Supercar as a company car?
Discussion
Does anybody here run their Fezza, Lambo etc as a company car through their own LTD company? I'm wondering if it would be worth it for me running a car this way, rather than running it as a private car.
When I bought my previous cars, my accountant said it wasn't worth running them as company cars. At an average value of £30k, these cars would just end up costing me about £200 a month in personal tax. I was playing around with a company car tax calculator just now and noticed that their seemed to be a limit to the taxable benefit due on company cars, of £28k. So according to this calculator, the maximum personal tax payable on a company car would be 6k per year at 22% or 11k per year at 40%.
Here's an example - http://www.comcar.co.uk/newcar/companycar/taxcalc/...
To buy a £100k car with my own money, I'm assuming that I'd need to take a dividend of £140k (40k to cover the personal tax due). This would mean the car would cost me £140k as a private car or £111k as a company car. I don't know much about accounts or taxation, so I could be wildy wrong on these assumptions. I'm also unsure of what percentage of the vehicle's value, fuel and servicing costs that could be written of against corporation tax (Mine is at 30% this year) and how much (if any) VAT would be reclaimable.
Are there any accountants or company owners here that can offer any advice?
When I bought my previous cars, my accountant said it wasn't worth running them as company cars. At an average value of £30k, these cars would just end up costing me about £200 a month in personal tax. I was playing around with a company car tax calculator just now and noticed that their seemed to be a limit to the taxable benefit due on company cars, of £28k. So according to this calculator, the maximum personal tax payable on a company car would be 6k per year at 22% or 11k per year at 40%.
Here's an example - http://www.comcar.co.uk/newcar/companycar/taxcalc/...
To buy a £100k car with my own money, I'm assuming that I'd need to take a dividend of £140k (40k to cover the personal tax due). This would mean the car would cost me £140k as a private car or £111k as a company car. I don't know much about accounts or taxation, so I could be wildy wrong on these assumptions. I'm also unsure of what percentage of the vehicle's value, fuel and servicing costs that could be written of against corporation tax (Mine is at 30% this year) and how much (if any) VAT would be reclaimable.
Are there any accountants or company owners here that can offer any advice?
Edited by Webber3 on Monday 14th January 10:12
The maximum list price used when calculating car benefit is £80,000 with the likely percentage for a supercar being 35%, so the tax payable each year would be £11,200 (assuming a higher rate tax payer). If the company pays for your fuel, there would be a further benefit charge of £14,400 x 35% = £5040 so tax of £2016. The full cost of the car, and running costs would be set against Corporation Tax. VAT cannot be claimed on the purchase price of the car but can be on fuel and servicing etc provided there is some business use. You would have to ensure the car was registered in the company name & all insurance, servicing etc was contracted with the company.
Regarding your dividends, dividends are taxable at a higher rate of 32.5%, but come with a 10% tax credit. The easiest way to think of the personal tax liability on this is 25% of the net dividend you receive.
The above provides basic details however there are several other factors that may need taken into account, such as VAT scale charge & how the vehicle is financed etc. It would probably be best to give your accountant an example of a car you would like with estimated depreciation figures and running costs and they could calculate the costs of each situation.
Regarding your dividends, dividends are taxable at a higher rate of 32.5%, but come with a 10% tax credit. The easiest way to think of the personal tax liability on this is 25% of the net dividend you receive.
The above provides basic details however there are several other factors that may need taken into account, such as VAT scale charge & how the vehicle is financed etc. It would probably be best to give your accountant an example of a car you would like with estimated depreciation figures and running costs and they could calculate the costs of each situation.
Edited by 944gav on Tuesday 15th January 00:47
So if I pay an extra £11k a year in personal tax I could save over £30k on my corp tax bill for the car purchase in the first year. Buying a £100k car privately would effectively cost me £125k (with the 25% tax for the dividends) versus £81k if I bought through the company. Seems to good to be true! Servicing and insurance savings could also be significant. I wouldn't take the fuel benefit as I can't see this being beneficial for the mileage I'd be doing. The extra £2k in personal tax would outweigh any savings I’d make on corp tax and the VAT reclaim on the fuel.
Thanks for all the info Gav, much appreciated. This looks like it could be the best option for me, I’ll have to talk to my accountant about it.
Thanks for all the info Gav, much appreciated. This looks like it could be the best option for me, I’ll have to talk to my accountant about it.
Sorry, my reply was a bit misleading on the Corporation tax relief (should know better than to reply in the middle of the night when half asleep!) The company does not get CT relief for the full purchase price of the car in year one, it can only claim capital allowances, which are restricted to a miximum of £3000 each year - therefore saving only £900 CT at 30% in year one. The advantage comes when selling the car if it depreciates heavily. Say you keep it for 3 years and it is sold for £60k, you have only received capital allowances of £3000 for each of 2 years, so receive a balancing allowance of the remaining £34,000 in year of sale of car.
If a car is leased, the full lease payments do not qualify for tax relief as it is restricted on any car with a list price over £12,000. The VAT reclaim is also restricted to 50% of the lease payments.
There are a lot of variables and things to consider so would definately recommend having your accountant prepare some example figures.
If a car is leased, the full lease payments do not qualify for tax relief as it is restricted on any car with a list price over £12,000. The VAT reclaim is also restricted to 50% of the lease payments.
There are a lot of variables and things to consider so would definately recommend having your accountant prepare some example figures.
If you cant reclaim the VAT on a new car, then why do retailers advertise "VAT qualifying"? Is it for people who wish to take the car immediately abroad? Surely there cant be that many people wishing to pay UK prices and then take the car abroad to somewhere where the car is probably cheaper anyway?
kryten22uk said:
If you cant reclaim the VAT on a new car, then why do retailers advertise "VAT qualifying"? Is it for people who wish to take the car immediately abroad? Surely there cant be that many people wishing to pay UK prices and then take the car abroad to somewhere where the car is probably cheaper anyway?
Its attractive to business users or exporters, as you say. If you're neither of these, I don't think there is any benefit in it at all.kryten22uk said:
If you cant reclaim the VAT on a new car, then why do retailers advertise "VAT qualifying"? Is it for people who wish to take the car immediately abroad? Surely there cant be that many people wishing to pay UK prices and then take the car abroad to somewhere where the car is probably cheaper anyway?
It is possible to reclaim VAT on a car in a few circumstances where the car is exclusively for business use and not made available for private use. Also taxi's, driving school cars & self drive hire cars can qualify. It would likely be very hard to convince HMRC that a supercar is exclusively for business use as they have case law relating to a guy who tried to claim this on a Lamborghini where he was not successful. I notice the comcar link above doesn't really work, but this page http://www.comcar.co.uk/newcar/companycar/poolresu...
shows the most tax efficient cars, using the "Price Tax Ratio". Notice that the Prius on 4.8 with lots of hybrid discount cannot get near a Veyron on just 1.3.
"Price Tax Ratio" . This measure is simply the company car tax payable at the top personal rate expressed as a percentage of the vehicle's current list price
shows the most tax efficient cars, using the "Price Tax Ratio". Notice that the Prius on 4.8 with lots of hybrid discount cannot get near a Veyron on just 1.3.
"Price Tax Ratio" . This measure is simply the company car tax payable at the top personal rate expressed as a percentage of the vehicle's current list price
My accountant said the same thing - its best to buy something expensive that depreciates rapidly and swap it every year, using the depreciation to offset CT, and just accept the £11k hit on personal tax. Max value they tax on is £80k.
The company has to do it through HP though, not a lease (apparently IIRC).
Sounds like an ideal way to do if if yur compnay is making enough profit.
The company has to do it through HP though, not a lease (apparently IIRC).
Sounds like an ideal way to do if if yur compnay is making enough profit.
mondeoman said:
My accountant said the same thing - its best to buy something expensive that depreciates rapidly and swap it every year, using the depreciation to offset CT, and just accept the £11k hit on personal tax. Max value they tax on is £80k.
The company has to do it through HP though, not a lease (apparently IIRC).
Sounds like an ideal way to do if if yur compnay is making enough profit.
I've got my accountant looking at the figures now. That in itself is a good sign The company has to do it through HP though, not a lease (apparently IIRC).
Sounds like an ideal way to do if if yur compnay is making enough profit.
The cash is just sat in my business account, so no finance is needed.
Im think there is another way - someone please correct me if this is wrong!
£100k Loan from your Ltd company to yourself.
The loan is a beneficial loan, a benefit in kind.
So interest charged by your company (to you) is on the companies rate of 6.5%
Total interest per year = £6500.
You can take the whole £100k and spend it!
However:
You only need to pay 40% of the £6500.
Which works out at £2600 per year.
Which works out at £216.66 per month, in interest.
The car is 100% yours. You still owe the company £100k though.
But you are only paying £216.66 per month in interest, and have no tax liability.
Think of it as a sort of 'buy to let mortgage' in a market where the house depreciates continually. So it's not ideal in the Supercar market. If you lose £20k when you sell the car, you then give the company back the £80k you received from the sale, and you then need to find 20k to make up the difference, and of course the 20k comes from your own pocket, money which was taxed before it reached your wallet.
I believe it is also possible to set up a trust, in which the sole beneficiary, and the only person responsible for paying back the trust is yourself. Borrow 75k, and on your death it is declared that you have to pay it back. Which you cant do.
Feel free to pick holes in the suggestions above, I was told both were possible but this sh|t isn't my specialty!
£100k Loan from your Ltd company to yourself.
The loan is a beneficial loan, a benefit in kind.
So interest charged by your company (to you) is on the companies rate of 6.5%
Total interest per year = £6500.
You can take the whole £100k and spend it!
However:
You only need to pay 40% of the £6500.
Which works out at £2600 per year.
Which works out at £216.66 per month, in interest.
The car is 100% yours. You still owe the company £100k though.
But you are only paying £216.66 per month in interest, and have no tax liability.
Think of it as a sort of 'buy to let mortgage' in a market where the house depreciates continually. So it's not ideal in the Supercar market. If you lose £20k when you sell the car, you then give the company back the £80k you received from the sale, and you then need to find 20k to make up the difference, and of course the 20k comes from your own pocket, money which was taxed before it reached your wallet.
I believe it is also possible to set up a trust, in which the sole beneficiary, and the only person responsible for paying back the trust is yourself. Borrow 75k, and on your death it is declared that you have to pay it back. Which you cant do.
Feel free to pick holes in the suggestions above, I was told both were possible but this sh|t isn't my specialty!
The director's loan looks like a possible option, but without knowing the final value of the vehicle it's hard to say how much money (if any) you would save long term.
My accountant did look into this and advised me to run the vehicle as a company car. He said I should do this for a year initially and then buy the vehicle back off the company privately at market rate. This way the company takes the big hit on depreciation and you only have to cough up one year's worth of company car tax. If you run it as a company car for several years the extra tax paid will wipe out any savings you might have made by purchasing through the company.
You can also save a bit on the tax bill by keeping your dividends down in the first year. If you can keep below the 40% tax bracket in that first year, the tax bill will be about £6k vs £11k at 40%. This could prove difficult as you'll already have a £28k benefit which won't leave much room to pay dividends.
I didn't go ahead with this in the end, partly because I was so busy with work this year and partly because of rude dealers, but like a lot of people I'd like to see the prices stabilise a bit before I go ahead.
My accountant did look into this and advised me to run the vehicle as a company car. He said I should do this for a year initially and then buy the vehicle back off the company privately at market rate. This way the company takes the big hit on depreciation and you only have to cough up one year's worth of company car tax. If you run it as a company car for several years the extra tax paid will wipe out any savings you might have made by purchasing through the company.
You can also save a bit on the tax bill by keeping your dividends down in the first year. If you can keep below the 40% tax bracket in that first year, the tax bill will be about £6k vs £11k at 40%. This could prove difficult as you'll already have a £28k benefit which won't leave much room to pay dividends.
I didn't go ahead with this in the end, partly because I was so busy with work this year and partly because of rude dealers, but like a lot of people I'd like to see the prices stabilise a bit before I go ahead.
guys this is really relevant advice ..thanks...
so..another scenario... a friend of mine buys a gallardo last year nov 07 for 100k. retrofited factory options hence higher price.
the company pays like 15k deposit and he finances the rest.. his accountant tells him that it would be madness to run this through the company so he declared the 15k as a dividend and his payment each month he also declares as a dividend.
he is deep shXXXt now because the gallardo is worth 60k(2005)
what does he do. is there a beneficial manouveure to assist the depreciation pain.
so..another scenario... a friend of mine buys a gallardo last year nov 07 for 100k. retrofited factory options hence higher price.
the company pays like 15k deposit and he finances the rest.. his accountant tells him that it would be madness to run this through the company so he declared the 15k as a dividend and his payment each month he also declares as a dividend.
he is deep shXXXt now because the gallardo is worth 60k(2005)
what does he do. is there a beneficial manouveure to assist the depreciation pain.
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