The next step

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Spreading the cost of Christmas tax efficiently

A taxable benefit

Christmas is a time for celebration, but it comes at a price; an iPad for your daughter, a Wii-U for your son, and a host of gifts for your other half to compensate for all the grouching you’ve done during the year. The trouble is your bank account is already stretched. You could pay for the lot with your company credit card, but this will count as a benefit in kind (BiK) on which you’ll pay tax and the company will have to pay NI. Your fellow directors won’t like this, but there might be a way to keep them happy.

Avoiding the BiK

The tax rules say that by paying back your company, plus any associated costs, e.g. credit card interest, the tax on the BiK will be avoided. This will help delay the cost of Christmas for a bit, but after a month or so you’ll be back to square one. But perhaps not.

Tip. The rules don’t specify how much time you have in which to reimburse, or “make good”as the Taxman puts it. HMRC’s guidance says you have until your tax bill for the year is finalised (see The next step). In theory, this gives you at least until you submit your self-assessment form for the year, but there’s a hitch.

Trap. The rules for NI are differentto those for tax. All BiKs must be declared on Form P11D (benefits and expenses annual return) and this has to be submitted to the Taxman by July 5 following the end of the tax year. This is the point at which the NI bill is finalised. Any reimbursement you make after this won’t count as reducing your company’s NI liabilty.

Example. Assuming you pay for Christmas gifts etc. using your company credit card, you’ll have until Forms P11D for 2012/13 are sent to the Taxman to reimburse the cost and avoid both tax and NI. Naturally, you won’t want to delay submitting the P11Ds until the last minute, but leaving this until, say, June 2013 is perfectly fine.

Filling in the P11D

Section C of Form P11D is specifically for reporting company credit card transactions. The VAT-inclusive amount of any purchase must be entered in the first box, and in the second the amount you’ve “made good” as at the date the form is submitted. There will be no tax or NI charge to worry about where you’ve repaid everything.

Precautions

The Taxman gets finicky about using a company credit card for personal purchases. He says that unless certain procedures are followed, PAYE tax and NI is due on the value of purchases as if they were salary. But if you take the following simple steps you’ll avoid this problem:

• agree with your fellow directors that the company card can be used for personal purchases. Setting a spending limit is a good idea
• make a point of asking the retailer to show the company’s name on any paperwork, e.g. invoices.

Christmas isn’t the only expensive time of year, and the good news is this simple scheme works on anything from a summer holiday to a new laptop.

For a link to HMRC’s guidance on making good, visit http://companydirector.indicator.co.uk (CD 14.05.05).