Restoring a classic car through my business

[C Lee Farquar]

Yes, I will ask my accountant but some real world feedback would be appreciated first.

I am a sole trader with a 1988 Alfa Romeo that needs restoration.

Is it possible to nominate it as a company car and put the restoration expenses through the business? I wouldn't want to sell the car so I'm not worried about any capital gains issues.

It would make the restoration more attractive if I could reclaim the VAT and offset the expenditure against tax.

Thanks

[omniflow]

This is a question I have also considered, and would also be interested in any qualified responses.

Would it make any difference if the car could be deemed a "pool car" - which I assume means it's kept at the business premises overnight and used by various employees solely for work purposes.

[Scalino]

Alright, let me first state this will be a useless response, but at least your question will be on the top of the pile again...;)

I am a tax adviser, but a Dutch one and have no clue what it’s like in the UK. From a VAT perspective I can help you in the right direction nonetheless, as UK legislation will be based upon the same European directive as Dutch VAT law. To be able to reclaim VAT the car will have to be used by the business to provide goods or services taxed with VAT (this will depend on the activities of your company). Used by the business could mean it’s used for promotion (like the owner from powerflex building that insane V8 MINI) or transportation. Depending on the nature of the company this could be difficult.

Let’s assume the aforementioned is the case; I suspect the UK legislator (like the Dutch one) does not like it that you use the car privately after reclaiming the VAT. Most likely this would lead to having (partly) having to pay back the reclaimed VAT, but this depends on UK law.

From a CIT perspective; I doubt it will be possible if you consequently use the car mostly privately. Again this will depend on UK law.

Hope this helps a bit anyway!

[85Carrera]

I don’t know the answer re restoration costs but having a classic car as a company car is very tax efficient provided that the cars value is under £15k as the BIK is based on the original purchase price.

It’s for this reason I’m considering an MG BGT as a company car as it will fall below the £15k threshold and the mods required to make it a daily driver (electronic ignition, updated fuel pump, etc) are the same as are required to turn it into a classic rally car (regularity type stuff not full on rally).

[Simpo Two]

C Lee Farquar said:

I am a sole trader with a 1988 Alfa Romeo that needs restoration.

Is it possible to nominate it as a company car and put the restoration expenses through the business? I wouldn't want to sell the car so I'm not worried about any capital gains issues

If you're a sole trader can you have a 'company car'? There is no company. For me as a sole trader my car was a 'private car used for business' and you were allowed one car; didn't seem to matter what it was. IIRC it was depreciated over four years. A percentage of all related costs was allowable for business.

[C Lee Farquar]

Simpo Two said:

If you're a sole trader can you have a 'company car'? There is no company. For me as a sole trader my car was a 'private car used for business' and you were allowed one car; didn't seem to matter what it was. IIRC it was depreciated over four years. A percentage of all related costs was allowable for business.

As far as I'm aware I can have a company car, there is a business if not a registered company.

I've never purchased a car through the business, just commercial vehicles. For newer cars it didn't seem cost effective to run them through the business, but I think it may be more attractive for older vehicles.

I was thinking of an Alfa 75 that I've had for a while but I have since had a better look underneath. I don't think restoration is viable.

I do have a couple of old Land Rovers that may suit better.

[SillyALFALove]

No, you can’t have it as a “company “ car, there is no company I.E ltd co. There’s a business yes, no doubt but that’s not legally a company.

My reflections from previous sole trading before turning ltd is you would be able to reclaim mileage at 45p mile for documented business miles or if for some reason you can’t record accurately there is another methodology for allocating costs but realistically you can record accurately.

In terms of reclaiming the vat on restoration costs, realistically its pushing the envelope and unless you were trading in a relevant field likely to be frowned on and advised against.

Generally, If your gut tells you it’s iffy, it’s iffy.

IANAA, just been sole trader in past and a Alfa fan.

[Mr Pointy]

No you can't. Refurbishing a car is not a necessary business expense.

[Armchair Expert]

Mr Pointy said:

No you can't. Refurbishing a car is not a necessary business expense.

Unless you use it for advertising or promotional purposes?

[C Lee Farquar]

SillyALFALove said:

No, you can’t have it as a “company “ car, there is no company I.E ltd co. There’s a business yes, no doubt but that’s not legally a company.

My reflections from previous sole trading before turning ltd is you would be able to reclaim mileage at 45p mile for documented business miles or if for some reason you can’t record accurately there is another methodology for allocating costs but realistically you can record accurately.

I don't believe a sole trader can do this if VAT registered.

[Simpo Two]

C Lee Farquar said:

I don't believe a sole trader can do this if VAT registered.

I was VAT registered. But as others say I don't think your plan will be allowed because it's so obviously a ruse to save money on your hobby. HMRC are not entirely stupid and you can be sure that any wheeze you dream up has already been rumbled!

[Eric Mc]

C Lee Farquar said:

Yes, I will ask my accountant but some real world feedback would be appreciated first.

I am a sole trader with a 1988 Alfa Romeo that needs restoration.

Is it possible to nominate it as a company car and put the restoration expenses through the business? I wouldn't want to sell the car so I'm not worried about any capital gains issues.

It would make the restoration more attractive if I could reclaim the VAT and offset the expenditure against tax.

Thanks

First of all, the concept of a "company car" does not apply to someone operating a sole trader business.

So, all the PAYE Benefit in Kind aspects of a "Company Car" are not relevant as these relate to employees and/or directors of limited companies.

There is no reason why any vehicle owned by the proprietor of a sole trader business cannot be shown as a business asset.

Once the vehicle is shown as a business asset, it should, in theory, be possible to allocate to that vehicle, in the business accounts, the cost of the vehicle, any additions to the cost of the vehicle and the annual running costs of the vehicle.

HMRC has absolutely no problems with any of that EXCEPT that, unless the vehicle is used 100% of the time for business purposes only, then any costs or allowances on which tax relief is being claimed MUST be reduced by a private use adjustment.

This private use adjustment will apply chiefly to the running costs claimed each year as a business expenses and the annual Capital Allowances claim appropriate to the vehicle.

The best way of deciding what the private use adjustment should be is to claim a percentage of the costs and allowances based on the business related mileage versus the total mileage.

An example -

the running costs of the vehicle come to £1,000 in the year
the Capital Allowance claim comes to £500
total mileage is 5,000 miles
business mileage comes to 3,000

3,000 miles represents 60% of the total mileage. Therefore the correct claim for that year should be -

running costs £600 (60% of £1,000)

Capital Allowances £300 (60% of £500)

[Eric Mc]

Mr Pointy said:

No you can't. Refurbishing a car is not a necessary business expense.

Yes you can. "Necessary" is not a criteria used in determining the validity of business costs or claims in a sole trader business. The law states that the cost or claim must be "wholly and exclusively for the purpose of the trade".

"Necessary" only comes into play for employees making tax claims for costs.

[Mr Pointy]

Eric Mc said:

Mr Pointy said:

No you can't. Refurbishing a car is not a necessary business expense.

Yes you can. "Necessary" is not a criteria used in determining the validity of business costs or claims in a sole trader business. The law states that the cost or claim must be "wholly and exclusively for the purpose of the trade".

"Necessary" only comes into play for employees making tax claims for costs.

True. But in this particular case the OP already owns a shagged out Alfa that he wants to get HMRC to allow him to claim the rebuild (not running or maintanence) costs against tax & the get the VAT back. It's not going to fly (or run). if you were his accountatnt would you advise him it was a correct course of action?

[C Lee Farquar]

Thanks Eric for your comprehensive reply.

Thinking on this some more, my wife works for me full time. I'm wondering whether it might make sense for her to have the classic car as her company car, the tax implications seem low if it's worth under £15k. Presumably all maintenance and repair would then be a 100% business expense?

[Simpo Two]

OP, please read what Eric said. He has described - in proper detail - what I said at the outset.

You do not have a company - let it go!

[C Lee Farquar]

Simpo Two said:

OP, please read what Eric said. He has described - in proper detail - what I said at the outset.

You do not have a company - let it go!

I didn't pay much attention to what you wrote as it contradicted what's on the HMRC website.

[Eric Mc]

C Lee Farquar said:

Thanks Eric for your comprehensive reply.

Thinking on this some more, my wife works for me full time. I'm wondering whether it might make sense for her to have the classic car as her company car, the tax implications seem low if it's worth under £15k. Presumably all maintenance and repair would then be a 100% business expense?

Is she an employee?
Is she a partner in the business?
How is tax accounted for on her earnings from the business?

Sole traders CAN have a "Company Car" (taxable under PAYE through the Benefit in Kind system) IF the car is for the use of an EMPLOYEE.

[Eric Mc]

OP - I've sent you a PM.

[C Lee Farquar]

Eric Mc said:

Sole traders CAN have a "Company Car" (taxable under PAYE through the Benefit in Kind system) IF the car is for the use of an EMPLOYEE.

Thank you Eric, that directly answers my question.

PM replied to.