Benefit in Kind

LisaT186

Looking for some help if anybody can!

My husband is considering taking a new job and we are a little confused on the tax situation regarding the provision of a car.

Basically he needs a car to do his work but the company arranges it we believe as a loan - ie they lend him an amount of money which he then uses to purchase a car. He never physically has the lump sum and the car would be bought by the company but registered in his name. The company have suggested that it would be a benefit in kind of about £40-£50 per month.

Does this sound familiar to anyone? If so would you be able to explain in plain English for me? They say it is better for take home pay as the tax due is less than if he went down the traditional company car route.

roger_c

I think what is happening is that they are offering a car allowance, but they are going to effectively buy or maybe lease the car and then register it in his name. This would avoid car benefit (which would apply if it were a company car), but he will have to pay tax on the cost/leasing expenses?

I really don't know, is there no formal documentation which would provide further information?

Hoddie_2

If the car is purchased by or loaned by the company and provided to the employee, a full car benefit will apply (and fuel benefit if fuel for private use is also provided). If they are providing extra salary and requiring that this be used to purchase a car, the full amount will be taxed as extra salary. If they are 'loaning' the money in order to purchase a car, not only will this have to be paid back in full in order to avoid tax, but there may also be tax to pay on any benefit of having a lower interest rate than is available commercially.

You'd need to provide more details for better advice. A general rule of thumb is that it is cheaper to pay tax on a company car benefit than to purchase and maintain your own car. However, this is of course dependent on the number of private miles you're likely to do in the car.

jennifernil

My husband's employers used to give employees a loan to buy a car. Originally it was interest free, so HMRC applied their notional rate of interest and taxed him on that as he had not paid the interest. Later the company started actually charging this rate of interest, so there was no longer any benefit in kind to be taxed on.
But my husband did have to repay the loan so much per month over 4 years. The car was ours and he was able to claim tax relief for business use.
To get the loan he had to decide what car he was going to get (and the max value was set by the company) and submit details to them. But he did get the money and buy the car himself. The receipted invoice had to be shown to the company as proof.
Will your husband actually own the car, insure it and pay the running costs, and will he have to repay the cost of purchasing it? If so it sounds like they are making him an interest free loan, which is a benefit in kind and tax would be due. It may be that they can get the car cheaper, so saving your husband money.
If he owns and runs the car he can claim tax relief on business miles. His employer should also pay him mileage for petrol etc. This can vary. He is entitled to 40p per mile tax free for up to 10000 miles, then 25p. If his employer does not pay that much then he can claim tax relief on the difference.

LisaT186

Thank you for all your replies, we are hoping to receive more documentation in the post today or tomorrow.

As far as we can tell he will be provided with a car that is registered in his name (hence I believe it is a loan - they lend him the money and he then purchases the car - but from them as they are a car manufacturer), insurance and general running costs will be paid by the firm. Mileage is on a pence per mile basis and no private fuel given. He is expecting to do 10,000 in 3 months and the car will need to be replaced at this time - it will be sold back to the manufacturer!

All very confusing. If it's OK with you, I'll post more details when they arrive - better than guessing!

LisaT186

albertross wrote:

what happens if he is made redundant..

They take the car back / He sells the car back to them and as far as we are aware the company stomach the depreciation?!

jennifernil

It does sound a strange arrangement. And if they pay insurance etc that is also a benefit.