You might be glad to get rid of some of your old business equipment, such as furniture and computer peripherals, by giving it away to employees. But could this create a taxable benefit problem?
What’s the value?
HMRC’s starting point is that there is a taxable benefit in kind when an asset that belongs to an employer is transferred to an employee, a member of their family or household or to an office holder. The P11D value is the cost of the benefit less any amount that’s been made good by the employee.
Pro advice. You should not only consider things like old office equipment, but also gifts to employees or services which are normally part of the employer’s core business, such as legal services.
New assets
For an asset that is transferred to the employee before it has been used or depreciated in value, the reportable value is the higher of:
- the cost to the employer in sourcing the asset; or
- the value (money’s worth) of the asset to the employee (this could be higher than the employer’s cost to source if the employee could sell it commercially at a profit).
Pro advice. Also consider items that the business produces if they are sold below cost price. There is no benefit in kind in the employer giving up all or some of its profit margin as there is no cost until they go below cost price. So, for staff purchases if the employee pays at least the wholesale price there is no benefit in kind.
Used assets
For an asset that has been used or depreciated in value since it was first bought or produced by the employer, it’s the higher of:
- the market value at the time of transfer; or
- the value (money’s worth) of the asset in the hands of the employee (this time these two values are likely to be the same).
Market value. The market value of an asset at any time is the price which it might reasonably be expected to fetch on the open market. You should have evidence of that by conducting an online search. It is not the value offered by the employee for the item.
Pro advice. If the employee had use of the asset before it was transferred and this has been reported in section L for a prior tax year, this affects the P11D value.
Example. A business buys a yacht in April 2020 worth £75,000. The MD and his family use it throughout 2020/21 with no contribution. It costs the business another £3,400 to insure, fuel and maintain. For 2020/21 his P11D in section L shows £75,000 x 20% = £15,000 plus £3,400 running expenses = £18,400, as section L is based on 20% of value plus running costs. In April 2021 they sell the yacht to him for £37,500 even though it was valued then at £50,000. For 2021/22 it’s P11D section A: whichever is higher, original market value when he first used it £75,000 minus the £18,400 taxable value last year = £56,600 versus £50,000 current value. So, £56,600 is higher so you deduct the made good of £37,500 = £19,100 reported.
Note. If the yacht was worth £60,000 now, then this figure is used but then the prior year benefit is not subtracted. So, £60,0000 minus £37,500 = £22,500.
For an asset that has been used or depreciated in value since it was first bought or produced by the business, the taxable benefit is the higher of the market value at the time of transfer, or the value of the asset in the hands of the employee. Keep evidence of the value of an item that is sold or given to an employee to justify its current market value.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.