Treatment of car where EE pays 100% of lease

How do you treat an employee for tax if the company lease the vehicle but the EE pays 100% of lease?

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How do you treat an employee for tax if the company lease & insure the vehicle but the EE pays 100% of costs back? Is this classed as a company car for tax purposes?

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RLI
By lionofludesch
25th Sep 2019 17:29

Yes.

BIK is the scale charge, less whatever the employee pays.

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Replying to lionofludesch:
Psycho
By Wilson Philips
25th Sep 2019 18:21

Not necessarily - one has to be careful with the documentation. A deduction is allowed for payments for private use. A straightforward payment of 100% of the lease may or may not reflect such private use.

In fact, assuming that there is both business and private use, it is a reasonable argument that payment of 100% of the lease costs cannot wholly be in respect of private use. (If I were the employee and being asked to pay for private use I’d be quite reluctant to fully reimburse my employer for his costs). So, the wording of any agreement between employer and employee needs to be very carefully drafted.

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Replying to Wilson Philips:
RLI
By lionofludesch
25th Sep 2019 18:36

Well, I don't want to be seen defending this plan because I think it's a carp idea, motivated by wanting to avoid a tax charge at whatever cost, but I don't see that paying the whole of the lease charge (actually, the OP refers to all the costs at one point) means that part is a payment for business use. I find that argument absurd. The deal is what the deal is.

Beware the possible VAT trap in there, by the way.

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Replying to lionofludesch:
Psycho
By Wilson Philips
25th Sep 2019 19:08

I did not say that payment of the whole necessarily means that part of the payment must be in respect of business use. But in the absence of robust documentation it is not unreasonable to infer that it is.

The point is that you cannot simply deduct what is paid by the employee. There must be a requirement to pay for private use and that payment must be quantified. What one would be advised to do therefore is state that the amount required to be paid in respect of private use approximates to the monthly lease costs. It might seem like an unnecessarily complicated way of doing things but those who take a more cavalier approach do so at their peril.

See EIM25261 for how HMRC view things, especially example 2.

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Replying to Wilson Philips:
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By Tax Dragon
26th Sep 2019 09:22

"Example 1
The direct meets the monthly lease payments from her director’s loan account, paying a total of £12,000 in the tax year.
Is this a private use payment? No - the payment is necessary for both business and private use, so it is not a private use payment."

Surely this has to be contested. To say that a payment that is for both private and business use is not for private use is simply wrong. S144 doesn't say "wholly and exclusively".

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Replying to Tax Dragon:
Psycho
By Wilson Philips
26th Sep 2019 09:54

I think the point is that HMRC take the view - rightly or wrongly - that it is not a question of the employee making a payment because he is allowed to use the car for private purposes, but that the payment is for that actual private use. They seem to be following the rationale in Quigley - if the employee is paying the lease payments then the payments are for a purpose other than private use. Therefore, without suitable documentation HMRC are likely to apply their view. Feel free to contest it but I would prefer to avoid that potential conflict.

As far as example 1 goes, my suggestion is that the 'correct' approach would be to require the employee to pay a sum of money, eg £12,000 (example 1 also fails because there is no requirment) but state quite clearly how much of that £12,000 (which might be all of it) is a payment for the private use. Or better still simply have a requirement that on condition of the car being made available for private use the employee is required to pay £x. There should be no indication that he is meeting the lease costs.

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Replying to Wilson Philips:
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By Tax Dragon
26th Sep 2019 09:59

Your planning is meticulous and cannot be faulted.

Others' will be less so. You can take my "surely this has to be contested" comment as prophetic - at some point this will be tested at Tribunal.

And I would further predict that HMRC will lose. Let's run the tests (as interpreted by HMRC):

- required to pay.... check, no payment no car
- an amount of money... check, it's the lease premium
- for the private use of the car... check - the payment is wholly for [the purpose of] private use (if the car is used for business, mileage rates are charged)
- the employee actually pays (etc)… check
- the payment is a condition of the car being available for the employee's private use... check (this follows from the previous answers)

You are unquestionably right (I'm not arguing with you). Time will tell whether I too am right.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
26th Sep 2019 10:16

Bullet point 3 - if it's a company car why would mileage rates come into it?

Regarding Quigley, I don't think there is a distinction between insurance and lease. Paying the insurance premiums is not paying for private use. Paying the lease rentals is not paying for private use. Paying an amount that just so happens to be the same as the lease rentals (or indeed the same as the insurance premiums, assuming paid initially by the employer) might well be capable of being treated as payment for private use.

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Replying to Wilson Philips:
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By Tax Dragon
26th Sep 2019 10:27

Wilson Philips wrote:

Bullet point 3 - if it's a company car why would mileage rates come into it?

Good point. That comment (and perhaps my whole thinking) is a hangover from when I leased a car through work and claimed mileage if I used it for work. I'm not sure that comment is that important to the case though - whereas clearly the question of whether lease premiums are distinguishable from insurance could be absolutely vital.

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Replying to Wilson Philips:
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By Tax Dragon
26th Sep 2019 10:03

You added your Quigley clause while I was responding. In Quigley, the Court of Session held that the payments in question had been made for the insurance of the vehicle and not for the use of it. Lease payments ought to be distinguishable.

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By Accountant A
25th Sep 2019 18:29

Paul, I think you mean "I want some free professional advice PLEASE".

Do you give away your "Cloud Accounting Specialism" for free? Thought not.

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By pb2875
26th Sep 2019 08:41

I thought this any answers section was for just that!

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By Wanderer
26th Sep 2019 09:09

Accountant A wrote:

Paul, I think you mean "I want some free professional advice PLEASE".

Do you give away your "Cloud Accounting Specialism" for free? Thought not.

Paul doesn't need professional advice, look he has no problem in his accounts being prepared without that:-
https://beta.companieshouse.gov.uk/company/10718230/filing-history
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By Sheepy306
26th Sep 2019 15:25

Just out of curiosity, does anyone recognise what accounts package that comes from? I assume it’s cloud software rather than manually cobbled together.

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By Wanderer
26th Sep 2019 15:57

Presumably as OP are often mentioning Xero and Quickbooksonline. Rather worryingly one of their previous posts states:-

pb2875 wrote:

Help is at hand
I am a self employed accountant who can prepare your accounts suitable for submission to Companies House for less than you think. Give me a call on 07970 xxxxxx.

Paul Barnes

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RLI
By lionofludesch
26th Sep 2019 17:56

What's the background to this whizzo scheme ?

Whose idea and why ?

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Replying to lionofludesch:
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By Sheepy306
26th Sep 2019 18:13

I suspect that either:

1. the business can get a better deal on the car than the employee can, or
2. the employee has poor credit so can't get the finance agreement in his name so it's a work-a-round, or
3. the car dealer has provided some golden nugget of tax advice that mere accountants wouldn't know about

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Replying to Sheepy306:
Psycho
By Wilson Philips
26th Sep 2019 20:31

Sheepy306 wrote:

I suspect that
3. the car dealer has provided some golden nugget of tax advice that mere accountants wouldn't know about


Yep - mention “Apollo Fuels” and he’ll be thinking of kerosene and liquid oxygen.
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