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Tax efficient use of BIK?

MonsoonMonsoon Font Of All KnowledgeFMAAT, AAT Licensed Accountant Posts: 4,071
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?!

Comments

  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    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.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    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!
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    Class 1A NIC on the BIK is a pretty good reason not to.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    There it is! :lol:

    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!!
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    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!
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    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.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    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! :)
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