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Hi tutor,
If employee has used an asset and after 2 or 3 years he has been gifted that asset by the employer so do we have to calculate for each year separately? also when it was provided it was not for the full year as taught in the question in your lectures..The higher of:
1. Market Value less price paid
Or
2. Cost when first provided -tax paid -it’s cost to the employee.In most cases it is 2
While the asset is still owned by the company the employee is assessed based on 20% of the OMV of the asset when it was first made available for private use. This is the annual benefit and if the loan was only available for half of the tax year then only 6/12 of the annual benefit would be assessable.
For example if an asset was purchased by a company on 1 October 2013 for £1,000 and immediately made available for the private use of an employee then the benefit assessable in the 2013/14 tax year will be 1,000 x 20% x 6/12 = 100
If the asset was then sold to the employee on 1 January 2015 then the assessment in 2014/15 would be 1,000 x 20% x 9/12 = 150
In addition a further assessment arises in 2014/15 on the transfer of the asset to the employee based on the higher of the OMV of the asset or its tax wdv – less the price paid by the employee. For this purpose let us assume that on 1 January 2015 the OMV of the asset was £600 and it was sold to the employee for £500.
The further benefit would be computed as follows:
Higher of:
(1) OMV £600, or
(2) Tax wdv (1,000 – (100 + 150) = 750less the price paid of £500
Hence the further benefit would be (750 – 500) = 250
When it is sold isn’t it the higher of :
1.MV at acquisition less price paid
600-500=£100
OR
Cost when first provided less tax charged less price paid
£1000-350-500=£250
Making option 2 the higher therefore the benefit to be added to employee income
I completely agree with your example,but since the question is what will be the charge given that there is no price paid by the employee ,will the benefit charge be £750.The higher of OMV or Tax written down value as you have correctly put it?
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