The purpose of the information on this page is to allow employers to compare the different ways to provide furniture for employees and the cost and tax implications. The comparison is made between an employee purchasing the new furniture with an allowance provided by the employer, the employer purchasing the furniture and the employer hiring the furniture.
The following examples are based on an employee who is paying 40% tax and has earnings above the National Insurance upper earnings level. It assumes that the employee will have the use of the furniture for 12 months and the allowance given to the employee is £4,000. In addition, it is assumed that the employer will make good the employee's tax cost and that the employer is liable to pay corporation tax at 30% on his profits.
The employee would receive a cash payment of £4,000 to purchase the furniture. The real value of new furniture that this would purchase is £3,405 because of VAT that would have to be paid to the person who supplies the employee with the furniture.
To give an employee an allowance of £4,000 net of tax, the employer would have to pay the employee approximately £6,700. In addition the employer will have to pay an NIC contribution of approximately £800. This means that the total cost to the employer is £7,500.
The whole of this amount would be allowed against the company's corporation tax. In that event the net cost to the employer is £5,250 or £437.50 each month.
The cost of the furniture to the employer is £4000 net of VAT. This is because the employer can recover VAT paid to the supplier and so more items or higher quality furniture could be purchased than if the employee was to purchase the goods himself or herself.
The cost to the employer of meeting the taxation on the employee's benefit would be £627.
Therefore the gross cost to the employer would be £4,627. There would be a tax allowance of £488 in the first year so the net cost to the employee is £4,135 or £345 per month.
If £4,000 of furniture net of VAT is purchased by the hire company, the monthly rental cost would be approximately £300 plus VAT per month. The employer would be able to recover VAT charged on the rental so the net annual rental cost would be f 3,600.
The cost to the employer of meeting the taxation on the employee's benefit would be £627.
This means that the gross cost to the employer would be £4,227. The whole of this would be allowed against corporation tax so the net cost to the employer is f3,959 or £247 per month.
The examples given in this page are purely illustrative and do not constitute advice. The tax rates are correct for the tax year ended 5 April 2002. Should specific comparisons be required, specialist tax advice should be sought.
Acknowledgement: The examples on this page were prepared for Bradbeers
by Messrs Tenon, accountants & business advisers, of Highfield
Court, Tollgate, Chandlers Ford, Eastleigh, Hampshire SO53 3TY (tel 023 8064
6464).
Tenon is a trading name of Tenon Limited
Registered Office 28 Dove. Street, London W1X 3PA No: 4066924 England
A member of Tenon Group PLC