Company Car questions - best way to run through business
Discussion
Hi there,
I am currently employed as Operations Manager for a company with a turnover of approx £1 million that has been trading for nearly 3 years. There are only three employees and two of these employees are directors of the company.
All three of us are directors of a second company which is a new start company that will also have a turnover of approx £1 million pound this year.
The two directors of the 1st company have both taken out private contract hire agreements on new cars in the last four months. I am not in a position to do this due to some credit problems from about 5 years ago. Obviously the new company that I am a director of has no credit history and therefore I cannot use this company to finance a company car for myself.
So I have had finance agreed in the name of the 1st company on a car for myself to use. My question is which is the best way for me to pay myself to minimise any company car tax liability. My salary at the moment is around £30,000 net from the first company. I am able to draw a dividend from the second company as there is sufficient profit available. Would I be better to take a lower salary from the first company and a bigger dividend?. Also I am planning on paying for all my fuel to reduce the BIK on fuel.
Thanks in advance.
Regards
Tim
I am currently employed as Operations Manager for a company with a turnover of approx £1 million that has been trading for nearly 3 years. There are only three employees and two of these employees are directors of the company.
All three of us are directors of a second company which is a new start company that will also have a turnover of approx £1 million pound this year.
The two directors of the 1st company have both taken out private contract hire agreements on new cars in the last four months. I am not in a position to do this due to some credit problems from about 5 years ago. Obviously the new company that I am a director of has no credit history and therefore I cannot use this company to finance a company car for myself.
So I have had finance agreed in the name of the 1st company on a car for myself to use. My question is which is the best way for me to pay myself to minimise any company car tax liability. My salary at the moment is around £30,000 net from the first company. I am able to draw a dividend from the second company as there is sufficient profit available. Would I be better to take a lower salary from the first company and a bigger dividend?. Also I am planning on paying for all my fuel to reduce the BIK on fuel.
Thanks in advance.
Regards
Tim
Bit confused as to why you need to fund company car - if it is a BIK then why are you having to reimburse company 1? Are you saying that the car is really to be used wholly as a personal car being leased in the name of the company and that you need to reimburse the whole cost of the monthly lease payments to company?
Hi there,
Sorry for confusion.
Car will be financed and paid for by the 1st company. If I were able to I would probably buy the car myself and then claim a pence per mile allowance back from the company for any business use.
My question was if BIK is calculated as percentage of earnings, then would I be better to take a lower salary from the 1st company (therefore lowering tax paid), and then a dividend from the second to give me my overall income or is there another way.
Also if I was going to contribute personally towards the monthly rental would this lower the tax to pay ? and if so would this make sense to do ?
Regards
Tim
Sorry for confusion.
Car will be financed and paid for by the 1st company. If I were able to I would probably buy the car myself and then claim a pence per mile allowance back from the company for any business use.
My question was if BIK is calculated as percentage of earnings, then would I be better to take a lower salary from the 1st company (therefore lowering tax paid), and then a dividend from the second to give me my overall income or is there another way.
Also if I was going to contribute personally towards the monthly rental would this lower the tax to pay ? and if so would this make sense to do ?
Regards
Tim
Edited by autofocus on Tuesday 17th February 21:43
You are an employee of Compnay 1 and a Director of Company 2.
Company 1 is providing you with a car.
You will be charged a BIK on the car based on your employment with Company 1.
The BIK is based on teh CO2 rating of the car and whther Company 1 also provides fuel for the car.
Your PAYE Coding in Company 1 will be adjusted for this BIK.
Whether you pay tax at 40% is based on your overall income from all sources - salaries from Company 1 and 2, BIK from Company 1 and any dividends you may receive fropm Companies 1 and/or 2 and any other companies you may have shares in.
The main extra charge that will be levied is the Class 1A NIC arising on the company car, payable by Company 1.
Company 1 is providing you with a car.
You will be charged a BIK on the car based on your employment with Company 1.
The BIK is based on teh CO2 rating of the car and whther Company 1 also provides fuel for the car.
Your PAYE Coding in Company 1 will be adjusted for this BIK.
Whether you pay tax at 40% is based on your overall income from all sources - salaries from Company 1 and 2, BIK from Company 1 and any dividends you may receive fropm Companies 1 and/or 2 and any other companies you may have shares in.
The main extra charge that will be levied is the Class 1A NIC arising on the company car, payable by Company 1.
Eric,
Many thanks for the reply.
So the tax paid on the BIK from company 1 will decrease the lower the salary from company 1, is that right ?
If so and assuming that the combined income of salary from company 1 and dividends from company 2 kept me below the 40% tax band would I not be better to take a lower salary from company 1. Also if this is the case would that not also reduce the class 1A NIC ?
Regards
Tim
Many thanks for the reply.
So the tax paid on the BIK from company 1 will decrease the lower the salary from company 1, is that right ?
If so and assuming that the combined income of salary from company 1 and dividends from company 2 kept me below the 40% tax band would I not be better to take a lower salary from company 1. Also if this is the case would that not also reduce the class 1A NIC ?
Regards
Tim
Too complicated at this time of the evening.
However, if your salary in Company 1 (combined wwith the BIK charge on the car) is still below the 40% threshold, then you will only pay tax at 20% in that particular company.
Obviously, if you receive a FURTHER salary in Company 2, then that salary might very well end up being taxed partly or completely at 40%. Initially, it would probably be taxed at Basic rate (20%) and the additional tax due(the further 20% ) collected through Self Assessment.
Once the SA return goes in, the Revenue may very well play with the coding in Company 1 (your "main job) to try and engineer the correct tax due on the Company Car at the higher rate for the following year.
Your futrure tax codings may get very, very complicatd.
However, if your salary in Company 1 (combined wwith the BIK charge on the car) is still below the 40% threshold, then you will only pay tax at 20% in that particular company.
Obviously, if you receive a FURTHER salary in Company 2, then that salary might very well end up being taxed partly or completely at 40%. Initially, it would probably be taxed at Basic rate (20%) and the additional tax due(the further 20% ) collected through Self Assessment.
Once the SA return goes in, the Revenue may very well play with the coding in Company 1 (your "main job) to try and engineer the correct tax due on the Company Car at the higher rate for the following year.
Your futrure tax codings may get very, very complicatd.
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