Benefit in Kind

slackda

OK......Work have manged to get one that has confused me......(not that hard on a monday morning)

We Lease vehicle for Driver, he is allowed allowance of £500 Per Month.

Driver decides he wants extras on car that bring Lease value up to £525 Per Month, in turn increasing the P11'd Value of the Car.

As part of the Deal the driver must contribute £25 Per Month,

Now should this contribution be taken before tax (hence employee get tax benefit from paying contribution)
or should the deduction be taken after taxation :-employee doesn't get tax benefit but when filling out the P11'd the total payments made though out the year are classified as a captial contribtion.

I Beleive that off the top of my head the benefit to the driver will pretty much be the same i.e the reduction in overal tax paid vs the reduction in P11'd Value....

Monsoon

I was looking at this the other day.

I'm pretty sure that you take value of car, minus capital contributions and then apply the percentage.

slackda

Yeah, that's what you would normally do, but the contributions are not technically defined as capital contributions they are just to keep our costs in line so that if people want a better car they can get one.....

payrollpro

Slackda,

This is a difficult one. There are two contributions which reduce the taxable value of the vehicle. The first is the capital contribution and the second is payments towards private use.

In the P11D the CC comes off the original list price of the vehicle whereas contributions towards privtae use come off at the end after you have worked out the reportable value.

The trouble is a payment towards a better vehicle is not a contribution towards personal use. HMRC calls this a payment towards personal choice which is not allowable. It cannot be classed as a capital contribution because being made in instalments it does not actually reduce the capital value.

I dont think either of these reliefs are satisfied by the payment and personally I feel it ought to be ignored.

However, HMRC have been a bit more lenient over these in recent years and accepted that however they are described you can count them as personal use, but you need to check the website first.

My advice would depend on how the employee wants it treated. If he wants it as a capital contribution then call it an interest free loan so that over a three year lease there is a cap con of £900 which he is paying for in 36 instalments. since it is under £5k there is no beneficial loan to report.

If the deduction is completely separate then change the deduction element to say contribution for personal use.

Payrollpro

slackda

hi PayrollPro,

Thanks for the confirmation of what i thought.

One more point to make should the deduction be made after tax is calc'd (i.e no Tax reduction) or Before Tax is calc'd (I.e a reduction in Tax Paid)

payrollpro

Best thing to do is use working sheet 2 to do the calculations. At section 8 you will find the box for personal use deductions, box T. It comes immediately after you have worked out the benefit in kind value and adjusted it for any unavailability. The final net value is what is transferred to the P11D.

This is why I always advocate the use of working sheets.

Payrollpro