What are tax implications if a company pays a Directors personal expenses?

It’s not uncommon for Directors personal expenses to get mixed up with business expenses, for example the director is out buying things for the company and picks up some items for themselves at the same time and it goes on the same bill.

In a perfect world the Director would just repay the cost of personal purchases to the company, but we don’t live in  perfect world, so what are the options?

Directors Loan Account

You could post the cost to the Directors Loan Account. These accounts are normally repaid when the Director is paid either salary or dividends.

If the loan is not cleared by year end then the company will have to pay a temporary corporation tax charge of 25% and reclaim the tax when the loan is repaid using form L2P

There may also be a notional amount of interest (4%) charged as a benefit in kind on the loan.

Benefit In Kind

You could have the expenses as a benefit in kind, some benefits may even be tax free, here is a list of my favourite tax free benefits

1. Pensions – Up to £40k can be paid in to you pension scheme by your employer (2015/16)  and you can use carry forward to pay in even more
2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115) – new rules coming soon
3. Mobile Phone – One per employee
4. Lunch – Tax Free Lunch Blog
5. Cycle Schemes – Cycle to Work Blog
6. Fitness – Fitness Blog
7. Parties and Gifts – Christmas Blog
8. Parking – Parking Blog
9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
12. Suggestion Schemes – Suggestion Scheme Blog
13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
14. Travel Expenses – Travel Blog
15. Working From Home – Working from Home Blog

Private Use of Company Assets

It may also be worth considering private use of company assets.

• The cost of the asset is allowed against Corporation Tax and you can claim Capital Allowances and the Annual Investment Allowance.
• The Assets could be purchased from the Director but they must be transferred at Market Value.
• The Benefit In Kind is generally 20% of the market value

steve@bicknells.net