Lease hire through a VAT reg'd LTD co?

[DonkeyApple]

A little bit of advice would be appreciated on this.

I'm aware that a company is nailed on tax when buying a car outright and I'm assuming it will be the same if the vehicle is leased, but could someone explain the implications of a VAT reg'd Ltd company taking out a standard 3 yr lease on a car to be used by a director?

TIA

[3200gt]

Treat it as a normal monthly invoice, and unless it is totally business mileage you can only claim back 50% of the VAT.

[mattviatura]

Assuming you are talking about Contract Hire with this. The above answer is right, additionally 100pc of the VAT on any servicing element of the lease may be reclaimed. If you have a maintenance contract, your invoice will be split to show the separate finance and maintenance elements.

[DonkeyApple]

Thanks.

So there is no nailing on the P11D, or somesuch, as a perk or benefit?

Can you still claim the 40p a mile when used for business?

Seems a very easy way to get around company car tax. Too easy.

[sinizter]

How can you claim business expense on a car owned by the business ? Claiming it back twice on the same thing ?

The 40p is not purely fuel expense - it includes other expenses and depreciation as well.

[DonkeyApple]

sinizter said:

How can you claim business expense on a car owned by the business ? Claiming it back twice on the same thing ?

The 40p is not purely fuel expense - it includes other expenses and depreciation as well.

If I knew specifically how all this worked I wouldn't be asking would I?

So, that 40p a mile is when you use your own car for a business purpose.

I assume you can still expense the fuel receipt on a contract hire car when used for business?

[mattviatura]

Whoa that's a completely different issue to the original question.

[theboss]

DonkeyApple said:

Thanks.

So there is no nailing on the P11D, or somesuch, as a perk or benefit?

Can you still claim the 40p a mile when used for business?

Seems a very easy way to get around company car tax. Too easy.

If the car is provided by the business, and made available for personal use, then it will be deemed a benefit in kind and you will be liable to pay company car tax. The fact that its leased to the business makes no difference in this respect. In fact I suspect that almost all company cars are provided via lease schemes rather than purchased outright.

Also although you don't pay employees NI along with the tax, the business will still have to pay 12.8% employers NICs on top.

So yes, you would potentially be able to reclaim half the VAT but you'll still get stuffed for tax unless the car is in one of the lowest brackets and with a low list price (including options). In other words if you're a basic rate taxpayer leasing a 118d it may be cost effective, otherwise you may be better off leasing it privately, paying all the VAT and then drawing mileage expenses from the business tax-free at the approved rates.

Hopefully Eric Mc or someone else suitably qualified will come along and correct / clarify

Edited by theboss on Thursday 15th April 11:35

[DonkeyApple]

theboss said:

DonkeyApple said:

Thanks.

So there is no nailing on the P11D, or somesuch, as a perk or benefit?

Can you still claim the 40p a mile when used for business?

Seems a very easy way to get around company car tax. Too easy.

If the car is provided by the business, and made available for personal use, then it will be deemed a benefit in kind and you will be liable to pay company car tax. The fact that its leased to the business makes no difference in this respect. In fact I suspect that almost all company cars are provided via lease schemes rather than purchased outright.

Also although you don't pay employees NI along with the tax, the business will still have to pay 12.8% employers NICs on top.

So yes, you would potentially be able to reclaim half the VAT but you'll still get stuffed for tax unless the car is in one of the lowest brackets and with a low list price (including options). In other words if you're a basic rate taxpayer leasing a 118d it may be cost effective, otherwise you may be better off leasing it privately, paying all the VAT and then drawing mileage expenses from the business tax-free at the approved rates.

Hopefully Eric Mc or someone else suitably qualified will come along and correct / clarify

Edited by theboss on Thursday 15th April 11:35

Thanks.

I'm working on the assumption that you will get nailed regardless of whether an outright purchase or a contract hire.

I was looking at a well spec'd 120D.

Roughly £350 +VAT through a company and about £400 +VAT if private.

My suspicion was that there would be little to be gained by doing it through a company other than using their funds rather than my personal funds.

If it doesn't work out beneficial to do it through a company then I'll just buy a second hand one for about £15k.

[theboss]

DonkeyApple said:

theboss said:

DonkeyApple said:

Thanks.

So there is no nailing on the P11D, or somesuch, as a perk or benefit?

Can you still claim the 40p a mile when used for business?

Seems a very easy way to get around company car tax. Too easy.

If the car is provided by the business, and made available for personal use, then it will be deemed a benefit in kind and you will be liable to pay company car tax. The fact that its leased to the business makes no difference in this respect. In fact I suspect that almost all company cars are provided via lease schemes rather than purchased outright.

Also although you don't pay employees NI along with the tax, the business will still have to pay 12.8% employers NICs on top.

So yes, you would potentially be able to reclaim half the VAT but you'll still get stuffed for tax unless the car is in one of the lowest brackets and with a low list price (including options). In other words if you're a basic rate taxpayer leasing a 118d it may be cost effective, otherwise you may be better off leasing it privately, paying all the VAT and then drawing mileage expenses from the business tax-free at the approved rates.

Hopefully Eric Mc or someone else suitably qualified will come along and correct / clarify

Edited by theboss on Thursday 15th April 11:35

Thanks.

I'm working on the assumption that you will get nailed regardless of whether an outright purchase or a contract hire.

I was looking at a well spec'd 120D.

Roughly £350 +VAT through a company and about £400 +VAT if private.

My suspicion was that there would be little to be gained by doing it through a company other than using their funds rather than my personal funds.

If it doesn't work out beneficial to do it through a company then I'll just buy a second hand one for about £15k.

I may be wrong but I recall the 118d is in the much lower 13% bracket, but the 120d and 123d are in the same, or a similar bracket.

You could always get a 118d for the low tax, then DMS remap to 120d power level (and hope the lease company never finds out + remove map when you hand it back).

Also 123d's seem to drop rapidly in value to 120d level so you might end up with the better car - and be just as well off - if you buy a nearly new 123d with the toys for £20-22k and pay yourself mileage rates.

[DonkeyApple]

theboss said:

DonkeyApple said:

theboss said:

DonkeyApple said:

Thanks.

So there is no nailing on the P11D, or somesuch, as a perk or benefit?

Can you still claim the 40p a mile when used for business?

Seems a very easy way to get around company car tax. Too easy.

If the car is provided by the business, and made available for personal use, then it will be deemed a benefit in kind and you will be liable to pay company car tax. The fact that its leased to the business makes no difference in this respect. In fact I suspect that almost all company cars are provided via lease schemes rather than purchased outright.

Also although you don't pay employees NI along with the tax, the business will still have to pay 12.8% employers NICs on top.

So yes, you would potentially be able to reclaim half the VAT but you'll still get stuffed for tax unless the car is in one of the lowest brackets and with a low list price (including options). In other words if you're a basic rate taxpayer leasing a 118d it may be cost effective, otherwise you may be better off leasing it privately, paying all the VAT and then drawing mileage expenses from the business tax-free at the approved rates.

Hopefully Eric Mc or someone else suitably qualified will come along and correct / clarify

Edited by theboss on Thursday 15th April 11:35

Thanks.

I'm working on the assumption that you will get nailed regardless of whether an outright purchase or a contract hire.

I was looking at a well spec'd 120D.

Roughly £350 +VAT through a company and about £400 +VAT if private.

My suspicion was that there would be little to be gained by doing it through a company other than using their funds rather than my personal funds.

If it doesn't work out beneficial to do it through a company then I'll just buy a second hand one for about £15k.

I may be wrong but I recall the 118d is in the much lower 13% bracket, but the 120d and 123d are in the same, or a similar bracket.

You could always get a 118d for the low tax, then DMS remap to 120d power level (and hope the lease company never finds out + remove map when you hand it back).

Also 123d's seem to drop rapidly in value to 120d level so you might end up with the better car - and be just as well off - if you buy a nearly new 123d with the toys for £20-22k and pay yourself mileage rates.

Thanks.

The reality is that there is likely to be little or no business mileage. If I do use a car for business it tends to be a different car.

The idea behind the 120d is for a local run about with airbags etc that can be dumped on the street but is still comfortable for me to drive. Hatchbacks are generally miserable for me but the rear wheel drive BMW gives me enough leg room to be able to stand more than 3 minutes inside.

Because it will basically be a utility device I'm investigating the simplest way to run it. Contract hire is favourable as I can throw it away in 2/3 years and not be bothered with trying to sell it privately and I can take a service contract which would make life easier as well. If it makes financial sense to run such a car through a company for total personal use then this would probably be the way to go.

[mattviatura]

Donkey a fair bit of this depends on your personal situation and I'd advise you firm things up with your accountant outside of a public forum.

I certainly wouldn't remap a leased car, potential can of worms there.

What's the spec on your 120?

[DonkeyApple]

mattviatura said:

Donkey a fair bit of this depends on your personal situation and I'd advise you firm things up with your accountant outside of a public forum.

I certainly wouldn't remap a leased car, potential can of worms there.

What's the spec on your 120?

That's the plan. Wasn't going to go to the beancounter until I'd sounded it out a bit and had a clearer idea of the various options.

Spec would be just the basics, the bits that shouldn't really be options these days: AC, leather, satnav, parking sensors.

If I was buying second hand I'd wait to find one that had every single option as this tends to help when dumping it later.

[thegreengoblet]

I wouldn't write off purchasing a company car through your own comapny just yet. There are some benefits. The bottom line is cost to you.
Other posters have detailed the pros and cons regarding benefit in kind (BiK). At the end of the day, the lower the emissions and the lower the list price (when new, including all options and accessories - even if you buy second-hand), the lower your tax impact. And as rightly pointed out, the lower the comapnies NI1a costs as well.
You have to be careful if you draw dividends and the upper rate tax band. Dividends are deemed the top slice of salary. A BiK reduces your tax free code and depending on the vehicle you buy, can go negative (i.e. even if you didn't earn any wages, you would still need to pay tax!) What does this all mean? In a nutshell, your reduced tax code means that you take less wages before you enter upper rate tax. If you are drawing dividends and this occurs, you will be liable for an extra 32.5% tax on the amount over the upper tax threshold - not an additional 20% as you might expect. All to do with the 10% tax credit given with dividends. Your accountant should be able to clarify this if you don't fully understand it. My point is that you should be aware of this.
So what are the benefits of pushing a company car through your own company?
Your comapny will not pay tax and VAT on running expenses - tax, servicing, repairs, insurance. Your company will not pay tax on any loan interest - applicable if you purchase the car through a loan scheme - includes standard loans, balloon schemes etc.
Your comapny will get tax releif on depreciation of the vehicle. Depending on the vehicle itself, this could be up to £3k a year i.e. you can reduce you corporation tax by around £600 (corp tax percentage x £3k).
If you pay for the fuel privately, then you can still claim 12p per mile (I think that's the amount?) from your company. Depending on your private mileage, it may be beneficial to have the comapny pay all fuel and you take the hit on the BiK - I think it's something like £2.5k a year (i.e. you tax code will be further reduced by 250).
You have to compare these costs with those associated with private ownership:
If you purchase a £15k car, that is net income i.e. already subjected to tax, NI, VAT. No allownace for depreciation. You have to pay all running costs. Ok, you can claim 40p per mile, but that's not actually a great deal considering the price of insurance, petrol, and servicing. Pros: There's no BiK, and you can draw more wages before going into upper rate tax. And there's no restriction on what vehicle you can buy.
Nothing's straight forward!
As I said, it's all about cost to you and you may well have to get your accountant to go over some figures if you have a vehicle in mind.

[mattviatura]

All sensible info from Green.

The single most important issue is COST TO YOU.

Satnav is about £1200 as a BMW option, unless you absolutely can't live without it buy a TomTom and move it from car to car. It'll add over £30 a month to your lease as the finance company is unlikely to see it as a residual enhancer.

[DonkeyApple]

mattviatura said:

All sensible info from Green.

The single most important issue is COST TO YOU.

Satnav is about £1200 as a BMW option, unless you absolutely can't live without it buy a TomTom and move it from car to car. It'll add over £30 a month to your lease as the finance company is unlikely to see it as a residual enhancer.

Sadly a portable satnav will be left in clear view while parked in central London and so stolen, hence having it as an option. This won't be a car used by me but the missus.

Green, thanks for the additional info. I did think that a second hand car would still be taxed at original value through a company?

[CaptainSlow]

thegreengoblet said:

Your comapny will get tax releif on depreciation of the vehicle. Depending on the vehicle itself, this could be up to £3k a year i.e. you can reduce you corporation tax by around £600 (corp tax percentage x £3k).

Some good bits here.

Just for clarification on the above. The Capital Allowances rules changed last year and are now pooled based on vehicles emissions with differing write down %s. There are no £3k limits now either.

[thegreengoblet]

DonkeyApple said:

Green, thanks for the additional info. I did think that a second hand car would still be taxed at original value through a company?

No problem. It's hard to put it down in simple text.

Regarding your question, even if you buy secondhand, it comes down to the list price when new and you have to include any options that were fitted then, or have been retro fitted since (if over the value of £100 I believe).
And the list price must be used, not a discounted price. For instance, if you purchase a new car that has a list of £25k, but you manage to get a discount of £5k and hence only pay £20k, you must still use £25k.
Obviously, sometimes things are missed off invoices or are not apparent on the vehicle. It would be your choice whether or not to declare such things.

[thegreengoblet]

CaptainSlow said:

thegreengoblet said:

Your comapny will get tax releif on depreciation of the vehicle. Depending on the vehicle itself, this could be up to £3k a year i.e. you can reduce you corporation tax by around £600 (corp tax percentage x £3k).

Some good bits here.

Just for clarification on the above. The Capital Allowances rules changed last year and are now pooled based on vehicles emissions with differing write down %s. There are no £3k limits now either.

Thanks for the clarification CaptS. I'm not an accountant, so some of my facts may be out of date. I would always advise anyone to get their accountant to generate the figures. I simply wanted to point out to the OP that if you actually own the comapany, then company cars can still be very viable.