Any Answers Answered: Private health insurance and Form 17
This month TAXtv hosts Giles Mooney and Tim Good tackle AccountingWEB reader queries on the treatment of private health insurance as part of an HMRC enquiry and Form 17.
To watch the full video of Good and Mooney answering readers’ questions, click here or scroll down to the bottom of the page.
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Treatment of private health insurance
The first question on the agenda was from AccountingWEB member 0098087, who is dealing with an HMRC enquiry into one of their clients. The tax authority has decided that private health insurance, which the AccountingWEB member has treated as directors’ loan account and subsequently dividends, should be treated as earnings.
“Of course clients won't listen when told not to pay private bills out of the business account,” said 0098087, “how do we get around the above?”
Giles Mooney began his answer by expressing concern about the way the private health insurance has been dealt with.
According to Mooney, there are two different ways of doing the same thing, one resulting in a tax charge and one not. “The question asked here,” said Mooney, “is are the Revenue right to argue this private health insurance should be treated as earnings?”
Tim Good picked up on the question’s final sentence as a tacit admission that the director/shareholder has arranged their own medical insurance, but instead of paying the premium personally got their company to stump up.
Good pointed to a comment on the thread from another AccountingWEB member, John R, which gets to the nub of the matter: “It seems that HMRC have taken the view that the company has settled a pecuniary liability and that therefore PAYE should have been applied at the time of payment.”
To sum up Good added: “If an employer meets the pecuniary liability of an employee, then that is a trigger for PAYE and NI at the time the payment is made. So you can’t have directors taking their personal electricity bill into the company and saying to the bookkeeper ‘pay this for me’. It doesn’t matter what the double entry is, the payment of that bill is meeting pecuniary liability of the director and that triggers PAYE and NI at that point.”
Good and Mooney went on to discuss how this issue would then be settled, which you can see from around the three minute thirty mark on the video.
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Form 17 property income
The other question looked at was from Pete57 and related to Form 17.
“As I understand it,” wrote Pete57, “Form 17 allows you to change the underlying beneficial interest in a property to change the rental income proportions to enable profit shifting between man and wife or any other parties.”
Giles Mooney highlighted this question as an example of how people keep getting Form 17 wrong.
“Form 17 was introduced when independent taxation came in back in 1990-91,” Tim Good added. “The default position where property is jointly owned is that each of the husband and wife takes a one-half share in the income.
“That default position can only be replaced using an actual split that’s not 50-50 if, first, we are looking at property that is beneficially owned other than 50-50, so with real property there would need to be a declaration of trust, unless the property has been conveyed into their names as tenants in common with shares other than 50-50.
“So first we’ve got to have the actual beneficial interest being not 50-50,” continued Good, “and second, if it’s husband and wife, the default position will still be 50-50 unless they complete Form 17.”
According to Good, Form 17 is not available to anyone other than married couples or registered civil partners. It is not available to siblings, family friends or business partners. It is only available to married couples and civil partners, and only if that Form 17 is submitted should the income on their individual tax returns then follow the actual benefit interests.
Mooney and Good then ran through a number of examples, which are available at around the seven-minute mark on the video.
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