There may come a time where you want to purchase an asset from your company, or borrow a piece of equipment for personal use, but before you do you will need to be aware of the potential benefit in kind (BIK) consequences.
Should you buy an asset from your company and pay below the current market value, i.e. you buy a van from your company at £5,000 when if sold commercially it would be worth £10,000, or you borrow an asset (let’s say the same van) for personal use then a tax benefit would arise.
There are specific rules when calculating the BIK, and tax consequences, on assets such as motor vehicles or residential properties. For this article, however, we will be looking at the rules in the absence of more specific regulations. We have listed below the key rules you will need to be aware of when buying or borrowing assets from your company.
Should you purchase an asset from your company below the market value cost you will owe tax on the difference. For example, if you buy an asset from the company for £500 when it’s worth £1,000 then the BIK charge will be £500 and will be taxed accordingly.
If your company is VAT registered, then you will need to take the VAT into account when working out the market value.
If your company transfers any assets to you, or an employee, then the market value used will be the cost to the company and not a notional second-hand value.
There may be times when you borrow an asset for the company rather than buying it from the company. In this case the BIK will be taken as the ‘annual value’ of the asset, this will be the higher of either:
- 20% of the market value at the time it was first made available to you, or
- the actual annual costs to the company, this includes any rental or hire costs.
It may be the case that after borrowing the asset for a time you decide to buy the asset, in this case the value for sale will be the higher of:
- The market value at the time of the transfer, or
- The market value at the time the asset was first made available less the value of any BIK charged for personal use.
There are a few common items that can be provided without incurring any BIK charges, one such time is a mobile phone. However, there are certain rules that need to be followed.
- No more than one phone per member of staff
- The billing is in the company’s name rather than the individuals.
It’s important to make sure you are sticking to the rules, but you don’t need to worry about every little piece of equipment that is being borrowed. If, for instance, you borrow a drill to fix some shelving over the weekend then no one is going to worry about a BIK charge. It’s only important to make a BIK charge when a significant asset is borrowed for private use or where the loan is more than very short-term.
If you need help understanding the BIK rules, or to calculate the charge, we are here to help.
