It’s that time of the year when the shops start flooding with new gadgets in time for the Christmas market. Tempting, aren’t they? But before you go rushing off and buying one on your company’s accounts, it’s worth knowing a little about what you can and can’t set against your taxes. Once again, we asked the legendary Kenny Fitzgerald of online accountants, My Accountant Friend, to find out how it all works.
Hello again, Kenny. Tell us, what are the dos and don’ts of buying the new iPhone X, or perhaps a new bluetooth home speaker setup, or maybe an American-made Fender Stratocaster, or the same spanking-new car that my neighbour just bought?
You again, eh?
OK… it’s not terribly difficult. Grab a paper and pen and take some notes.
The assets should be business-related, otherwise they will generate something called a benefit-in-kind. A benefit-in-kind will have tax implications for both the individual – you – and the company, with personal tax payable at their marginal rate on the benefit received and the company also paying a class 1A NIC on the value of the benefit provided at a rate of 13.8%.
I was with you until ‘marginal rate’, Kenny. Is the rest of it English?
It’s what we call Accountant Speak. You can learn it if you want, but it’s easier to work with an accountant to help you get around the intricacies.
Anyone in mind?
It’s always worth giving My Accountant Friend a call.
Will do. Thanks. In the meantime, how about that Fender Stratocaster?
Are you a rock star?
No. Quite the opposite, in fact. I write things on tax blogs.
Probably best not to buy your electric guitar with your company funds, then.
How about the car thing? Surely that’s allowed?
Cars have their own rules for tax and I wouldn’t advise anyone to try and put their car through their company accounts. There are sometimes exceptions made for electric or very low-emission cars, but I imagine that’s another blog post entirely.
Damn it, Kenny! What about the iPhone X? Give me something to go away smiling about…
OK. Try this. Every employee and director can be provided with one company phone without incurring a benefit-in-kind, and all related costs would then be payable by the company for calls, line rental and phone purchases, if applicable.
Yes! That’s more like it. Presumably you need to have the money in your business account to do this, though, right? HMRC aren’t going to stump up for it, are they?
Er… you need to have the money to buy it, obviously. There’s no such thing as a free iPhone X in this life, chap.
How does VAT work on something like this? What should you tell the assistant in the shop when you’re trying to explain that it’s a company phone?
VAT is reclaimable on expenses that are solely for business in full. If they are a benefit-in-kind, then the VAT reclaim may be restricted. Note that VAT cannot be reclaimed on company cars that are purchased by the company, and only 50% can be reclaimed if the car is a business lease.
Is that Accountant Speak again, Kenny?
No. I believe that’s mostly English.
How about the paperwork for the iPhone X? What do I need to keep and pass on to your accountant friend?
You mean My Accountant Friend?
The original purchase invoices should be kept for the company records. For items such as cars, we obviously require a lot more details as the benefit-in-kind is linked to the original list price (not the purchase price) and Co2 emission rates. We would also need details of any finance agreements to split out the interest payments to be made.
Gotcha. I’ve asked you before about the strangest request you’ve had from a client on this subject, but I wonder if there are any new classics you’d like to share?
I once had someone who was an IT contractor wanted to put a horse box through the company to save both corporation tax and VAT. A horse had nothing to do with his company and it turned out it was basically for his wife to move her horse around. As such, I explained that the VAT would not be reclaimable as it had no business use, and also it would be excluded from a corporation tax deduction for the same reason. On top of this he would pay benefit-in-kind tax and the company would pay tax on the benefit too. Overall it would have cost him more, so he saw sense and didn’t put the horse or its box through the company. Unless you’re in the horse business, it’s always best to avoid putting horses through company accounts.
Damn it, Kenny! You’ve just spoilt Christmas!