When company assets are provided to employees for their personal use, there are certain tax implications which business owners need to be aware of.
When a company provides an asset to an employee for their private use, it is considered a benefit in kind, which attracts additional Class 1A National Insurance for the company.
The value of this benefit in kind is calculated as whichever is greater out of:
- The annual value of the benefit itself (20 per cent of the market value of the item when it was first purchased)
- Any hire charges or annual rental fees that the company pays for the item
Added to this is the sum of any running costs associated with maintaining the asset and keeping it available to the employee over the course of the year.
A company provides an employee with a television set which they buy at a cost of £1,600 and provides it to the employee on the day that it is purchased. Because no annual rent is paid on the television, the benefit in kind value is calculated as 20 per cent of the annual value of £1,600 making the benefit in kind value £320.
If an asset meets these criteria but is only available for part of the year, then the tax charge is payable for the proportion of the year that the employee is able to make use of it.
The employee pays tax at the highest rate that they qualify for on the value of the benefit in kind. This means that a higher rate tax payer, paying tax on an asset value of £320 will pay additional tax to the value of £128, which is 40 per cent of the value of the benefit in kind.
The company would also be liable for paying Employers National Insurance at a rate of 13.8 per cent on the total benefit in kind, as declared on the P11D form. This payment would be due by the 22nd of July after the tax year ends.
It is important to ensure that the invoice for the purchase of the item itself must be made out in the name of the company and the payments should be made from the business bank account. It may be worth considering business insurance to ensure that the asset is covered when it is in the care of the employee, unless it is covered by the employees own home insurance.
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