Undeclared car/fuel benefit

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Hello.

We have a new client, who is a director of the company. HMRC just opened an investigation on his company account. He bought a car 5 years ago for £8000 and put it on a company pool. He used it for business and private use but never paid any taxes on car benefit (P11D).

Depreciation for those years was £4000, saving him £800 in CT. HMRC expecting him to pay NIC class 1A and to amend his self-assessment tax returns, paying taxes on benefit in kind – car benefit and fuel benefit. Fuel benefit was included without any reason – client always paid for the petrol by himself.

Could anyone advise how to deal with this situation?  Can we amend CT tax returns and excluding car from it, as it looks a bit unfair with savings only £800 in CT, and now HMRC expecting him to pay around £15000 In taxes. It’s a small company with a small profit and client will struggle pay as much as £15000 to HMRC.

Thanks for help.

Tanya.

Replies (10)

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JCACE
By jcace
22nd Sep 2017 15:00

If the company owned the car, you can't go back in time and change that.
Or is there an argument to be made that the company didn't ever own the car?
Who paid for it?

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Replying to jcace:
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By PK Financial Services
27th Sep 2017 15:34

The Director paid by himself, using his own money.

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Replying to PK Financial Services:
By Ruddles
27th Sep 2017 16:23

It's not proof of ownership, but could help - in whose name is the V5?

At worst, HMRC should reduce the assessable value by £5k in respect of a capital contribution towards the purchase.

For periods prior to the change in legislation following Apollo Fuels you might also try the AF argument that if £8k was the open market value of the car then in paying that price for the car the director has obtained no actual benefit, and therefore nothing to tax for those years. I would expect that argument to meet stiff resistance but I would persist with it.

Having said that, if the director paid for the car, what were the accounting entries to bring it into the company's accounts? If DLA credited, scratch the preceding paragraph (and the one before that).

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Replying to Ruddles:
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By PK Financial Services
28th Sep 2017 14:40

Thanks for quick respond. It's director's name on the V5.
Also the DLA account was credited. As I understand we can't do much in this situation. Could we amend his last submitted CT return (as it's still time of 12 month period), assuming he bought the car from the company. He also always paid for the fuel by himself, but we don't have any proof.

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Replying to PK Financial Services:
By Ruddles
28th Sep 2017 16:16

Since the director paid for the car (albeit reimbursed by the company via credit to DLA) and his name is still on the V5, I'd be minded to tell HMRC that there was just an almighty [***]-up on the preparation of accounts and tax returns. And that in reality, the company has never had any interest in a car with which to provide a benefit to the director. You'd have the issue of correcting the accounts somehow, dealing with overclaimed CAs and possible s455 problems. But overall likely to be far less costly than the BIK tax charge. I'd expect HMRC to resist of course, but if you don't ask ...

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By Accountant A
22nd Sep 2017 15:44

PK Financial Services wrote:

as it looks a bit unfair

No-one said tax was fair.

This question is worth bookmarking for use every time someone comes on the site and suggests employing an accountant is an extravagent unnecessary luxury.

If the records are there to demonstrate no private mileage was claimed then you can easily rebutt that element of HMRC's claim. (I'm guessing there are no records.)

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By Anne Robinson
22nd Sep 2017 15:45

BIK on list price when new not the £8k paid (assuming it was second hand) so the benefit will be high anyway multiplied over 5 years.
Unfortunately since he has conveniently “missed" out the BIK for the car it will be more difficult to prove that no fuel was provided retrospectively.
Did the previous accountant not pick up on this?

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By Chipette
28th Sep 2017 15:11

"Depreciation for those years was £4000, saving him £800 in CT"
Could you clarify this?

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Replying to Chipette:
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By andy.partridge
28th Sep 2017 16:00

Don't hold your breath.

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Red Leader
By Red Leader
28th Sep 2017 16:07

The first 4 years WDA at 18% is £4.4k.

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