Small Business - Car Options
Discussion
Hi all,
I run a small business and have up to now always ran my cars privately and claimed petrol expenses as appropriate.
I'm planning on changing my car and my wifes car (who works part-time for the business) later in the year and need to understand the options.
As I understand it these are the options:
1) Buy car privately, claim petrol expenses.
2) Company buys car and pays for petrol, maintennance etc.
3) Company leases car.
What are the implications of the above options? I know there are complicated rules on car-tax but I am not familiar with them at all. Are there any other scenarios I could consider?
Any help appreciated.
I run a small business and have up to now always ran my cars privately and claimed petrol expenses as appropriate.
I'm planning on changing my car and my wifes car (who works part-time for the business) later in the year and need to understand the options.
As I understand it these are the options:
1) Buy car privately, claim petrol expenses.
2) Company buys car and pays for petrol, maintennance etc.
3) Company leases car.
What are the implications of the above options? I know there are complicated rules on car-tax but I am not familiar with them at all. Are there any other scenarios I could consider?
Any help appreciated.
Once a company acquires a car for the use of a director/employee, from a tax point of view there are three distinct areas that need to be considered:
i) the tax claims that can be made by the company for the capital cost of the vehicle and the running cost of the vehicle
ii) the VAT claims the company can make for the capital cost and running costs
iii) the PAYE/Income Tax and National Insurance Benefit in Kind implications for the individuals who have use of the vehicles.
I set out below a reply I sent to another PHer a year or so ago. My comments still hold true.
if a company/employer provides a car for the
personal use of a director or employee then additional PAYE will be payable
by the employee/director. The additional PAYE is calculated using the CO2
rating for the vehicle. Additional PAYE is payable if the company pays for
the employee's/director's fuel.
The company also has to pay additional National Insurance Contributions on
the company car - called Class 1A and paid annually on 7 July each year.
It does not matter if the car is owned outright by the company, or leased or
purchased using a HP or other form of loan finance. The BIK amounts are
calculated the same way.
As far as the company is concerned, it can make certain claims against its
own taxable profits in respect of it's purchase or lease of the vehicle as
follows:
If it owns the car outright, or has purchased it under a bank loan or HP
agreement, it can claim the Capital Allowances available on the vehicle.
Please note that Capital Allowance claims on motor cars are very restriced
compared to "normal" assets such as Plant and Machinery. In addition, the
company can claim against its profits the annual finance costs associated
with the loan/HP repayments (i.e. the interest charges) but NOT the full
value.of the loan repayments.
If it has acquired the vehicle under a Lease Finance agreement, it CANNOT
claim the Capital Allowances (the finance company will be doiung that).
Instead, the company will claim the annual accounting depreciation charge as
a tax allowable cost. This is one of the very few occasions where the
Revenue allow ordinary depreciation as a tax deductable cost.
If the company is paying for the car under a Rental or Operating Lease
arrangement, then the car should not be capitalised in the business'
balance sheet and no Capital Allowances OR Depreciation charges can be
claimed. Instead, the company will simply charge its monthly rental costs
against the business profit and loss account.
In all the above cases, whatever is being claimed as a cost in the Profit
and Loss account or as a Capital Allowance claim, the final amount claimable
will always be subject to the various restrictions applicable to Motor Cars
as set out by the Inland Revenue.
Once a car has been acquired by the business, then a form (Called a P46 Car)
should be completed and submitted to the Inland Revenue giving the essential
details of the car. This allows the Revenue to amend the individual's PAYE
Notice of Coding as quickly as possible. The P46 Car should be submitted by
the end of the calendar quarter in which the car was acquired.
As far as VAT is concerned, if the car is being purchased outright or on a
HP/Bank Loan or even a Finance Lease, the company CANNOT claim back any of
the VAT on the cost of the car (except in extremely special circumstances).
It can claim back the VAT on the normal running costs of the vehicle where
applicable but bear in mind that, if the company is paying for the private
fuel of the car driver, then the VAT Fuel Scale Charges must be applied when
completing the VAT return
If the car is on an Operating Lease/Rental scheme, there will be VAT charged
on each monthly repayment. The normal VAT approach to this is that VAT can
be claimed on 50% of the rental cost.
Hope that helps.
i) the tax claims that can be made by the company for the capital cost of the vehicle and the running cost of the vehicle
ii) the VAT claims the company can make for the capital cost and running costs
iii) the PAYE/Income Tax and National Insurance Benefit in Kind implications for the individuals who have use of the vehicles.
I set out below a reply I sent to another PHer a year or so ago. My comments still hold true.
if a company/employer provides a car for the
personal use of a director or employee then additional PAYE will be payable
by the employee/director. The additional PAYE is calculated using the CO2
rating for the vehicle. Additional PAYE is payable if the company pays for
the employee's/director's fuel.
The company also has to pay additional National Insurance Contributions on
the company car - called Class 1A and paid annually on 7 July each year.
It does not matter if the car is owned outright by the company, or leased or
purchased using a HP or other form of loan finance. The BIK amounts are
calculated the same way.
As far as the company is concerned, it can make certain claims against its
own taxable profits in respect of it's purchase or lease of the vehicle as
follows:
If it owns the car outright, or has purchased it under a bank loan or HP
agreement, it can claim the Capital Allowances available on the vehicle.
Please note that Capital Allowance claims on motor cars are very restriced
compared to "normal" assets such as Plant and Machinery. In addition, the
company can claim against its profits the annual finance costs associated
with the loan/HP repayments (i.e. the interest charges) but NOT the full
value.of the loan repayments.
If it has acquired the vehicle under a Lease Finance agreement, it CANNOT
claim the Capital Allowances (the finance company will be doiung that).
Instead, the company will claim the annual accounting depreciation charge as
a tax allowable cost. This is one of the very few occasions where the
Revenue allow ordinary depreciation as a tax deductable cost.
If the company is paying for the car under a Rental or Operating Lease
arrangement, then the car should not be capitalised in the business'
balance sheet and no Capital Allowances OR Depreciation charges can be
claimed. Instead, the company will simply charge its monthly rental costs
against the business profit and loss account.
In all the above cases, whatever is being claimed as a cost in the Profit
and Loss account or as a Capital Allowance claim, the final amount claimable
will always be subject to the various restrictions applicable to Motor Cars
as set out by the Inland Revenue.
Once a car has been acquired by the business, then a form (Called a P46 Car)
should be completed and submitted to the Inland Revenue giving the essential
details of the car. This allows the Revenue to amend the individual's PAYE
Notice of Coding as quickly as possible. The P46 Car should be submitted by
the end of the calendar quarter in which the car was acquired.
As far as VAT is concerned, if the car is being purchased outright or on a
HP/Bank Loan or even a Finance Lease, the company CANNOT claim back any of
the VAT on the cost of the car (except in extremely special circumstances).
It can claim back the VAT on the normal running costs of the vehicle where
applicable but bear in mind that, if the company is paying for the private
fuel of the car driver, then the VAT Fuel Scale Charges must be applied when
completing the VAT return
If the car is on an Operating Lease/Rental scheme, there will be VAT charged
on each monthly repayment. The normal VAT approach to this is that VAT can
be claimed on 50% of the rental cost.
Hope that helps.
Edited by Eric Mc on Sunday 11th March 09:56
just looking at this for my wifes car (we are both co directors)
we are going to use contract hire - am i right that if the company does the deal it can offset all (all?) the hire cost against tax but then wife gets hit with a BIK charge (which on a fairly standard Zafira £18k means the BIK at 40% tax is greater than the corp tax saved even if we can offset 100% of the rental)
or...she gets her own deal and just claims motoring expenses on the odd occasion she drives on the company - if its that simple why would anyone ever take a company car as a director???
we are going to use contract hire - am i right that if the company does the deal it can offset all (all?) the hire cost against tax but then wife gets hit with a BIK charge (which on a fairly standard Zafira £18k means the BIK at 40% tax is greater than the corp tax saved even if we can offset 100% of the rental)
or...she gets her own deal and just claims motoring expenses on the odd occasion she drives on the company - if its that simple why would anyone ever take a company car as a director???
if it's the BIK your trying to get round, look at commercial based vehicles, I know the thought of driving around in pick-up might not appeal, but what about a SWB Shogun 3.2, some models have Auto paddle shift, Climate control, leather and after allowances you should pay nor more than £ 350.00 pa tax, but sounds like Eric is you man for the low down on tax liabilty
iirc you pay BIK on the emissions at your highest taxable rate.
ie Zafira 1.8 16v VVT manual cost £17920 CO2 187g/km Taxed at 25 % of purchase price
25% of £17920 = £4480 taxable
assuming tax at 40% then tax is £1792
Therefore wife pays £1792 per year in tax for vehicle (however do not forget tax on fuel if used for private mileage)
ie Zafira 1.8 16v VVT manual cost £17920 CO2 187g/km Taxed at 25 % of purchase price
25% of £17920 = £4480 taxable
assuming tax at 40% then tax is £1792
Therefore wife pays £1792 per year in tax for vehicle (however do not forget tax on fuel if used for private mileage)
eyebeebe said:
Tiggsy said:
or...she gets her own deal and just claims motoring expenses on the odd occasion she drives on the company - if its that simple why would anyone ever take a company car as a director???
Not all directors of companies hold shares/are entitled to dividends!
sorry - dont get you? Whether divs or salary - i still cant see the point?
voyds9 said:
Therefore wife pays £1792 per year in tax for vehicle (however do not forget tax on fuel if used for private mileage)
ok - but contract hire of that car is £230 pm = £2760 pa, even if you can offset 100% of that (can u?) against corp tax it stills seems cheaper for wifey to just pay the £2760 herself....cheaper than paying £2760 (less corp tax) + £1792!!!!
aside from odd balls like fall guy trucks or tree huggers hybrids - when is a co car a good deal???
A company can claim the full monthly payments as a business cost when the nature of the agreement is pure rental. Therefore, what the agreement is actually called is of minor consequence. The terms under which the vehicle is being used are the key. If the ultimate aim of the agreement is to allow the company to own the vehicle at the end of the agreement, then it will be looked as a form of "purchase" and only the finance cost element of the repayments will be allowed.
Please also bear in mind the all cars with a capital cost of over £12,000 will have much of their allowable costs reduced under the "Expensive Car Restrictions".
Please also bear in mind the all cars with a capital cost of over £12,000 will have much of their allowable costs reduced under the "Expensive Car Restrictions".
makes sense - so a PROPER contract hire (ie- no purchase, no balloon payment, just hire) is 100% allowable against the biz (is that dependant on the car price as well or does it not count if you do contract hire for an expensive car?)
still cant see the point (of contract hire via the biz at least) - i am looking at a, say a Q7 - £45-50k car, so i pay 35% BIK at aboyt £17k @ 40% tax = about £7k The company pays the rental of £7,200pa and claims it against profits.....seems far cheaper for me to do it outside the company, dodge the BIK - forgo the chance to offset the cost and just claim motoring expenses at 40p/25p per mile.
I suppose VAT reg companies get the VAT saving - still interested if there is a way of getting a company car that is ever slightly attractive!
still cant see the point (of contract hire via the biz at least) - i am looking at a, say a Q7 - £45-50k car, so i pay 35% BIK at aboyt £17k @ 40% tax = about £7k The company pays the rental of £7,200pa and claims it against profits.....seems far cheaper for me to do it outside the company, dodge the BIK - forgo the chance to offset the cost and just claim motoring expenses at 40p/25p per mile.
I suppose VAT reg companies get the VAT saving - still interested if there is a way of getting a company car that is ever slightly attractive!
Tiggsy said:
eyebeebe said:
Tiggsy said:
or...she gets her own deal and just claims motoring expenses on the odd occasion she drives on the company - if its that simple why would anyone ever take a company car as a director???
Not all directors of companies hold shares/are entitled to dividends!
sorry - dont get you? Whether divs or salary - i still cant see the point?
As in the difference between an owner managed company i.e. your typical family business or a larger company which is managed on the behalf of the shareholders by a board of directors who may or may not have an equity stake. In the second scenario the directors are unlikely to be too bothered about the company paying for the car and the directors having to pay a BIK tax. This is quite a different situation to say a husband and wife partnership set up as a limited company for (amongst other reasons) tax efficiency purposes.
For example a director of Tesco may get a company BMW as part of his benefits package. He will pay a tax on this based on the value of the car, it's CO2 emissions and his income tax banding. The tax the director pays should be less than the repayments he would have to make if he were funding the vehicle taking out a PCP etc. He is unlikely to be bothered that the tax he pays is more than the amount deductible from Tesco's corporation tax bill.
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