Furniture - tax advantage

B

Bill

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I have been told that if i buy a new apartment (perhaps an old house also??) my employer company can allow me use new furniture worth 20k. Aftyer 2 years, when it is worth 5k, the company transfer the furniture to me.

Employer pays 755* in PRSI versus 2,150 (20k*10.75)

I pay 3,080** versus the 8,800 i would pay had i been paid 20k as salary (20k * 44%)

*20k*5%*2yrs=215 + 5k*10.75%=540
**20k*5%*2yrs*44%=880 + 5k*44%=2200

Does anybody know if it has to be a 'new apartment' and the details of how the furniture is purchased, and what happens if i leave my employment to a new company within the 2 years?

thanks
 
I'd be interested to hear if this really happens. I think I read something similar before (possibly in Business Plus two or three years ago) but the example given was not furniture but a suit.
 
The Revenue are not stupid and will routinely disallow any such stunts when uncovered. Interest and penalties would apply to any tax underpayments arising. Your employers auditors would also have severe difficulties with the integrity of the company if such stunts are commonplace within the company.
 
As fas as I know this was not a stunt though - it was completely legitimate. My memory is not so good but I'm a notorious hoarder, must take a look at home and see if I have that article shoved in a box somewhere. I suppose it's possible it was some kind of loophole which may have been closed with the changes to bik in 2004 (2003?)
 
I very much doubt if it was ever legitimate - certainly not since the special Revenue powers to curb artificial "tax avoidance transactions" were introduced to our tax code in January 1989.

ps It is always a good idea to be extremely wary of any tax "advice" or opinion expressed in newspaper or magazine articles or on radio or TV, unless it is given by an accredited expert in the area. If you heard the embarrassing put-down that presenter Richard Downes suffered on Morning Ireland today in relation to his interpretation of tonnage tax, you might know what I mean.
 
This information came from a VERY reputable source (a big accountancy firm), this year.
 
Did they put it in writing? If so, ask them to clarify the effect of s811 TCA97 on the scheme. Otherwise, ignore.
 
It is legitimate for a company to purchase furniture for an employee. The employee is liable to pay Benefit in Kind Tax on 5% of the value of the furniture (doesn't apply to white goods). This tax is due every year the employee has the use of the furniture. The company will be able to get VAT back on the purchase.

If at some stage the company decides to sell the furniture to the employee, the employee can buy the furniture at the going rate for second hand kit, which would be advantageous as furniture depreciates at a massive rate. (the company should also charge VAT though). At this stage the employee will own the furniture and will not be subject to further BIK charges.

An argument at the time of the transaction might be that the company carried out the transaction purely to reduce a tax bill (I understand that the intent in addition to the transaction may be examined), but there are perfectly good grounds for supplying furniture - relocations to site, office moves etc.

The business and finance magazine used an example of a suit a few years ago, but I suspect that the cash value of the suit might be used to calculate BIK rather than a percentage of the purchase price.

Imperator
 
Imperator said:
An argument at the time of the transaction might be that the company carried out the transaction purely to reduce a tax bill (I understand that the intent in addition to the transaction may be examined), but there are perfectly good grounds for supplying furniture - relocations to site, office moves etc.
Click to expand...

The law quoted above places the burden of proof on the taxpayer to demonstrate that the transaction was not designed purely to reduce a tax bill. This places the Revenue in an uniquely strong position if they wish to challenge any particular arrangement of this nature. The imposition of punitive interest & penalties and 'name and shame' publication of tax settlements tend to concentrate minds whenever this sort of plan is discussed in practice.
 
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