Tax Implications of Using Supercar Prototype Myself?
Discussion
Hi All
A couple of years ago I set up a new company to design and manufacture a new low-volume bespoke supercar.
The development work has mostly been done and we are currently working on completing the first prototype / demonstrator car. The plan is to take this prototype to various events over the next couple of years to generate interest and get some orders for future builds.
I had intended to ultimately keep the prototype as my own personal car further down the line but wanted to consider various options and the tax implications of those options.
My limited company (of which I am the only shareholder / director) has paid for all of the design / development / manufacture work for the project via a series of inter-company loans from my other company. I've invested significant time (unpaid so far) in CAD work (surfacing, kinematics, component design), sourcing parts, managing the project etc.
Once the prototype is complete, do I register it with the DVLA in my personal name or the company name? If the company owns the car, I can presumably use it for promotional / road test purposes but I would like to take to Le Mans / Spa etc and put some miles on it - would this be considered as reasonable company use or would HMRC insist that it is a benefit in kind and tax me accordingly?
The other option is for me to purchase the prototype personally from my company - if so then how / when at what price? Market value (i.e build cost plus a proportion of development costs, profit, VAT) doesn't really seem right I'd effectively be getting heavily taxed for supplying a service (profit / development costs) to myself!
Seems like a grey area to me and obviously I don't want to misguidedly do something that I shouldn't be doing.
How do other low-volume manufacturers deal with the personal / "non-business" use of prototypes and demonstrator vehicles and the tax implications of this?
A couple of years ago I set up a new company to design and manufacture a new low-volume bespoke supercar.
The development work has mostly been done and we are currently working on completing the first prototype / demonstrator car. The plan is to take this prototype to various events over the next couple of years to generate interest and get some orders for future builds.
I had intended to ultimately keep the prototype as my own personal car further down the line but wanted to consider various options and the tax implications of those options.
My limited company (of which I am the only shareholder / director) has paid for all of the design / development / manufacture work for the project via a series of inter-company loans from my other company. I've invested significant time (unpaid so far) in CAD work (surfacing, kinematics, component design), sourcing parts, managing the project etc.
Once the prototype is complete, do I register it with the DVLA in my personal name or the company name? If the company owns the car, I can presumably use it for promotional / road test purposes but I would like to take to Le Mans / Spa etc and put some miles on it - would this be considered as reasonable company use or would HMRC insist that it is a benefit in kind and tax me accordingly?
The other option is for me to purchase the prototype personally from my company - if so then how / when at what price? Market value (i.e build cost plus a proportion of development costs, profit, VAT) doesn't really seem right I'd effectively be getting heavily taxed for supplying a service (profit / development costs) to myself!
Seems like a grey area to me and obviously I don't want to misguidedly do something that I shouldn't be doing.
How do other low-volume manufacturers deal with the personal / "non-business" use of prototypes and demonstrator vehicles and the tax implications of this?
You need to speak to your accountant, but you will have to register it in the company name. Otherwise you'll have IP/tax issues for both yourself and the company. The use you note would be classed as testing/promotion and wouldn't need a BIK.
At some point in the future you could look at purchasing the vehicle off the business, but given it's type and the use it'll get from you, I'd imagine it would be best to keep within the business.
At some point in the future you could look at purchasing the vehicle off the business, but given it's type and the use it'll get from you, I'd imagine it would be best to keep within the business.
MaxFromage said:
You need to speak to your accountant, but you will have to register it in the company name. Otherwise you'll have IP/tax issues for both yourself and the company. The use you note would be classed as testing/promotion and wouldn't need a BIK.
At some point in the future you could look at purchasing the vehicle off the business, but given it's type and the use it'll get from you, I'd imagine it would be best to keep within the business.
Hi, thanks for reply.At some point in the future you could look at purchasing the vehicle off the business, but given it's type and the use it'll get from you, I'd imagine it would be best to keep within the business.
How do you mean by IP issues for myself and the company? The company would own the IP for the project but I just mean the prototype itself when I register it with DVLA to get a V5 etc - whether I'd be the legal owner or the company?
In the short-term I think the use could be reasonably considered as promotion/testing but if I wanted to take the wife away for the weekend that would be pushing things, surely? For reference, the value of a finished car would be around £300,000 - so the BIK would be £100,000 meaning an extra £40,000+ per year to pay in income tax if it were considered as a taxable benefit so that is something I'd rather avoid. I could hire it to myself from the company for occasional personal use at a market rate - but that would create another set of complexities and tax implications and would surely create grey areas as to what is considered as business and personal use.
Looking ahead to the longer-term, a day will come (hopefully a long way into the future) when the company is no longer active so at some point I would need to transfer the car to myself from the company and accept the tax hit - you surely wouldn't be able to keep a situation in perpetuity where the company owns the car and you have use of it?
Edited by Bob997 on Sunday 15th November 18:57
Bob997 said:
Hi, thanks for reply.
How do you mean by IP issues for myself and the company? The company would own the IP for the project but I just mean the prototype itself when I register it with DVLA to get a V5 etc - whether I'd be the legal owner or the company?
In the short-term I think the use could be reasonably considered as promotion/testing but if I wanted to take the wife away for the weekend that would be pushing things, surely? For reference, the value of a finished car would be around £300,000 - so the BIK would be £100,000 meaning an extra £40,000+ per year to pay in income tax if it were considered as a taxable benefit so that is something I'd rather avoid. I could hire it to myself from the company for occasional personal use at a market rate - but that would create another set of complexities and tax implications and would surely create grey areas as to what is considered as business and personal use.
Looking ahead to the longer-term, a day will come (hopefully a long way into the future) when the company is no longer active so at some point I would need to transfer the car to myself from the company and accept the tax hit - you surely wouldn't be able to keep a situation in perpetuity where the company owns the car and you have use of it?
To be honest I can't see how or why you'd want to separate the IP and the car at an early stage. Therefore the car should be registered to the company. You're asking for trouble with HMRC otherwise.How do you mean by IP issues for myself and the company? The company would own the IP for the project but I just mean the prototype itself when I register it with DVLA to get a V5 etc - whether I'd be the legal owner or the company?
In the short-term I think the use could be reasonably considered as promotion/testing but if I wanted to take the wife away for the weekend that would be pushing things, surely? For reference, the value of a finished car would be around £300,000 - so the BIK would be £100,000 meaning an extra £40,000+ per year to pay in income tax if it were considered as a taxable benefit so that is something I'd rather avoid. I could hire it to myself from the company for occasional personal use at a market rate - but that would create another set of complexities and tax implications and would surely create grey areas as to what is considered as business and personal use.
Looking ahead to the longer-term, a day will come (hopefully a long way into the future) when the company is no longer active so at some point I would need to transfer the car to myself from the company and accept the tax hit - you surely wouldn't be able to keep a situation in perpetuity where the company owns the car and you have use of it?
Edited by Bob997 on Sunday 15th November 18:57
Taking the wife away is a different matter and a fair rental charge would be acceptable. But it does depend on usage which will need a chat with your accountant.
If you want your car to be yours and use as you wish, you'll have to buy the car/take the hit on the tax.
Edited by MaxFromage on Sunday 15th November 20:17
David Beer said:
Looking ahead to the longer-term, a day will come (hopefully a long way into the future) when the company is no longer active.
Blimey that’s not the thing would expect to be quoted on a new project.
Just being realistic - my years are advancing and it's only a small business.Blimey that’s not the thing would expect to be quoted on a new project.
I don't expect to sell loads, it is something I always wanted to do so I thought I'd give it a go.
MaxFromage said:
To be honest I can't see how you can separate the IP and the car at an early stage. Therefore the car will need to be registered to the company.
Taking the wife away is a different matter and a fair rental charge would be acceptable. But it does depend on usage which will need a chat with your accountant.
If you want your car to be yours and use as you wish, you'll have to buy the car/take the hit on the tax.
Well the prototype is one of a number of cars that will be produced - the subsequent builds would all be registered to the owner who they are being built for.Taking the wife away is a different matter and a fair rental charge would be acceptable. But it does depend on usage which will need a chat with your accountant.
If you want your car to be yours and use as you wish, you'll have to buy the car/take the hit on the tax.
Yes buying the car sounds like the cleanest option - maybe at a reduced cost being the development prototype as opposed to a final production model.
What you can do with prototypes is quite restricted:
https://www.gov.uk/government/publications/prototy...
Realistically there is no BIK because you're not allowed to do anything that would attract BIK.
Travelling to LeMans for promoting the new car seems reasonable.
Even taking it home to put miles on it isn't unreasonable.
You'd probably be wise to keep records, evaluation sheets, use a data logger etc. so it's all legit testing.
If you wanted to buy it at a later date you'd probably have to register it properly, but hopefully by then you'd have type approval / IVA anyway!
https://www.gov.uk/government/publications/prototy...
Realistically there is no BIK because you're not allowed to do anything that would attract BIK.
Travelling to LeMans for promoting the new car seems reasonable.
Even taking it home to put miles on it isn't unreasonable.
You'd probably be wise to keep records, evaluation sheets, use a data logger etc. so it's all legit testing.
If you wanted to buy it at a later date you'd probably have to register it properly, but hopefully by then you'd have type approval / IVA anyway!
I vaguely recall an article in one of the car magazines when the Jaguar XK8 had recently been launched. The story was a quick test drive of one of the prototype cars ending in taking it to a breakers yard where is was dismantled. The article covered why a perfectly good car - albeit with some high test miles and bits of damaged trim and paintwork - would be scrapped rather than being sold to someone as a high mileage test car at a discounted price. If I recall correctly, the fact it had been declared as a prototype meant that not destroying it would cost the company millions in VAT or some other kind of tax. I don't recall it in detail, and I doubt it was all that detailed, but presumably you've considered that, if it applies in your case.
droopsnoot said:
I vaguely recall an article in one of the car magazines when the Jaguar XK8 had recently been launched. The story was a quick test drive of one of the prototype cars ending in taking it to a breakers yard where is was dismantled. The article covered why a perfectly good car - albeit with some high test miles and bits of damaged trim and paintwork - would be scrapped rather than being sold to someone as a high mileage test car at a discounted price. If I recall correctly, the fact it had been declared as a prototype meant that not destroying it would cost the company millions in VAT or some other kind of tax. I don't recall it in detail, and I doubt it was all that detailed, but presumably you've considered that, if it applies in your case.
Ouch!Well my plan for car 1 was that it would be used for promotional purposes (shows, events, photoshoots), maybe some testing / development of alternative components and as a demonstrator vehicle for potential customers but wouldn't really be a "prototype" in the strict sense as laid out in that government guidance as it would be a finished, road-legal, road-registered car.
My issue is more one of ownership. Unless I do something about it in the meantime, at time of registration the company would have technically paid for and own the car - which has certain legal and tax implications as discussed. At some point in the medium-term, once its role as a demonstrator / promo vehicle has been fulfilled, I would want to keep the car for myself / pass it on to kids and I'm just trying to decide the best way to do that.
For a bit more background / context - this project began as a hobby. With a background in race car engineering, I had always wanted to design and build my own supercar from scratch so that was my initial goal - to design and produce something bespoke for myself that is a bit different to everything else out there. Once I began costing the project up, it became apparent that the upfront development costs (CAD, 3D scanning / printing, kinematics work, suspension design, production of moulds, fixtures, jigs, castings etc) would be enormous and it wouldn't make much sense to do all of that work just for a one-off car for myself!
So the decision was made to subsequently build some customer cars to help to spread and justify the development costs, leave a bit of a legacy and maybe turn a small profit - but I'll be honest it is more of a labour of love than a lucrative money-spinner! As I've said we are talking low volume - a couple per year, hand built / IVA rather than high volume type approval etc. Each car would be slightly different and bespoke to the clients specifications. I'm excited now about revealing more details in due course and hope that it is well-received.
Thanks to everybody for the help / assistance so far - I have of course been speaking to my accountant but due to the very specific nature of what I'm doing I thought I'd post here and see if it overlaps with the kind of thing that anybody else has done previously and learn more about how they approached it.
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