Easily solved. Sell it to me, I up the price by £200 and then you buy it. For £200 the Inland Revenue get to leave you alone and I get to drink lots.
If only it were that easy.....
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I have consulted a friend who is a senior partner in a firm of tax accountants on this matter. He says that this should not be classified as a taxable benefit, and he would personaaly fight the case if the IR said it was. If nothing else, they are probably too busy to investigate this.
JW edinburgh.
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JWE: did he say why?
If they gave it to you for nothing, there would be no doubt that it was a taxable benefit (current market value). As marginal cost applies to calculation of benefits, taxable benefit on you would be likely to be trade in value, less any costs to get it there (delivery, commission etc.).
Similarly, if they give it to you for less than market value, then there is likely to be a taxable benefit.
If they're just being incompetent with their valuations (and goodness only knows how you REALLY value a second hand car!), then maybe a greyer area.
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Anybody know what the trade in value is per Glass? Afraid I cannot be bothered to schlep down to the library, sorry!
But taking DavidHM's values, and knocking off a couple of K to give a dealer his turn, then allowing your employer to pay the auctioneer, and once he'd faffed with it, had it standing around doing nothing for several weeks, taken a month to get his cash in etc. etc., I'm not convinced that the employer is losing much on this deal.
If he is, then is the business's cashflow in desperate straits?
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He may well be a senior partner and he may well be telling you something that you want to hear. But that does not mean he is right. :-)
Section 62 ITEPA 2003 states
62 Earnings
(1) This section explains what is meant by "earnings" in the employment income Parts.
(2) In those Parts "earnings", in relation to an employment, means-
(a) any salary, wages or fee,
(b) any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money's worth, or
(c) anything else that constitutes an emolument of the employment.
(3) For the purposes of subsection (2) "money's worth" means something that is-
(a) of direct monetary value to the employee, or
(b) capable of being converted into money or something of direct monetary value to the employee.
(4) Subsection (1) does not affect the operation of statutory provisions that provide for amounts to be treated as earnings (and see section 721(7)).
It was held by the courts many, many years ago in a case involving second hand suits that the valuation of 'money's worth' is the difference between the open market value of the asset and what was paid for it.
So in this case if the OMV of the asset is £6,000 and you pay £5,000 for it then you have an income tax charge arising on £1,000.
The statement "If nothing else, they are probably too busy to investigate this." sort of destroys your argument. Along the lines of if you don't tell the truth they may not find out about it.
By the way the maximum penalty for the fraudulent evasion of Income Tax is 7 years in prision or an unlimited fine.
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However, even if he is honest and declares it and gets charged tax on the difference, if the car is far enough below market value it will still be cheap won't it? Just not quite AS cheap
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Absolutely.
A common mistake made by far too many people is to ruin a good deal by trying to be far too clever. I deal with them all day every day.
A bit of common sense saves a huge amount of hassle and cost, and much more importantly helps you sleep at night.
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would the car not just be being sold at its written down value so say it was bought at a good price then 30% value written off in first tax year ,its now in second tax year so 30% of remaining value written off. at 15 months old could it not even be in its third tax year on the firms books? anyway if it was me I would buy at that price.
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It may well be offered at its written down value, but what the IR will allow for depreciation on the books for motor vehicles and market value, which it uses for calculating taxable benefit, are different.
Probably the taxable benefit on the car will be ~£2k - what it might make if sold in the trade or at auction, less cost of disposal, storage, fees, etc. but obviously your tax partner friend would be the person to advise on how it would be calculated, if at all.
Even if that increases the real cost to £7,400 (40% tax on £2k) it's still a heck of a deal.
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I suspect it is more likely to be the employer who gets caught out in a PAYE investigation, rather than the unlikely commencement of an investigation into the employee's tax return.
The employer is likely to suffer penalties for failure to account for tax on a benefit.
Like VAT by Customs & Excise, PAYE is generally investigated through an audit, so this sort of thing does get picked up.
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Well sort of but not quite, this is not a benefit.
If there is a transfer of an asset at an undervalue then any charge to tax will be a straight tax charge on the employee, unless the asset is a readily convertible asset in which PAYE applies.
If PAYE does apply then a further tax charge will arise on the employee where the employee does not refund the employer's tax charge within, I believe 90 days.
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I take your point, but I think that if I were advising the employer, I'd warn him to be careful and to make sure he was certain of the situation.
e.g. wine is readily convertible - was this an NI issue, my memory becomes hazy. There's probably a more liquid market for cars than for wine. I reckon a car is therefore also readily convertible. As an employee, I'd be at least as happy to be paid in cars as in wine.
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"There's probably a more liquid market for cars than for wine."
LOL
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