On preparing the company accounts, the director paid £20,000 for an expensive car, whose list price was originally £50,000, so he knows he has a benefit-in-kind (BIK). I have advised them to get the car out as soon as possible, and the options are: (1) The director purchases the car out of the company; (2) A direct transfer to the director at market value; this would go on his P11D in addition to the car benefit. Is there National Insurance contributions to consider on top of the BIK here? Receiving the asset by reason of being a director?; (3) Transfer to director via director’s loan; this would cause the directors’ loan account (DLA) to become overdrawn. Section 455 tax would be due and there would be a BIK on the loan, (though could be offset by declaring a dividend). Again, is there a NICs issue here, by reason of being a director?; (4) I have heard of dividend in specie but ruled it out due to lack of reserves, though could this apply to a car?  

Arthur Weller replies:  

If you look at HMRC’s National Insurance manual at NIM1314 (tinyurl.com/bdz3umsm), you can see that if the car is transferred from the employer to the employee, there is Class 1A NICs (assuming a car is not a ‘readily convertible asset’). If the director’s loan account is overdrawn and 'put right' by declaring a dividend, there will be no NICs issue. You can declare a car as a dividend in specie, as per HMRC’s Company Taxation manual at CTM15200 (tinyurl.com/2nevpvfy), but it is essential to do the paperwork correctly.