Taxation of shareholder benefits

A shareholder, but not employee, so no P11D receives a benefit, how would it be reported and taxed

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If a shareholder receives free use of a company asset or use of company-owned accommodation, for a period within the tax year, how would this be reported to HMRC and how would it be taxed on the shareholder? Where would the benefit be shown on the shareholder's Self-Assessment Tax Return? If anyone has any experience of this, or any ideas, suggestions would be appreciated.

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By Matrix
03rd Dec 2018 12:05

You say the shareholder is not an employee so I assume they are also not a Director.

The company would need to payroll the benefits or complete a P11D depending how they are settled. If they don't then the shareholder should still calculate the benefit and include on their tax return as usual.

The shareholder isn't providing services through a PSC by any chance are they? If so then the PSC would complete the P11D and the benefits would go down under that employment.

It all sounds a bit messy. What is the shareholder doing to receive the benefits, if you also act for the company then are you sure the expenses are deductible? Why is this arrangement in place? I would ask questions since there are likely many tax implications with this set up.

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Scooby
By gainsborough
03rd Dec 2018 12:16

My understanding is that where benefits are given to a participator (or their associate) in a "close" company, the benefit is calculated according to the normal rules but then taxed on the non-employee shareholder as a dividend distribution.
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60510

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Replying to gainsborough:
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By Montrose
04th Dec 2018 09:44

There is a nasty sting in the tail, as HMRC insist that the relevant expenses are disallowed for corporation tax [https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60520] quite apart from the personal tax consequences for the participator.
The shareholder[participator] would include the relevant benefit as a dividend on his or her SA return

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Replying to gainsborough:
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By sammerchant
04th Dec 2018 12:36

Yes, that is also how I understood it. But if the benefit is accommodation (for a set period), how would this be valued for reporting purposes?

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Replying to sammerchant:
Scooby
By gainsborough
04th Dec 2018 12:59

Hi Sammerchant. If this is indeed a close company then you need to follow the usual rules for calculating an accommodation benefit for employees and take this equivalent as the dividend distribution. The details are given in the link in my previous post.

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Replying to gainsborough:
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By sammerchant
04th Dec 2018 16:17

Thanks. That's quite helpful and tallies with what I thought might be the answer. But what if the property is overseas??

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Replying to sammerchant:
Scooby
By gainsborough
04th Dec 2018 18:21

This should help. The guidance states that the annual value for an overseas property would be the annual rental value on the open market: https://www.gov.uk/expenses-and-benefits-accommodation/work-out-the-value.
Don't forget to check that you are definitely dealing with a close company before reviewing all the links attached to this thread :)!

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Scooby
By gainsborough
04th Dec 2018 10:33

Agreed Montrose - as the individual is not an employee, it cannot be a trading expense.

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By Montrose
04th Dec 2018 13:02

HMRC suggest the following answer in https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60550

"Accommodation. Strictly the measure of the benefit is that provided by ITEPA2003/S203 to S207 (formerlyICTA88/S156 (5), (6) and (7)). In practice the guidance at SE11431 may be followed as this gives the same result"

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Replying to Montrose:
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By sammerchant
05th Dec 2018 13:10

The guidance at SE11431 is proving elusive. Do you by any chance know if it has been superseded?

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Replying to sammerchant:
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By Montrose
05th Dec 2018 14:21

See https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim11440 for how to calculate the benefit fin respect of overseas property.
Remember to include in calculating the notional benefit any outgoings in respect of the property paid by the company

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Replying to Montrose:
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By Montrose
05th Dec 2018 14:16

I have solved the mystery- the reference should be to
EIM 11432

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Replying to Montrose:
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By sammerchant
05th Dec 2018 16:22

Thanks, again. This is all very helpful. But I think HMRC should make it easier for us to find the information!

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By Tax Dragon
06th Dec 2018 09:53

Mispost

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