Fact pattern

Susan Wright, Charles Thompson and John Dodgson have recently incorporated their business. Having previously operated as a partnership, they are seeking advice as to how they, as directors and shareholders, will be subject to taxation on payments made to them. In addition, they need advice on how such payments affect their company, Winstern Limited.

Each director is to receive an annual salary, as each is going to be involved in the business on a day-to-day basis.

Provided that they are of an income nature and incurred wholly and exclusively for the purpose of the business, salary payments to directors can be deducted from Winstern’s income, to reduce its taxable profits.

For a director, salary will be subject to tax under ITEPA 2003. Any other benefits, including company cars, health care, etc., are also subject to tax under this Act.

Company car benefits are calculated according to an annual sum. This sum will be a percentage of between 16% and 37% - based on carbon dioxide emissions - of the car’s official list price. A 4% supplement may be for certain diesel cars.

The company buys a flat, valued at £150,000, adjacent to its main premises. Given his role and the location, Winstern rents it to its security guard for £3,000 pa. The market rent would be £5,000 pa. Will the employee have any tax liability?