesn't. If she doesn't you will be faced with money laundering and disengagement issues.
The penalties might be an issue if you were considering a grey area, for example, where there was case law on either side of the argument.
But given her current stance I am only repeating to her what I have read ON HMRC's own web pages about Employment Contract clauses
Trouble is there's a world of difference between a major employer telling an employee that a car is only for business use and a one woman company telling herself that!
Does the 5k charge apply if she transfers the lease to her own name? Worth her finding out, maybe?
Does the 5k charge apply if she transfers the lease to her own name? Worth her finding out, maybe?
Definitely worth asking. The thought had occurred to me. However (and I don't understand car leasing) there is usually a distinction between "business" and "non-business" agreements which might be a sticking point.
Sadly she chose a Lease co that doesn't do Personal leases!! That was indeed my first shock horror reply/advice!
To be fair, she does sound a bit of a muggins.
What sort of car is this ?
That's a bit of an understatement .... very young for her age
Wait for it... Range Rover Evoque. 2 million grams CO2...
Ach, well, anything over 160 is on the top notch anyway.
If she can afford a Range Rover, she can afford the tax. I wouldn't worry.