Tax efficient use of BIK?

Monsoon

My boyfriend is mowing the lawn, and I reckon lawnmowers tend to last less than 5 years in this house. It got me thinking...

If a Ltd Co bought an item, it reclaims the VAT. Cost is now the Net. Company makes the asset available for the directors use. BIK charge 20% of net value per year less contribution by director. Director pays 20% per annum for us of the asset which is disposed of for nil after 5 years.

No corporation tax charge as directors contribution and cost of asset cancel themselves out, just a timing difference. Possible issue of change in CT rates but likely minimal.

Net result, director has paid for the asset over 5 years and not paid the VAT.

Bit of a paperwork faff but other than that, have I missed anything?!

deanshepherd

My initial thought is that you cannot reclaim VAT on a non-business asset.

Unless perhaps you can convince HMRC that the provision of the asset forms part of their remuneration package. This would be possible for a regular employee but not so for a shareholder/director for whom they will probably argue there is no commercial justification.

Monsoon

Thanks Dean, i was wondering that. I thought that providing benefits to an employee was a business reason for expenditure?

There must be some reason as to why what I outlined is not feasible otherwise everyone would be doing it!

deanshepherd

Class 1A NIC on the BIK is a pretty good reason not to.

Monsoon

There it is!

I knew I must have missed something. The employee paying the BIK avoids a personal tax charge but it doesn't avoid the Class 1A (or does it? this long weekend is baking my noodle). Too much sunshine, addles ones brain. Thank you!!

deanshepherd

Monsoon wrote: »

The employee paying the BIK avoids a personal tax charge but it doesn't avoid the Class 1A (or does it?..

Ah, yes.. forgot about employee contribution. No Class 1A NIC!

deanshepherd

However, the market value of the asset would include VAT so the employee would be paying 20% of the VAT inclusive cost each year to avoid a benefit.

Monsoon

deanshepherd wrote: »

However, the market value of the asset would include VAT

Ah. THERE it is. Might still work if the asset was only going to be kept for, say, 3 years but this is now all getting a bit academic!