Purchasing a bike through the company for VAT purposes - creative accounting?

[Dogtrousers]

OK! OK! I admit it!

I used to claim the VAT back off purchases of office supplies from Rymans and then sometimes put the pens to personal as well as professional use, such as doing the sudoku on the train.

You may be able to find it in your hearts to forgive me, but I'll never really forgive myself.

That ink ... it tortures me. It's the tears of orphans.

 

[Bazzer]

HMRC don’t look kindly on limited companies controlled, owned and effectively operated by one man, they don’t trust them to get it right so it’s One of the reasons why the IR35 disguised employment comes into force in the private sector on 5th April 20, HMRC will make a killing just like they did in 2017 when it was brought in for public sector as they found in a lot of cases the “worker” was an deemed employee of the engaging company regardless of the contracting parties and the contractual arrangements.

A one man band will need to substantiate the financial risk, substituting rights and control of work to be able to fall outside IR35 to avoid PAYE like an employee and be able to go through their limited company and pay a dividend to the instead.

HMRC know larger organisations tend to be risk averse and dictate terms with smaller companies; begs the question what’s the point of operating through a limited company when you are a sitting duck.

The VAT will be disallowed by HMRC unless he can prove with evidence that the purchase was used to further the business which provided a taxable supply to a customer. In addition to the blocked VAT, the penalties for a deliberate error which was found by HMRC becomes a prompted disclosure in the event of an inquiry, meaning they penalty is more severe then an unprompted disclosure that can’t be fixed on the next VAT return due to been over the thresholds for errors.

What I am basically saying is HMRC will have a field day, hammering for indirect taxes (VAT), employment taxes and possibly even corporates taxes if it’s an incorporated partnership!

You are conflating a number of issues.
The way you have written suggests IR35 is a major hurdle to one person companies. There are dozens of business activities which would fall outside IR35, but IR35 would be major thread derail in its own right.
Larger organisations are not risk averse. Banks and larger firms of accountants have made many £millions out of flogging tax avoidance schemes, some of which were so aggressive they ought to have been considered as evasion.
Larger organisations tend to have checks and balances in place, either put into place by the company accountant or director/s, to ensure employees don't rip the company off. Those same checks and balances can prevent directors doing the same, therefore there is a lower risk. That is not to say it doesn't happen, as someone dishonest in control of a company, or a group of individuals, may still try to find a way of evading taxes.
Penalties are there for a reason; just like when a driver is caught speeding. It makes sense that penalties for a prompted disclosure are more severe than for an unprompted disclosure. In the same way that a prompted disclosure is dealt with less severely than a disclosure which should have been made, but was concealed.

 

[nickAKA]

If I were becoming a partner, the last thing I would do as my first action is to do something financially dodgy.

Hence the question. I'm not an accountant, I was looking for advice from people who understand the rules better than I do, that's all.

I put "creative accounting" in the title more to pose the question if it could/would be seen as such by HMRC if the VAT was reclaimed using existing & transparent rules, which seem to allow such claims but you need to be a bit of an expert to understand it properly - I was hoping that a fellow cyclist who works in accounts might know, having been there & done it. Those that have posted relevant info, I appreciate it.

I'm becoming a partner due to retirements here when my responsibilities will change, it's not a tax ruse. I've been an employee on PAYE for 30-odd years and it doesn't bother me one bit. I know plenty of self-employed people though through the business who expend a lot of energy "avoiding" tax - it certainly isn't that (I'm aware enough to know the 'tax avoidance' isn't illegal - immoral? Probably).

But if anyone can explain why you shouldn't the use existing tax rules (not loopholes) to save less tax than you would using the accepted & popular C2W scheme on PAYE, I'm all ears...

Didn't anticipate a small scale "pay your taxes!" dogpile IIH but you live & learn.

 

[nickAKA]

I'm interested to note the OP hasn't responded since the initial post.

Why's that? Not been near the desktop since yesterday, there's no conspiracy here.

 

[nickyboy]

Hence the question. I'm not an accountant, I was looking for advice from people who understand the rules better than I do, that's all.

I put "creative accounting" in the title more to pose the question if it could/would be seen as such by HMRC if the VAT was reclaimed using existing & transparent rules, which seem to allow such claims but you need to be a bit of an expert to understand it properly - I was hoping that a fellow cyclist who works in accounts might know, having been there & done it. Those that have posted relevant info, I appreciate it.

I'm becoming a partner due to retirements here when my responsibilities will change, it's not a tax ruse. I've been an employee on PAYE for 30-odd years and it doesn't bother me one bit. I know plenty of self-employed people though through the business who expend a lot of energy "avoiding" tax - it certainly isn't that (I'm aware enough to know the 'tax avoidance' isn't illegal - immoral? Probably).

But if anyone can explain why you shouldn't the use existing tax rules (not loopholes) to save less tax than you would using the accepted & popular C2W scheme on PAYE, I'm all ears...

Didn't anticipate a small scale "pay your taxes!" dogpile IIH but you live & learn.

What you floated out is not "using the current tax rules". It's misrepresenting the facts to illegally reduce the tax burden.

To use your example, C2W is a very specific piece of tax legislation. Use it, it's 100% legal. But the ideas you've suggested are not legal.

(Qualified accountant, Finance Director of several companies. Know what I'm talking about!)

 

[nickAKA]

What you floated out is not "using the current tax rules". It's misrepresenting the facts to illegally reduce the tax burden.

To use your example, C2W is a very specific piece of tax legislation. Use it, it's 100% legal. But the ideas you've suggested are not legal.

(Qualified accountant, Finance Director of several companies. Know what I'm talking about!)

As I said, thank you for posting relevant info.

 

[vickster]

I'd ask the accountant you'll presumably be engaging when you need to start doing self-assessment about the rules & regs

 

[Crankarm]

If the business is buying for legitimate business use then they will be able to claim the VAT back. If it isn't for business use then they cannot claim the vat back.

Chances of getting caught, next to none.

But he's just told all of us and the rest of the internet that he plans to set up a tax dodge.

 

[Crankarm]

You say you're not seeking to defraud the taxman but what you're proposing is exactly that.
If the bike is bought by the company and given to someone it cannot recover the VAT.
If the company donates it or whatever to a cycling club that would be ok if it could be shown that the bike was not for a particular person who happened to be a partner in the firm. Any half decent VAT or IR inspector would see right through this

I don't know why he can't just buy himself a bike. Being a partner or director he's probably not short of a £1 or two, just short on decency and doing the right thing like paying taxes as he should. Typical business owner or some one used to getting others to subsidise their lifestyle.

 

[Crankarm]

The tax rules for company vans used to be that a company could provide you with a vehicle if it's main purpose was for the business. All the fuel, insurance costs, servicing, VED etc could be paid for by the company and were not taxed as a benefit to the user if it was solely used for work. Commuting to work in it was allowed, but if you deviated from the direct route between home and work, the mileage was taxed as private use.
The use of a company bicycle might have similar restrictions but I'm not an accountant or a taxman.

BTW, I believe that HMRC have greater powers than the police when it comes to smashing down your front door at three in the morning.

They do. The VAT men and women have far more powers of entry and their use of rubber gloves are terrifying. The only other authority with similar are Environmental Health Officers.

 

[Crankarm]

Except in this case it isn't tax avoidance. It's tax evasion. It's illegal

I've no problem with anyone organising their affairs to minimise the tax they pay whilst remaining within the law. But people who do what the OP are suggesting are stealing from you and me. If someone evades tax it just means that someone else has to pay more tax to make up the shortfall

The idea that evading tax is fair game cos it's just means the IR is out of pocket is bollox

^^^^^ +++1. A****

 

[Grant Fondo]

I don't know why he can't just buy himself a bike. Being a partner or director he's probably but short of a £1 or two, just short on decency and doing the right thing like paying taxes as he should. Typical business owner or some one used to getting others to subsidise their lifestyle.

If C2W is kosha, then why isn't a tax break to small ltd companies?

 

[vickster]

If C2W is kosha, then why isn't a tax break to small ltd companies?

Wasn't it intended as an employee benefit to encourage more cycling to work, not a company related benefit. Nor is it available to the self employed, technically the OP will be such come April if no longer on PAYE I think

 

[bikingdad90]

If C2W is kosha, then why isn't a tax break to small ltd companies?

Because your already getting a tax break in the form of one of the lowest corporation tax rates in Europe which on average are closer to 22-23% and you get the £3000 employers allowance.

 

[Crankarm]

If C2W is kosha, then why isn't a tax break to small ltd companies?

It is my understanding that C2W was actually for employees not companies themselves. C2W was so abused anyway, another massive fraud by many who used it to increase the numbers of bikes in their collections and didn't actually need new bikes at all to ride to and from work. I could have used the C2W scheme some years ago but got a much better deal on a new bike by haggling and using 0% finance over 12 months. I have also built my own bikes for which C2W was not available. In any case most retailers typically would only sell bikes on the scheme at full RRP, no discounts. The only people the C2W really benefitted were the well paid in the 40% tax bracket. If you were a basic rate tax payer the marginal benefits were not worth all the hassle.