He may be right, but you can make the rules work for you. Let us suppose you are a business owner paying tax at the higher rate and taking the majority of income in the form of dividends from your company.
You have a teenager needing a car and you are happy to fund it from the Bank of Mum and Dad.
They ask you nicely on one of your better days and you agree to fund the cost of the car insurance providing they choose something sensible, reliable and green with a low CO2 rating.
A quick search on e-bay locates a second-hand Citroen C1 that is about two years old and costs £5,000. It is green with a CO2 emission figure of 109g/km. More importantly, it is just within your budget.
Before you have chance to reconsider, your beloved offspring has pressed the ‘buy it now’ button and you are now the proud owner.
You need a stiff drink.
The next cost is car insurance. You check on a well-known price comparison site, and you find that the cost of insurance will cost about £2,000 a year.
You have committed yourself to spending £7,000. You need another stiff drink.
You do have available funds within your company and decide to pay yourself an extra dividend.
This is generally good tax planning as paying a dividend does not give you an immediate tax and national insurance bill but there will be extra tax to pay at the end of the tax year.
Taking the £7,000 gives you a personal tax bill of £1,750 but the company will not obtain any tax relief for the dividend.
This act of kindness is proving rather expensive. You regret the idea and finish the bottle. This idea has now set you back £8,750.
You seek advice and your accountant suggests that your company buys and owns the car.
The car would create a taxable ‘benefit in kind taxable’ on you because the car is ‘made available’ to a member of your household.
Any benefit in kind is not based on the price you paid for the car but on its list price when new.