Making Good BIK Query

HMRC PAYE Assessment

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I'm currently discussing a PAYE assessment raised against one of my clients following an HMRC inspection.  The background to the case is that the client is a second hand car sales company and kept a number of demo cars on the premises.  During the course of the inspection, the HMRC inspector discovered that one of the demo cars had an element of private use by one of the directors and as a result of this has raised an assessment for the past 3 years in relation to Benefit in Kind for the car itself and car fuel.  

I'm attempting to make a counter argument to HMRC on the grounds of EIM11962 - regarding the rights of an employee to "Make good" benefits in kind as long as the company is paid back by the 30th of July following the end of the tax year.  The crux of my argument is that as things currently stand, the company owes a substantial amount of money to the director via the directors' loan account and I believe that rather than assessing the car as a taxable benefit in kind, the cost of this benefit in kind should be offset against money owed to the Director under the 'making good' rules.

I've checked for case law and can't find anything directly related to this, but the argument seems to me to be a strong one.  I was wondering if anyone was aware of any grounds for HMRC to oppose this argument.

Replies (11)

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By johngroganjga
26th Oct 2018 12:57

But we are already long past 30 July for even the latest year, so what is your case?

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By Tim Vane
26th Oct 2018 13:02

I assume the car is a DeLorean?

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By Jdopus
26th Oct 2018 13:20

The case is that given the company actually owed the director money even after taking into account the taxable charge of the Benefit in Kind, that this should be grounds for regarding the benefit as "Made good" as of the 30th of July.

In much the same way that if I have a credit balance with a supplier the raising of a new invoice by that supplier is merely offset against the existing credit balance until the balance is cleared.

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Replying to Jdopus:
By Ruddles
26th Oct 2018 13:30

The point is that at 30 July the offset ("making good") had not been made.

Unless you can convince the Inspector that the credit arose as a consequence of the director advancing funds to the company in order to make good a benefit in kind charge that no-one was aware of at the time. Good luck with that one.

In any event, there is no such thing as 'making good' a car benefit - what you have are contributions in respect of private use and private fuel. Again, good luck in convincing the Inspector that the sums advanced to the company were intended to be such payments.

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Replying to Ruddles:
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By Jdopus
26th Oct 2018 13:53

I suppose what I'm challenging here is when exactly a liability is "made good".

If the power of the tax inspector's assessment is to raise a charge in a past tax year - in this case say 2015/16 - couldn't you regard the charge as already made good?

To my thinking the argument has no water whatsoever in a situation where the director isn't owed money by the company for the reasons given above. The argument rests on the fact that the large amount of money owed by the company to the director could be said to have already made good any new liabilities raised against the director.

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Replying to Jdopus:
By Ruddles
26th Oct 2018 14:25

"couldn't you regard the charge as already made good?"

No.

Any liability will be treated as having been made good when the appropriate *debit* entry is made to the loan account.

What you are suggesting is that the director has paid towards a liability of which he had no knowledge at the time of making the payment. Bear in mind that to get relief for private use payments there must be a requirement to make such payments and that requirement must already exist at the time that the benefit arises. Are you trying to argue with the Inspector that there was such an obligation to pay for private use, despite the apparent unawaress that there would be a chargeable benefit?

To my thinking your argument has no water whatsoever - period. If you want to continue arguing your point, go and do so with the Inspector, and good luck to you.

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Replying to Ruddles:
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By Jdopus
26th Oct 2018 14:32

Shame. That was much the conclusion I came to myself when discussing the case with another accountant at the firm and looking at the wording of the Income Tax 2003 S144. I think this section of wording undercuts the argument:

"(1)A deduction is to be made from the provisional sum calculated under step 7 of section 121(1) if, as a condition of the car being available for the employee’s private use, the employee—
(a)is required in the tax year in question to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and
(b)makes such payment."

Point (a) implies that unless the requirement existed within the tax year in question it's a moot point as to whether it actually was paid or not. The argument could potentially satisfy (b) but not (a)

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Replying to Jdopus:
By Ruddles
26th Oct 2018 14:54

The argument could not potentially satisfy (b) - period. So long as the credit exists on the loan account, the funds are at the director's disposal, not the company's. So, until the appropriate debit entry has been made against the loan account, the director has not made good anything. In other words, he can only be said to have made good when the funds are no longer at his disposal.

Do you get it yet?

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Replying to Ruddles:
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By Jdopus
26th Oct 2018 15:30

I understand the point, yes, but don't agree that it's so indisputable that there's no room for argument on it. If (b) was the issue alone it would be worth at least making the case.

If a new invoice is raised against an account in credit it would be regarded as already settled the day it was raised. IF HMRC backdate a liability I think you could reasonably advance the argument that it can be regarded as legally settled against an existing credit.

All moot anyway as per the above.

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Replying to Jdopus:
By Ruddles
26th Oct 2018 15:44

Jdopus wrote:

I understand the point, yes, but don't agree that it's so indisputable that there's no room for argument on it. If (b) was the issue alone it would be worth at least making the case.


No it wouldn't
Jdopus wrote:

If a new invoice is raised against an account in credit it would be regarded as already settled the day it was raised. IF HMRC backdate a liability I think you could reasonably advance the argument that it can be regarded as legally settled against an existing credit.

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If a new invoice is raised against an account in credit it would be regarded as settled the day it was set against the credit in the purchase ledger.

You're getting confused because the raising of an assessment gives rise to a liability between HMRC and either the company or the director, whereas the DLA is between the company and the director. Until such time as the DLA is debited, the director has made good nothing, nada, nil, zilch. Your argument is becoming more untenable and unreasonable by the second.

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Replying to Jdopus:
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By Rammstein1
26th Oct 2018 14:31

Your suggestion is that any director with a credit on their DLA should not declare any BIK. If HMRC find out about it, you will say it is already accounted for.

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