Buying a car through business for Personal use....
Discussion
The MD of the company I work for has come upon a bit of a decision.
He wants the company to buy him a car for business and pleasure use, but It has to offset the company's tax payments.
The thing is, he's not sure how to go about it, making sure that he is allowed pleasure use AND it ofsetting the Tax.
Anybody got the KNow how on this one or any other ways of doing it. Bearing in mind it MUST offset the company Tax.
TIA
Stuart.
He wants the company to buy him a car for business and pleasure use, but It has to offset the company's tax payments.
The thing is, he's not sure how to go about it, making sure that he is allowed pleasure use AND it ofsetting the Tax.
Anybody got the KNow how on this one or any other ways of doing it. Bearing in mind it MUST offset the company Tax.
TIA
Stuart.
Assuming you are talking about a limited company (rather than a partneship or sole trader)and the car is being putchased (not leased or rented)the situation is as follows:
i) the company will be able to claim Capital Allowance on the car as an offset against the company's profits. Capital Allowance are calculated at 25% of the cost of the car but there is a maximum limit that can be claimed each year of £3,000 for each car. The cost of the car cannot be claimed in full.
ii) the company can claim against its profits the running costs of the vehicle.
iii) the director will be personally liable for the tax and National Insurance on the Bnefit in Kind (BIK)value of the car. This is based on 35% of the list price of the car apportioned appropriately based on the CO2 emmission levels set for that particular vehicle.
iv) the director will also be charged PAYE and NI on private fuel paid for by the company. Both the BIKs are payable through the directors PAYE. Therefore the responsibility for calculating the BIKs and collecting the tax through deductions on salary falls on the company.
v) from a VAT point of view, the company CANNOT claim back the VAT on the cost of a motor car. It can claim back the VAT on fuel, repairs etc.
v) the allowable deductions the company can claim regarding the capital cost of the vehicle are different if the company obtains the car under a Finance Lease/Contract Hire/Rental arrangement. The BIK rulea remain the same no matter how the car is being financed.
Many people now feel that the provision of company cars is not that viable. The alternative is for the director to buy the car privately and then make a mileage claim for each business related trip. In this scenario the company should not pay any of the vehicle running costs.
i) the company will be able to claim Capital Allowance on the car as an offset against the company's profits. Capital Allowance are calculated at 25% of the cost of the car but there is a maximum limit that can be claimed each year of £3,000 for each car. The cost of the car cannot be claimed in full.
ii) the company can claim against its profits the running costs of the vehicle.
iii) the director will be personally liable for the tax and National Insurance on the Bnefit in Kind (BIK)value of the car. This is based on 35% of the list price of the car apportioned appropriately based on the CO2 emmission levels set for that particular vehicle.
iv) the director will also be charged PAYE and NI on private fuel paid for by the company. Both the BIKs are payable through the directors PAYE. Therefore the responsibility for calculating the BIKs and collecting the tax through deductions on salary falls on the company.
v) from a VAT point of view, the company CANNOT claim back the VAT on the cost of a motor car. It can claim back the VAT on fuel, repairs etc.
v) the allowable deductions the company can claim regarding the capital cost of the vehicle are different if the company obtains the car under a Finance Lease/Contract Hire/Rental arrangement. The BIK rulea remain the same no matter how the car is being financed.
Many people now feel that the provision of company cars is not that viable. The alternative is for the director to buy the car privately and then make a mileage claim for each business related trip. In this scenario the company should not pay any of the vehicle running costs.
We once bought ourselves Company Cars. It was, tax wise, a crap idea.
This was because we bought ourselves nice "junior executive" type cars. Mine was a 406 Coupe 3.0 SE and although it was a Company Car for just six months before I bought it off the Company I had a nice big tax bill (as so eloquently explained below). Then the Revenue refused to believe I owned it personally for two further tax years whilst I struggled to avoid giving them nearly 14K of tax bill they just made up.
I would STRONGLY advise your MD NOT to do this but, instead, to claim the 40p a mile back that is the maximum tax-free payment that can be made for business miles.
UNLESS! Your MD wants to buy a Toyota Prius or similar. There are tax breaks on such environmentally friendly cars (our MD gets 65mpg on a run!) which may make it worth it.
I advise talking to a good tax accountant and doing a break even analysis. Chances are its not worth it.
This was because we bought ourselves nice "junior executive" type cars. Mine was a 406 Coupe 3.0 SE and although it was a Company Car for just six months before I bought it off the Company I had a nice big tax bill (as so eloquently explained below). Then the Revenue refused to believe I owned it personally for two further tax years whilst I struggled to avoid giving them nearly 14K of tax bill they just made up.
I would STRONGLY advise your MD NOT to do this but, instead, to claim the 40p a mile back that is the maximum tax-free payment that can be made for business miles.
UNLESS! Your MD wants to buy a Toyota Prius or similar. There are tax breaks on such environmentally friendly cars (our MD gets 65mpg on a run!) which may make it worth it.
I advise talking to a good tax accountant and doing a break even analysis. Chances are its not worth it.
or alternativley get him to buy a van...
like my td5 discovery ... it looks like a car 5 doors and very black glass in the rear... but it is a van with only 2 seats...
company can claim the vat back. company write it off at 40% pa ( plant and machinary) i pay no fuel and a whopping 500 quid off my tax allowance tee hee..
like my td5 discovery ... it looks like a car 5 doors and very black glass in the rear... but it is a van with only 2 seats...
company can claim the vat back. company write it off at 40% pa ( plant and machinary) i pay no fuel and a whopping 500 quid off my tax allowance tee hee..
eric mc said:
A van can be a sensible alternative - but not always an option of choice by many employees.
Yes, the tax authorities are well aware of the lesser desirability of vans over cars. Back in the 60's, when purchase tax still existed and before the days of VAT, if you retro fitted side windows to a van less tha 6 years old you were liable to pay the purchase tax which the van was exempted from
Graham said:
or alternativley get him to buy a van...
like my td5 discovery ... it looks like a car 5 doors and very black glass in the rear... but it is a van with only 2 seats...
company can claim the vat back. company write it off at 40% pa ( plant and machinary) i pay no fuel and a whopping 500 quid off my tax allowance tee hee..
Or like me, go for a PIKEY PICK-UP! Same tax & VAT benefits as the Disco but has four seats. I went for the Nissan Nirvara. Comes with CD, Climate, x4 'leccy windows, alloys and loads of other kit. £14,750ish plus taxes.
Paul.
If your employer pays ANY of your personal expenses then the amount of those expenses paid for by the company will be taxed on you as a benefit in kind. If you think that any element of those expenses were incurred by you "wholly, exclusively and necessarily for the purpose of your employment", then you can claim that cost as an "Expense" for tax purposes. So, if your employer pays for your personal car insurance, the Inland Revenue will want you to pay tax on the Insurance amount. You might be able to claim some of it back if you can successfully argue that some of the insurance paid was due to the additional driving you had to do because of the nature of your duties as an employee.
The situation for "Self Employed" individuals is very different.Benefits in Kind are not an issue at all as they only relate to employees or directors of companies. Most Self Employed individuals will make sure that ALL motor expenses ( both private and business) are shown as an expense in their business accounts. However, before the accounts and tax computations are finalised. a "Private Use" adjustment is made to the motor expenses total to ensure that the private element of motoring is not claimed as a business expense. The difficult part is arriving at the "Private Use" percentage to use. The Inland Revenue suggest that the best way to come up with the correct private/business ratio is to keep mileage records.
As you state you are "Self Employed" surely your accountant has explained all this to you already?
>> Edited by eric mc on Friday 17th October 08:01
The situation for "Self Employed" individuals is very different.Benefits in Kind are not an issue at all as they only relate to employees or directors of companies. Most Self Employed individuals will make sure that ALL motor expenses ( both private and business) are shown as an expense in their business accounts. However, before the accounts and tax computations are finalised. a "Private Use" adjustment is made to the motor expenses total to ensure that the private element of motoring is not claimed as a business expense. The difficult part is arriving at the "Private Use" percentage to use. The Inland Revenue suggest that the best way to come up with the correct private/business ratio is to keep mileage records.
As you state you are "Self Employed" surely your accountant has explained all this to you already?
>> Edited by eric mc on Friday 17th October 08:01
Gassing Station | Business | Top of Page | What's New | My Stuff