two queries - Property/Childcare vouchers.

kev123

Hi I wonder if someone can help with the following two queries:

1. Is there any benefit of director taking minimum PAYE (to NI limit) increasing his PAYE salary to then sacrifice it to claim childcare vouchers to the maximum allowance? On the face of it I would have thought yes, but seeing as he doesn't pay tax on earnings anyway is there any other benefit to this?

2. Possibly a bit more tricky (or not, i don't know):

Ltd company building & joinery trade has two directors, equal shareholding. Director 1 and his wife own a property which they live in and have decided to buy a second property which will be their principle residence, therefore property 1 will be rented. This house is mortgaged by Mr & Mrs Director 1.

Director 1 has suggested to Director 2 that the property is introduced into the limited company, thereby being an asset of the business, rental income to be received into the company, and the company to pay the mortgage, with the idea being in X years the property will be owned outright by the company and the directors will have an additional asset to sell when they dispose of their company.

Has anyone seen this type of scenario before? Can you advise the best way to treat this? A colleague has suggested introducing this to a pension scheme to eliminate CGT on disposal but this is not something I have come across with residential property before.

Any help, comments, or reference to guidance, will be greatly appreciated.

Cheers.

groundy

On number 2, we always advise clients to keep properties out of trading companies were possible. If your clients business has a downturn or suffers a bad debt, you could see Liquidators rubbing there hands at the prospect of selling the property to pay their fees!!!

kev123

I had thought of that - the company is in pretty good, amazing in fact, shape at the minute but I suppose you never know what happens in future.

What would an alternative be?

Director 2 arrange to take on Mrs Director 1's share/responsibility of the mortgage as individuals?

Then each would declare rental profits on their own SA instead?

There is -ve equity in the property to the tune of £30k at the minute so don't know how that would affect it... but I'm not a mortgage advisor so really can't advise on this.

groundy

Yes I would say much simpler to own the property jointly and declare on SA return

missmel

If the company does take on the house to rent out, then would the rent be vat-able?
ie you lose 20% of income to sales tax with no purchase tax on the mortgage payments.

kev123

I believe residential lettings are an exempt supply regardless of the status of the owner - but I am happy to be corrected?

Has anyone an idea with regards to the childcare vouchers in the opening post?

Thanks,
K

Gem7321

I think it depends whether they opt to tax the property.

There would be a small corporation tax saving in offering childcare vouchers as although the 'pay rise' would be offset by the salary sacrifice the childcare vouchers are tax-deductible. See http://www.hmrc.gov.uk/helpsheets/e18.pdf page 13 But there are other factors to consider such as loss of tax credits.

deanshepherd

You can't opt to tax a residential property.

I agree with others above - generally a very bad idea to put residential property into a company. Particularly one they have lived in as they can kiss goodbye to PPR, lettings relief and annual CGT exemptions on future sale.

Re: Q1 - Just get the company to contract direct with the childcare provider.

payrollpro

I defer to those more qualified on the property question but on CCV's Dean is right, only the company can contract to obtain the CCV's from a reputable source, EdenRed for instance, otherwise they will not be qualifying and hence cannot attract the tax breaks.

Some companies will not deal with one employee owner/managed businesses but others have no problems, your client just needs to go round them to find the right one. I see no problem in dropping pay to reduce tax/NIC's that's what salary sacrifice is all about and the minimum wage thing is irrelevant because if your client never makes a complaint then who's to know. Remember to switch the RTI filing to option D for the hours and make them an irregular payee, then there is no question of challenges over the payments in relation to hours worked.

Payrollpro

burg

With the child are vouchers you don't even need to use a voucher provider. As Den said the nursery can contract directly to the company and avoid the problem. If the nursery won't do that then just create your own vouchers pass them to the nursery, they can then redeem them from your company for actual payment.

kev123

thanks for the help everyone!