LTD Co & Expensive Car

Director bought an expensive car

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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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By AndyC555
04th Feb 2022 12:07

"Is there National insurance to consider on top of the BIK here?"

Class 1A NIC rings a bell.

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Replying to AndyC555:
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By BMary83
04th Feb 2022 12:20

Yes, Class1A, but is there anything for the employee to pay?

Just reading other threads NIC was mentioned and I thought I was missing something.

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By David Ex
04th Feb 2022 12:11

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.

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Replying to David Ex:
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By Tax Dragon
04th Feb 2022 12:16

You've made it to why? I'm stuck on what.

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Replying to David Ex:
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By BMary83
04th Feb 2022 12:24

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?

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Replying to BMary83:
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By David Ex
04th Feb 2022 12:49

BMary83 wrote:

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.

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By ireallyshouldknowthisbut
04th Feb 2022 12:25

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.

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Replying to ireallyshouldknowthisbut:
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By BMary83
04th Feb 2022 12:29

So a company can’t transfer an asset to a director? Can you explain my mistake?

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Replying to BMary83:
By ireallyshouldknowthisbut
04th Feb 2022 12:34

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.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
04th Feb 2022 22:23

+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

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By Dib
04th Feb 2022 13:35

I don't see why there would be a s455 liability on a director's loan.

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Replying to Dib:
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By BMary83
04th Feb 2022 13:51

Why?

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Replying to BMary83:
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By Dib
04th Feb 2022 15:21

Because s455 applies on loans to participators not loans to directors!

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Replying to Dib:
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By BMary83
04th Feb 2022 15:46

Ah, he is both.

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By Hugo Fair
04th Feb 2022 14:38

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)!

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Replying to Hugo Fair:
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By BMary83
04th Feb 2022 16:10

I agree and I will ensure that’s how it’s done if he decides to withdraw the car but for my own understanding, is there a reason why the DLA option doesn’t work?

I feel like I’m missing something glaringly obvious, some legislation? Please help.

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By BMary83
04th Feb 2022 15:14

Genuine plea, can someone explain what I’m missing as I’m genuinely worried. I’m a small part time practice around my childcare requirements and don’t have any colleagues to ask.

Reading my question back it does seem I have bundled a lot of different taxes together but I was including every one I think could have some bearing.

Option 3 for example, I know employer’s nic due in a BIK but was wondering if I’d missed something which meant accounting for it via DLA was null and void from the off, making NIC a consideration instead?

This is only for my understanding now and I greatly appreciate any help.

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By lesley.barnes
05th Feb 2022 10:35

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.

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Replying to lesley.barnes:
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By Hugo Fair
05th Feb 2022 11:47

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 ...?

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Replying to lesley.barnes:
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By BMary83
05th Feb 2022 20:27

My thoughts about the DLA were a way for the director to ensure cessation of the BIK with immediate effect, not to avoid it altogether, without the formality of applying for a bank loan.

Yes, then declaring a dividend, the draft accounts show enough reserves to partially clear the OD amount. He then needs to decide how he’s repaying the rest.

At the end of the day he’s still got a loan to repay, it’s just not with a bank.

Thanks so much for your reply, the other responses I received made me feel like my understanding was completely incorrect and I’m stupid for even thinking it. I thought I’d missed some new legislation or something.

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JCACE
By jcace
06th Feb 2022 14:18

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?

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Replying to jcace:
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By BMary83
08th Feb 2022 10:46

The car was invoiced to the LTD Co, I requested a copy of the sales invoice and the company paid the lions share of the invoice with the Director personally paying the balance.

Unfortunately he paid in excess of the £5,000 capital contribution limit.

He advised me that the V5 is in the Company name but he has insured it personally.

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Replying to BMary83:
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By Hugo Fair
08th Feb 2022 12:30

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)?

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Replying to Hugo Fair:
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By BMary83
08th Feb 2022 13:00

Yes he does know the difference, he just didn't know about the implications of the list price of a an expensive company car.

He isn't disputing the BIK in anyway, I was just pondering the best way to stop it ASAP, without him having to get a bank loan.

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