Hi there
Looking for second opinion on most tax efficient option. On preparing the CO accounts, the Director paid £20k for an expensive car, whose list price was originally £50k, so he knows he has a BIK.
I have advised them to get the car out ASAP, and the options are:
1. Have the Director buy the car at MV, unfortunately the Director does not have the cash to do this.
2. Direct transfer to Director at MV, this would go on his P11d in addition to the Car benefit. Is there National insurance to consider on top of the BIK here? Receiving the asset by reason of being a Director?
3. Transfer to Director via Directors Loan, this would cause the DLA to become overdrawn. S455 tax would be due and BIK on the Loan though could be offset by declaring a Dividend. Again is there a National Insurance issue here by reason of being a Director?
4. I have heard of Dividend in specie but ruled it out due to lack to reserves, though could this apply to a car?
Accounts Y/E being prepared was 5 months ago and show reserves of £13k.
Thanks
Replies (24)
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"Is there National insurance to consider on top of the BIK here?"
Class 1A NIC rings a bell.
Not sure I understand what you’re doing, or rather why. You say “he knows he has a BIK”, so presumably you just need to make sure all the PAYE obligations are met.
So we want to change the ownership of the car from the company to the director today so the BIK ceases.
How do we do that most efficiently?
Just sell the car to Philip Schofield/WBAC. And I’m not being facetious.
In short, clearly there will be a P11D benefit UNTIL such a point at which he buys the car. That's about the totality of it. I wouldn't worry about trying to find a clever fix if your tax knowledge is this limited, not least as their aint one.
I didn't say they cant buy the car.
it seems you are looking for a 'clever tax fix' whilst clearly not knowing much about tax. This is a waste of time as there is no clever fix.
+1
@OP
MISSING DETAIL
We assume that the director is also a shareholder
Director needs to buy car from company
If he cannot afford it the company could lend the money, but s455 bites
Dividends need accumulated retained profits (so please remember the accruals and tax provision in that calculation)
He did it
He needs to decide how to fix it
THERE IS NO SPECIAL CLEVER FIX
There are only two sensible (and simple) options - both of which involve the company selling its asset (the car).
1. They sell it to director (who may need a personal bank loan by the sound of it); or
2. They sell it to someone else.
Either will achieve your stated objective ... removing the BiK (but only going forwards - you still have the history to sort out)!
The director could go down the DLA route. The company will pay Nics the director will be taxed on the interest payable on the loan. The Company will pay tax at 32.5% and reclaim the additional tax once the loan is repaid. The bit you may be missing is how the director will repay the loan. Bank loan, increase Paye or are they hoping they can declare a dividend to clear it? Directors problem there is no magic wand to get him out of a hole.
It never ceases to amaze me how many Directors are either oblivious to (or simply choose to forget) the letter in the middle of DLA.
Any other loan is easily recognisable as a debt that needs to be repaid, but DLA ...?
OP, your question states "On preparing the CO accounts, the Director paid £20k for an expensive car, whose list price was originally £50k, so he knows he has a BIK. " Excuse me if I'm being dim or insulting, but who has actually bought the car, or rather, to whom does the car actually belong... the director or the company?
Ah, the light dawns ... but not on a happy day! So ...
1. The car is a company asset and the company had to borrow money to afford the purchase ... with unknown implications for its BS etc.
2. The director has exclusive use of the car as a BiK ... and possibly for fuel & other ancillary costs (but not insurance).
Does your client understand the difference between him and 'his' company as discrete entities (legally, taxwise & otherwise)?