Claiming A Percentage Of Car Tax / Insurance

[Boo]

Watch the insults, this is a professional forum.

And knowingly claiming personal expenditure as a business expense is evasion, which is a criminal offence for which the sanctions include a custodial sentence.

So want to try again?

There is nothing in tax law that says RAC membership is not a reasonable expense provided it is bought solely for business purposes. Incidental use of business equipment and/or services is permissable without incurring a BIK in any case.

So why don't you try again ?

Boo

[malvolio]

There is nothing in tax law that says RAC membership is not a reasonable expense provided it is bought solely for business purposes. Incidental use of business equipment and/or services is permissable without incurring a BIK in any case.

So why don't you try again ?

Boo

OK. The "wholly and exclusively" rule will apply Therefore, such cover can only be a legitimate business expense if it is for the sole cover of a vehicle that is itself for business use only. That in turn is defined as one that is not available to the worker for use outside office hours and that is kept at the company's premises away from the worker's home at all times and is never used for non-company travel.

Does that apply in your case? If not, my earlier comment applies. If it does, apologies for mis-understanding an incomplete statement.

The annual saving, incidentally, is no more than 40% of £79, or £31.60m, since there is no point in having home cover since the car will never be there. Seems a little picky to me.

[Wanderer]

There is nothing in tax law that says RAC membership is not a reasonable expense provided it is bought solely for business purposes. Incidental use of business equipment and/or services is permissable without incurring a BIK in any case.

RAC membership is a motoring expense and the cost of motoring is covered by mileage allowance payments which are 45p for the first 10,000 miles and 25p per mile after that.

HMRC clearly states that the mileage allowance is the only tax free payment permitted and any other benefits provided in connection with the employee's business use of their private vehicle, such as fuel, insurance and vehicle maintenance are taxable in full, with no reduction for the business proportion.

Now, you can argue that point with us as much as you like (I don't give a tulip so long as you don't mislead other people) and you are of course free to claim anything you like against tax but remember that when you get investigated you will have to pay the tax owed with interest and a penalty of up to 100% of the tax avoided....

[Boo]

OK. The "wholly and exclusively" rule will apply Therefore, such cover can only be a legitimate business expense if it is for the sole cover of a vehicle that is itself for business use only.

That doesn't follow and is the reason you fall down :

If the insurance is obtained solely for business purposes then it makes no difference what use the car is owned for. Consider obtaining insurance through the business on a laptop used for business that also has incidental use eg browing the web : what must be considered under the "wholly, necessarily and exclusively" clause is the intended use of the insurance, which is to protect the business data etc, not the ownership of the laptop.

The intended use of my RAC membership is to get me to client sites when my car breaks down. Any personal use is incidental and doesn't add to the cost to MyCo of the RAC insurance. Therefore allowable. To understand this you need to understand that the only vitally important reasons I have for travelling by car are to get to a client site. No other journey would cost me anything if delayed.

That in turn is defined as one that is not available to the worker for use outside office hours and that is kept at the company's premises away from the worker's home at all times and is never used for non-company travel.

I hope you can now see that this is misplaced : there is no tie between the car ownership and the RAC insurance in the way you suggest, the RAC insurance is effectively acting to insure lost business income.

The annual saving, incidentally, is no more than 40% of £79, or £31.60m, since there is no point in having home cover since the car will never be there. Seems a little picky to me.

This seems to demonstrate a complete misunderstanding of the rules governing a business. The fact that HMRC may make a misjudgement of a claim for tax relief is not a reason for not claiming it. The only reason you should have for not putting an expense through the business is that it is not a proper business expense. The fact that the sums are small and you find life generally frightning is not a reason for not putting a business expense through the business.

That such misunderstandings and misrepresentations are part and parcel of the PCG's attitude to contractors and tax law is one key reason for me not being a member of that organisation. You are yourself rather famous round here for your misguided presentation of the rules governing the opt out from the agency regs, no surprise, then, that you get this issue wrong too...

Boo

[Wanderer]

The intended use of my RAC membership is to get me to client sites when my car breaks down. Any personal use is incidental and doesn't add to the cost to MyCo of the RAC insurance. Therefore allowable.

OK so you entered into a discussion on this forum and we didn't give you the answer you wanted. So ask your accountant and see if they give you the "wrong" answer too. If they do, then phone up HMRC and ask them - I'd be willing to bet that they won't give you the answer that you want either.

But I'm sure that they are all wrong and you are right so as I said before, go right ahead and claim whatever you want to.

[TheCyclingProgrammer]

The intended use of my RAC membership is to get me to client sites when my car breaks down. Any personal use is incidental and doesn't add to the cost to MyCo of the RAC insurance. Therefore allowable. To understand this you need to understand that the only vitally important reasons I have for travelling by car are to get to a client site. No other journey would cost me anything if delayed.

Unfortunately this argument doesn't hold up and has been challenged successfully by HMRC in the past. The fact that you have RAC membership on your personal car means you are receiving a very obvious and direct benefit, regardless of the underlying intention. HMRC will not deem this benefit to be merely "incidental".

See this example:
http://www.hmrc.gov.uk/manuals/eimanual/EIM21003.htm

This seems to demonstrate a complete misunderstanding of the rules governing a business. The fact that HMRC may make a misjudgement of a claim for tax relief is not a reason for not claiming it. The only reason you should have for not putting an expense through the business is that it is not a proper business expense. The fact that the sums are small and you find life generally frightning is not a reason for not putting a business expense through the business.

You are making the mistake of confusing the rules regarding business expenses and employee benefits.

Generally, if your company expense passes the "wholly and exclusively" test it will be allowable as a tax deductible expense. So in one sense you are correct. The RAC membership could pass the "wholly and exclusively" for business purposes and I don't think HMRC would deny you corporation tax relief on this if the company paid for it and you can argue your case.

It's not a certainty however that HMRC would allow corporation tax relief.

BUT, even if they DID allow it for CT purposes, this doesn't change the fact that because the membership is for your own personal vehicle, it would be caught by the employee BIK regulations and would therefore be reportable on your P11D and subject to class 1A NIC on the benefit.

Once again I refer you to http://www.hmrc.gov.uk/manuals/eimanual/EIM32500.htm

Any suggestion that the cost of membership of a club is deductible as a necessary expense incurred in the performance of the duties of the employment should normally be rejected.

There are many things a company could pay for that represent benefits to its employees, from childcare to gym memberships. Most of the time the cost of providing these benefits are allowable expenses for the company for the purposes of corporation tax. Some of the time the benefits themselves (such as childcare) are explicitly exempt and so there is no BIK charge.

But unless you know of a specific exemption to the benefits code for car club memberships (and that's essentially what RAC and AA memberships are) then you will have a BIK.

Here's a list of exemptions:
http://www.hmrc.gov.uk/manuals/eimanual/EIM21241.htm

Good luck!

[Boo]

But unless you know of a specific exemption to the benefits code for car club memberships (and that's essentially what RAC and AA memberships are) then you will have a BIK.

Not so. AIUI, the AA and RAC are indeed clubs and do have members (including Damon Hill, IIRC), but that normal subscribers are not actually members of the club so the fees they pay are for insurance rather than club membership fees. So your suggestion that RAC and AA membership fees are club membership in the sense of the HMRC link are unfounded.

Boo

[TheCyclingProgrammer]

Not so. AIUI, the AA and RAC are indeed clubs and do have members (including Damon Hill, IIRC), but that normal subscribers are not actually members of the club so the fees they pay are for insurance rather than club membership fees. So your suggestion that RAC and AA membership fees are club membership in the sense of the HMRC link are unfounded.

Boo

It doesn't matter whether its a membership in the HMRC sense or not; if you want to call it insurance, then fine. But as it's for your own personal vehicle you are still receiving a benefit, whether you like it or not.

Replace the words "club membership" in my statement with "insurance on a personal vehicle". Is there an exemption for this? I don't think there is. If there is no suitable exemption for this particular benefit then you should be reporting it on your P11D and paying Class 1A NIC.

Did you even read the links I provided? Like this one, that shows how even if there is an underlying business motive, a BIK charge can still apply?

http://www.hmrc.gov.uk/manuals/eimanual/EIM21003.htm

[ASB]

Boo,

You are certainly right about the RAC; seem to recall somebody tried to take it over a few years back.

In terms of you claiming RAC membership paid for by the company on you own car I think it is likely hopeless; but if you think it's defendable and you can make decent case then worst that is likely to happen is charge back and small penalty.

In terms of RAC it would be a non issue with a company owned car of course. Also you may care to peruse the self/employed car claiming regime, which is on a cost and scaled basis (as you used to be able to do with business use of your own car). This does specifically state rac as claimable in this regime.

You could try and use this as a justification for your position in any subsequent compliance review.

I had a car vandalised in a client car park. Not a huge amount and wasn't going to claim. So I put it through the books. This was 100% successful until the compliance review

[psychocandy]

This is true but I buy and pay for RAC membership via MyCo and my accountant has never blinked. My justification is that I wouldn't have it if I didn't need to travel to a contract site as the expanse would not be worth it if it weren't for the potential lost company income ensuing from a breakdown.

Having said that, I don't actually know whether my accountant expenses it or just treats it as a bik

Boo

Hmmm. Surely a bit dodgy? Thats the idea of the flat mileage rate so that it covers EVERYTHING isnt it? Adding things on in addition sounds a bit off to me. Potential trouble here.

Its like saying well normally I get 3rd party insurance but now I'm getting comp so I'm expensing the extra. Or I normally buy cheap tyres but now I've got to get expensive ones.