Making company assets available for private use

At this time of year, when P11Ds (the return of taxable benefits) come to be completed, it’s not unusual for me to be fielding questions about assets that a company makes available to its directors and employees for their private use.

It’s the high value assets which attract HMRC’s attention. Since the legislation was changed in 2017, the benefit-in-kind legislation may be seen as harsh.

Historic agreements with a local inspector of taxes, who took into account the limited actual usage of the asset, and calculated a low benefit, are no longer valid. Usage is no longer the primary consideration. The legislation is quite clear that assets that are available for use by the employee, or a member of the employee’s family or household, are to be treated as if they are available throughout the whole year, subject to limited deductions.

Those deductions relate to narrowly defined situations where an asset is prohibited or unavailable for private use. So, no qualifying deduction means no reduction in the annual value of the benefit – no matter how little the actual usage!

In practice, that can mean a hefty benefit-in-kind charge with accompanying Class 1A National Insurance liability for an asset which has a genuine business use and may only be made available to a director/employee infrequently.

It’s therefore important to make a careful assessment to see if corporate ownership is still the best option.

It will also help to have a good understanding of the criteria for claiming deductions for periods of unavailability, as this criteria is complicated.

For example, you can’t claim a deduction if employees lack the skill or legal status to use the asset, nor is inclement weather a factor (unless legally the asset can’t be used). In HMRC’s eyes, even some contractual arrangements, designed to put an asset beyond use, may not be enough to warrant a deduction.

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Tessa Brown