Use of assets
You’re probably aware that where you use equipment belonging to your company for private purposes it counts as a taxable benefit in kind. This means you’ll pay tax and your company Class 1A NI contributions on the same amount. The rules for working out the taxable amount have been around a long time but were changed significantly in 2017 to make them fairer. The good news is that you can use these changes to reduce your tax and your company’s NI bill.
The basic charge
The annual taxable amount (HMRC calls this the “cash equivalent”) depends on whether your company owns or hires the equipment. It it owns it, the amount is 20% of the value of the asset when it was first made available for private use to an employee or director. Otherwise it’s the rent/hire charge for the asset paid by your company. Additional costs your company incurs in providing the asset increase the taxable amount.
Example – Billy’s company, Acom Ltd buys three top of the range mobile air conditioning (AC) units which he uses in his home. They cost £3,000 (VAT inclusive) in total. In 2018/19 one of the units needed a repair which cost £130 (VAT inclusive). In the winter Billy stows the AC units in his garage. The basic taxable amount is £600 (£3,000 x 20%) but for 2018/19 it’s £730 (£600 + £130).
Trap – For around eight months each year Billy and Acom are paying tax and NI on equipment that’s just gathering dust.
Tip – With a little paperwork and effort Billy can reduce the taxable amount so that’s it’s proportionate to the period he actually uses the AC units at home.
Sorry, no AC available
The changes to the rules in 2017 mean that the taxable amount is reduced to nil for any periods where the asset is not available to a director or employee. The legislation sets out several scenarios where an asset counts as unavailable. One of these is where it “is used in a way that is not used by, or at the direction of, the employee or a member of the employee’s family or household”. With this in mind Billy could reduce the taxable amount by two-thirds.
Tip – At the end of the summer Billy should relocate the AC units to Acom’s premises so they can be used there. It doesn’t matter whether or not they are ever switched on, as long as control over the AC rests with Acom. With this in mind Acom and Billy are well advised to have an agreement that limits his use of the AC units to, say, June to September and requires him to return them to the company’s premises, or other place at Acom’s direction, before and after the period of availability.
Which assets – In this article we’ve referred to relatively inexpensive assets but the principle applies to any asset from a motorbike to a private jet.