Offsetting interest on car loan payments
Discussion
Second point first -
2nd hand car
I presume that the 2nd hand car was already owned by the proprietor before the business commenced. If that is the case, then the car can be introduced into the business at a reasonable estimate of its written down value at the date it was introduced.
If it was bought AFTER the business was set up, then it would be brought in at its purchase price.
If you have borrowed to buy a business asset, then the interest on the borrowings can be offset against the business profit. The interest does not have to be paid to a financial institution.
However, if the interest is being paid to an individual, some sort of a written loan agreement should be made out showing the terms and conditions of the loan - including the duration of the loan and the rate of interest being charged.
The above scenario relates to sole-traders or partnerships.
In the case of a limited company, the car can be introduced as outlined above.
However, when limited companies are paying loans to individuals, they are obliged to deduct tax at source (at 20%) on any interest paid to the individual - and they must pay the tax deducted at calendar quarterly intervals to the Revenue.
Also, with a limited company, a car brought into the business for the use of a director/employee will automatically become a Company Car and all the onerous Benefit in Kind rules will kick in.
2nd hand car
I presume that the 2nd hand car was already owned by the proprietor before the business commenced. If that is the case, then the car can be introduced into the business at a reasonable estimate of its written down value at the date it was introduced.
If it was bought AFTER the business was set up, then it would be brought in at its purchase price.
If you have borrowed to buy a business asset, then the interest on the borrowings can be offset against the business profit. The interest does not have to be paid to a financial institution.
However, if the interest is being paid to an individual, some sort of a written loan agreement should be made out showing the terms and conditions of the loan - including the duration of the loan and the rate of interest being charged.
The above scenario relates to sole-traders or partnerships.
In the case of a limited company, the car can be introduced as outlined above.
However, when limited companies are paying loans to individuals, they are obliged to deduct tax at source (at 20%) on any interest paid to the individual - and they must pay the tax deducted at calendar quarterly intervals to the Revenue.
Also, with a limited company, a car brought into the business for the use of a director/employee will automatically become a Company Car and all the onerous Benefit in Kind rules will kick in.
Edited by Eric Mc on Monday 25th June 23:39
Thanks Eric, so how does the car show up on the accounts? Can the business balance go negative i.e. business just set up and car brought straight in as a borrowing from myself. I assume the business would pay back the loan to myself once the business was making profit? Off the cuff, is it worthwhile doing that? Or would i need proper advice based on my personal situation 
You can never go wrong if you seek "proper" advice.
As this is a limited company, the accounting entries for introducing the car into the company would be
Debit the Fixed Asset account with the newly introduced car at its current written down value
Credit the Director's Current/Loan Account with same amount.
The company now has an asset - the car - and a liability - the amount it owes the director for "gifting" the car to the company.
As the company pays back the "loan" on the car, the money can be offset against the "loan" from the director, gradually reducing the amount owed.
As I said earlier, however, why do you need to show the car as a company asset?
Have you looked at the Benefit in Kind implications of using a company car?
Have you spoken this through with your own accountant yet?
As this is a limited company, the accounting entries for introducing the car into the company would be
Debit the Fixed Asset account with the newly introduced car at its current written down value
Credit the Director's Current/Loan Account with same amount.
The company now has an asset - the car - and a liability - the amount it owes the director for "gifting" the car to the company.
As the company pays back the "loan" on the car, the money can be offset against the "loan" from the director, gradually reducing the amount owed.
As I said earlier, however, why do you need to show the car as a company asset?
Have you looked at the Benefit in Kind implications of using a company car?
Have you spoken this through with your own accountant yet?
Eric Mc said:
You can never go wrong if you seek "proper" advice.
As this is a limited company, the accounting entries for introducing the car into the company would be
Debit the Fixed Asset account with the newly introduced car at its current written down value
Credit the Director's Current/Loan Account with same amount.
The company now has an asset - the car - and a liability - the amount it owes the director for "gifting" the car to the company.
As the company pays back the "loan" on the car, the money can be offset against the "loan" from the director, gradually reducing the amount owed.
As I said earlier, however, why do you need to show the car as a company asset?
Have you looked at the Benefit in Kind implications of using a company car?
Have you spoken this through with your own accountant yet?
I haven't got an accountant as of yet, i'm just forward-planning a couple of months. I have emailed you regarding your services, and will probably take you up on it but would just like to know things for my own benefit before i dive in.As this is a limited company, the accounting entries for introducing the car into the company would be
Debit the Fixed Asset account with the newly introduced car at its current written down value
Credit the Director's Current/Loan Account with same amount.
The company now has an asset - the car - and a liability - the amount it owes the director for "gifting" the car to the company.
As the company pays back the "loan" on the car, the money can be offset against the "loan" from the director, gradually reducing the amount owed.
As I said earlier, however, why do you need to show the car as a company asset?
Have you looked at the Benefit in Kind implications of using a company car?
Have you spoken this through with your own accountant yet?
Oops - just shows how many enquiries I get 
I'd hold off bringing any cars into the company just yet. Concentrate on sorting out the actual core businmess.
Cars are really peripheral issues but, if you do the wrong thing with them, you can create an awful lot of additional paperwork and you could possibly end up paying lots of tax.
I'd hold off bringing any cars into the company just yet. Concentrate on sorting out the actual core businmess.
Cars are really peripheral issues but, if you do the wrong thing with them, you can create an awful lot of additional paperwork and you could possibly end up paying lots of tax.
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