Ltd company - Pickup and tax write off explanation help

[MB140]

Bit of background.

My wife about 18 months ago purchased a used BMW 420i for around £20k. BMW have offered £12.5k to take it off her hands (I realise that’s low ball and it’s probably worth £15k).

Fast forward to 2 months ago

My wife set up a limited company contracting her skills out for £500-£750 a day depending on shift. She has a contract with Until December and then other’s starting jan/feb next year covering the whole year. Roughly looking at making £200k a year before tax.

Now I’m new to all this Self employment business but as I understand it. She pays herself just under the NI threshold as a salary so she incurs no income tax and no NI contributions. She then takes the rest as dividends paying the appropriate corporation tax for each level of income (I don’t have the levels and percentages she pays an accountant to do that.

What some of her work colleagues have been suggesting is selling the bmw and buying a ford ranger/L200/Nivara type pickup as she can write off the whole cost against the corporation tax. (Effectively money she would have to pay as corporation tax pays for the whole pickup (say £40k) so in effect she gives £40k less tax but gets the truck in return).

This seems wrong to me. Surely all she is saving is the corporation tax portion so assuming the corporation tax is day 40% she is saving 40%of the £40k price.

Sorry if this seems a dumb question. I’m not really in to business as such and have always been PAYE. I just don’t want her to get in to a vehicle lease or purchase without all the facts.

To me it seems a no brainier. Keep the bmw. Claim the 45p per mile.

Obviously there is the vat implications as well.

Sorry for blabbering on. It just seems that it’s too good to be true.

[anonymous-user]

She should talk to her accountant

But this is a place to start

https://www.gov.uk/expenses-and-benefits-company-v...

Also look at an electric car

[OldGermanHeaps]

cant help on the tax side, but a crew cab transit custom 170 auto or merc vito sport x are far nicer to drive and more practical than pickups but still come under van tax, but I think the transporter was challenged recently.
The transit handling is sublime, unbelievable for a van, only shame is the 4 pot, merc is a v6, nicer on the straights but doesnt corner as well. both piss all over most new uk pickups though.

Edited by OldGermanHeaps on Saturday 1st June 12:47

[thepeoplespal]

I think she is mad not to pay at least minimum wage to herself, just asking for a strong investigation from HMRC if you ask me. If you need a mortgage might be an issue too.

As to the truck, there will be more enlightened people along with advice on figures, but I'd keep outgoings as they are to allow for periods of slack or an early retirement/downsizing of job fund.

Its stuff like this sort of sharp practice that is leading to IR35 coming to private companies.

[Countdown]

EricMc is probably the best man to answer this.

AIUI she will staill have to pay tax because the pickup will have a BIK (benefit in Kind) tax charge, circa £1300 for 40% taxpayers.

[MB140]

Thanks JP,

It would be for her use only. For business use primarily. Maybe some insignificant private mileage but we have my car for none business journeys so it looks like she would be exempt.

I’m more enquiring about the tax implications of buying/leasing the car as a corporation tax write off. As you say her accountant would be best to advise but knowing my wife she is very intelligent reference work but just sees a shiny new thing and doesn’t worry about the cost. She has always been good at earning money, unfortunately she spends it without thought to long term consequences and I’m a little concerned that what she thinks isn’t the case in terms of writing tax off.

[85Carrera]

If VAT registered (which she should be with that level of earnings) she can claim back the VAT but must then account for the VAT element of the price when sold.

Purchase price will be a capital allowance so you can offset this against corporation tax, effectively saving 19% at current rates.

BIK is on fixed amount (c 3400 from memory) not purchase price

[MB140]

Countdown said:

EricMc is probably the best man to answer this.

AIUI she will staill have to pay tax because the pickup will have a BIK (benefit in Kind) tax charge, circa £1300 for 40% taxpayers.

But she doesn’t earn 40% tax bracket. She only earns £8k via a paye scheme. Hence paying no NI, or income tax. (As advised by her accountant as perfectly legal.) All her work colleagues do the same. She as the sole director of a limited company pays corporation tax at the appropriate % depending on her earning and then tax on the dividends she taxes out the company.



Again sorry if it’s dumb or I am misunderstanding. I’m an electronics guy. Not business and tax. I’m just trying to make sure she isn’t doing anything illegal or that in the long run comes with hidden tax implications. In part for her and in part for my own interest. It’s actually opened my eyes to how much tax a a PAYE person I pay compared to self employed people.


I found this link on YouTube. I realise the level and percentage are out of date but it explains it well.

https://youtu.be/6_l5SYnYK2w

[anonymous-user]

Is she, as a fan of shiny things, happy that she is going out to earn £200k to drive a pick up / van?

Worth checking. Sometimes it is better if the tax tail isn’t wagging the dog...

An EV, like a Tesla 3, from April next year, looks like being a very cheap way to have a company vehicle

[FredClogs]

thepeoplespal said:

I think she is mad not to pay at least minimum wage to herself, just asking for a strong investigation from HMRC if you ask me. If you need a mortgage might be an issue too.

As to the truck, there will be more enlightened people along with advice on figures, but I'd keep outgoings as they are to allow for periods of slack or an early retirement/downsizing of job fund.

Its stuff like this sort of sharp practice that is leading to IR35 coming to private companies.

Ignore the above, its bks, Ir35 is a test of the relationship between client and contractor nothing to do with how people take their earnings.

There's a few issues here.

1) does she really want to drive a commercial vehicle?
2) she can claim mileage to a temporary place of employment for the first 2 years (and other expenses incurred in travel) if her contract is outside of Ir35, which is often the best thing to do, you won't get the depreciation hit for a start.
3) with the dividend tax being where it is now the lines between paying income tax/NI and claiming dividends are close to each other anyway, especially at the higher rate, see aciuntancy advice.
4) I've got a terrible feeling in the pit of my stomach that at some point the NIL contributions for NI because one is salaried so low will start to effect the state pension entitlement. But that's just a nagging feeling I have.

[SOL111]

MB140 said:

But she doesn’t earn 40% tax bracket. She only earns £8k via a paye scheme. Hence paying no NI, or income tax. (As advised by her accountant as perfectly legal.) All her work colleagues do the same. She as the sole director of a limited company pays corporation tax at the appropriate % depending on her earning and then tax on the dividends she taxes out the company.



Again sorry if it’s dumb or I am misunderstanding. I’m an electronics guy. Not business and tax. I’m just trying to make sure she isn’t doing anything illegal or that in the long run comes with hidden tax implications. In part for her and in part for my own interest. It’s actually opened my eyes to how much tax a a PAYE person I pay compared to self employed people.


I found this link on YouTube. I realise the level and percentage are out of date but it explains it well.

https://youtu.be/6_l5SYnYK2w

She most likely will pay higher rate dividend tax if her dividend payments exceed the HRT threshold. It's something she'll have to consider as it's currently 7.5% up to the HRT threshold and about 32.5% thereafter. Add this on top of CT and that's a fair chunk in tax (if you're considering company and personal tax combined).

Anyway, a van/truck is perhaps a good move as they have different tax treatment, both in terms of what's claimable (CT and VAT) and also BIK. An EV is another option.

Best to get her accountant to work the numbers so she can compare.

Although, ultimately, buying a vehicle through the company still involves parting with a significant amount of cash, which is likely to be more than keeping the BMW. It just depends on what she wants.

[MB140]

She is outside of ir35 regulations. I know that.

In terms of driving a truck. It’s her idea. She likes the idea and it’s her pushing for a pickup. Ranger/wild track or l200 Bavaria are leading contenders at the moment. She does have to drive around commercial construction sites in safety gear and the bmw doesn’t cut it when it’s full of mud. Although in reality this is very very infrequent.

[x5x3]

MB140 said:

She is outside of ir35 regulations. I know that.

sorry that but that sounds very unlikely given your lack of knowledge regarding general NI/Salary/Tax etc.

IR35 is one of the most complicated tax subjects and she should get some professional advice on the subject.

[thepeoplespal]

FredClogs said:

thepeoplespal said:

I think she is mad not to pay at least minimum wage to herself, just asking for a strong investigation from HMRC if you ask me. If you need a mortgage might be an issue too.....

Its stuff like this sort of sharp practice that is leading to IR35 coming to private companies.

Ignore the above, its bks, Ir35 is a test of the relationship between client and contractor nothing to do with how people take their earnings.

There's a few issues here.
....
3) with the dividend tax being where it is now the lines between paying income tax/NI and claiming dividends are close to each other anyway, especially at the higher rate, see aciuntancy advice.
4) I've got a terrible feeling in the pit of my stomach that at some point the NIL contributions for NI because one is salaried so low will start to effect the state pension entitlement. But that's just a nagging feeling I have.

I didnt say it was under IR35, I said it was these type of sharp practices that has lead to the introduction of it.

IR35 is a real brake on doing business, but can't say I blame HMRC for wanting it for private companies if people are staying under NI and Tax thresholds artificially in a way that is ripping the backside out of things.

[FredClogs]

thepeoplespal said:

FredClogs said:

thepeoplespal said:

I think she is mad not to pay at least minimum wage to herself, just asking for a strong investigation from HMRC if you ask me. If you need a mortgage might be an issue too.....

Its stuff like this sort of sharp practice that is leading to IR35 coming to private companies.

Ignore the above, its bks, Ir35 is a test of the relationship between client and contractor nothing to do with how people take their earnings.

There's a few issues here.
....
3) with the dividend tax being where it is now the lines between paying income tax/NI and claiming dividends are close to each other anyway, especially at the higher rate, see aciuntancy advice.
4) I've got a terrible feeling in the pit of my stomach that at some point the NIL contributions for NI because one is salaried so low will start to effect the state pension entitlement. But that's just a nagging feeling I have.

I didnt say it was under IR35, I said it was these type of sharp practices that has lead to the introduction of it.

IR35 is a real brake on doing business, but can't say I blame HMRC for wanting it for private companies if people are staying under NI and Tax thresholds artificially in a way that is ripping the backside out of things.

Nonsense, you're either in or out (admittedly there is a grey area of argument which the new rules will presumably clear up) but there should be absolutely no presumption that anyone should have to pay more tax than they're legally required to or be bullied into volunteering to.

[SOL111]

FredClogs said:

Nonsense, you're either in or out (admittedly there is a grey area of argument which the new rules will presumably clear up) but there should be absolutely no presumption that anyone should have to pay more tax than they're legally required to or be bullied into volunteering to.

Agreed. And let's not forget the introduction of dividend tax and the loss of flat rate VAT. Any more and we'll all be on the streets!

[MB140]

x5x3 said:

MB140 said:

She is outside of ir35 regulations. I know that.

sorry that but that sounds very unlikely given your lack of knowledge regarding general NI/Salary/Tax etc.

IR35 is one of the most complicated tax subjects and she should get some professional advice on the subject.

That’s what she pays her accountant for. I know she is operating outside IR35. I don’t profess to be a business/accounts/tax wizard. That’s the accountants job.

[x5x3]

MB140 said:

x5x3 said:

MB140 said:

She is outside of ir35 regulations. I know that.

sorry that but that sounds very unlikely given your lack of knowledge regarding general NI/Salary/Tax etc.

IR35 is one of the most complicated tax subjects and she should get some professional advice on the subject.

That’s what she pays her accountant for. I know she is operating outside IR35. I don’t profess to be a business/accounts/tax wizard. That’s the accountants job.

so he knows about IR35 but not NI/Salary/Tax/Car Purchases?

[MB140]

I don’t profess to know much about business/taxes/corporation tax/vat/dividends etc. I admit it’s all new to me.

I know what the accountant(who should know this stuff) has said and advised. I’m really asking a question about how buying/leasing a pickup would effect the tax she would have to pay.

Simply is she better off keeping the bmw (a personal car) or using a commercial vehicle (business car).

I’m simply asking for advice. I don’t in any way profess to be in any way a business man and have no knowledge or experience of it. I’m just trying to learn about it and after advice of what’s best.

Ultimately she can ask the accountant,

I’m just interested in how it all works. Because I can’t believe what her colleagues are telling her. They are saying you can effectively get a truck for near enough free. Which seems bks.

[FredClogs]

MB140 said:

I’m just interested in how it all works. Because I can’t believe what her colleagues are telling her. They are saying you can effectively get a truck for near enough free. Which seems bks.

Her company can buy a commercial vehicle, the VAT on that can be reclaimed and as a company asset and cost it will attract tax relief, but unless its electric or very low emmisions (which it won't if she wants a truck) you won't get all that relief in the first year its spread.

I she wants to use said vehicle for personal use its use is treated as a a form of income and must be taxed appropriately.

The nub will be how much private use she intends to do in the truck and how honest she intends to be with reporting that. See an accountant for exact numbers l. There certainly is no such thing as a free car but if you're inclined to drive something commercial and only use it for business purposes then it's a tax efficient way of getting about during work hours (the cost of commuting to and from a permanent place of employment in it will be treated as income)