a car/ employment / tax question. so confused!

[jomalone]

have namechanged for this as the facts are a bit specific.

dp is going to be starting work for a fairly wealthy individual who happens to be a family friend.

For the type of work he will be doing he will need a car.

the family friend is quite happy to let dp use it for private use as well (he and we are hoping that this will mean we can sell our car, and the cash from this will help us out)

we understand that if dp was employed by acompany, and the company owned a car which dp alone used, then if dp used it for private use this would be classed as an 'employee benefit' and dp would have to pay a lot of extra tax

however, dp's accountant seems to be telling him that if the car was brought and owned by family friend privately, and family friend himself employs dp, then dp would not have to pay extra income tax.

I don't really understand why, and am worried dp isn't getting good advice. I spoke to the accountant today as dp is out of the country, and he just kept talking about how it was ok as family friend could 'claim back the business mileage'

is anyone able to shed any light on this ?(its most likely that family friend will employ dp, rather than them setting up a company to do this)

I was thinking that a situation where someone employs a nanny and buys them a car to use for personal and work might be a similar analogy so hoping someone can help!

HMRC seem quite clear that if you are allowed to use a car for private use, then you have to pay tax here

I think you'd be on very thin ice trying not to pay tax on it, but if you call the tax office, they should be able to confirm

Your dp's accountant sounds a bit bonkers. I can't imagine any reason why whether your DP's employer is a limited company, private individual or any other entity would make any difference at all to the tax situation. If your DP's employer is giving him a car to use for private journeys, it's a taxable benefit.

thats what I expected, thats why I was suprised by the advice he'd got from the accountant. none of us want to avoid paying tax we should be paying, but at the same time if we can find a way to do this which works, legitimately, and avoids a tax hit we would be thrilled as money is tight

The only way he can have a car for business without having any tax liability is by using it literally only for work journeys, so leaving it at work and only using it while at work.

Wouldn't the extra tax be cheaper than running another car anyway though? You could still sell your car, and get the cash. Your income would go down a bit but you would also be saving on some running costs yourself as well as having benefited from the one-off cash payment of selling your own car.

There are ways and means of limiting the tax liability but I can't think that whether he is employed by a company or an individual makes any difference.

You're right - what you need is a nanny employer, as it is presumably roughly the same situation from a tax perspective.

Hi, the tax office wont give you a clear cut answer as they cant offer advice!!

It doesnt matter if your dp is employed by a company or his friend he will still be in employment. If he then gets a car "by means of his employment" then he will get a benefit in kind and have a further tax liability.

I think the accountant is suggesting that your dp is employed by a company and then your family friend lends the car to your dp and the car is not owned by the company. The family friend will then claim 40p a mile for the mileage done in the car from the company.

However it still comes back to your dp been provided wuth a car by means of his employment therefore a Benefit will arise.

Sorry if there seems a lot of info but I just dont see how a benefit will not arise otherwise everyone would do this!!

Sorry I cant give you better news

well its the news I expected really, I had been a bit incredulous about this response from the accountant. we definitely don't want to do anything which gets us into trouble with hmrc.

zippys thank you, I think that must be what the accountant was meaning about claiming 40p from a company. and yes I do think you're right, surely its still a benefit arising from his employment.

think we might have to think about going to another accountant, unless anyone has better news

depending on the type of car it could still be cheaper, are you looking for a big large engine car?

If it is under 110g/km in co2 emmission the benefit will be really low and wont cost much in tax. But they do tend to be smaller cars.

annoyingly it would be a big car, they need a big one for the work he'll be doing. It would cost about £3k in tax I think based on the calculations we did from hmrc when we thought he would be employed by a company. its a lot of extra money when I'm not working.

again may not be suitable but how about a van? The benefit in kind is a lot lower and you can still get some vans like cars such as double cab pickups?

I don't htink so, will need more seats than that (especially if we're using as private use too) but thats interesting about the benefit in kind

update - have just spoken to my brother in law, he's an accountant. he also assured me that it would be fine, if family friend owns car himself (not through a co) and employs dp, then there wouldn't be any tax as an 'employee benefit' for private use of car by dp, whereas there would be if a company employed dp and bought a car which dp used for private use. apparently the rationale is that companies get loads of tax savings by buying cars (deductible expense, and Vat can be reclaimed).

still agree with the other posters that this seems a bit amazing though. would be interested / delighted have anyone else confirm this is ok!

Sorry but I don't believe that to be true. See HMRC guidance for employees, tax is payable on a company car available for private use, and the definition given of a 'company car' is 'a car which you do not own but can use by reason of your employment.'

It doesn't make sense that those rules only apply if your employer is a limited company, and nowhere in that guidance or in fact in any of the pages in the section linked to by CMOT does it say that people employed by private individuals are exempt from paying tax on cars provided for private use.

The rules about taxation on benefits in kind are there to stop people getting away without paying income tax - so that employees can't take large chunks of their pay in the form of substantial benefits thereby saving on tax that would otherwise be due.

I can't think of any reason why HMRC would say that people who happen to be employed by private individuals can take remuneration as benefits but not pay tax, but people who are employed by limited companies can't do that.

I think if you are in doubt you should ring HMRC. They won't give you specific advice but I'm sure they'd be able to tell you whether the rules on taxation on cars available for private use apply to those people employed by private individuals.

flowery, I have been coming from your position on this abosutely, thats why I'm so confused to be being told differently by accountants. it seems absolutely bizarre that tax position should differ depending on whether car is owned by private owner or a company. that's why I'm a bit amazed to be being told this by two different accountants now.

think might have to speak to hmrc. what we absolutely want to avoid is doing anything dodgy/ naive and getting stung by a tax bill/ fine. none of us want to do anything dishonest!

Look here, it's not clear cut. This actually states "it is sensible to liaise with the Inspector who deals with the business accounts of the sole trader"

That's interesting giddy. It does say that the exception applies where the employer is an individual and 'it can be shown that the car was made available to the employee in the normal course of the employer's ordinary domestic, family or personal relationship with the employee concerned. '

So presumably jomalone's DP would have to be able to argue that he would have had the car made available to him anyway through his personal relationship with this person?

Definitely speak to someone I reckon!

thanks giddykipper and flowery. looks like there's scope (as I think the car is mainly a way of family friend helping us out), but its certainly more complex than the accountants we've spoken to are claiming!

I dont think you can use that rule here, HMRC will basically look at the facts and the key thing here is - would your dp have received the car if he was not going to be employed?

If the answer is yes then you potentially have no benefit, however if the answer is no your husband has received the car by means of his employment and therefore taxable.

Sorry I dont agree with your brother in law, a company does get tax breaks for owning a car and there are different rules if you a sole trader but that is not the situation your dp will still be employed therefore taxed under employment legislation.

zippy, I totally, absolutely, appreciate what you are saying. It is exactly what I have been saying ever since my dp came home with that advice from the accountant. I assumed that would be the position, and i still think it probably is, as that makes sense to me.

but I have now rung the accountant myself and he was so sure, and said he'd dealt with similar scenarios plenty of times, and then my brother in law was also so sure. and I explained the facts to each of them so many times that I am sure they understand the set up. I just don't get what it is that is making them give us such different advice.

I do think you need to speak to HMRC and get their line on it.

I also think if an accountant is telling you that because your DP is employed by a private individual, even though he wouldn't get the car otherwise, then he shouldn't be taxed on it, you should ask the accountant to show you the guidance where it says that. If that's truly the case, it will say so somewhere and if it were me I'd want someone to show me where it says that.

I think we're in the same situation or similar. My husband is employed by a wealthy individual not a company. We live in a house owened by this man. I spoke to my tax accountant today and she says that providing he is paying my husband personally out of taxed income and is not registered as a business getting tax relief for my husband's wages, and providing the house (or in your case, car) was bought by the individual with money after tax (ie personal money), then there is no tax liability for my husband. I do want to get this in writing though! Hope this helps.

thanks becky! that does sound like a v similar situation to us. my dh has had written confirmation from his accountant now, was quite weird to get my head round in the beginning, but the accountant has dealt with quite a few people with this type of set up.