car finance/business/tax
Discussion
I was out having a pint with a friend yesterday and got talking about cars, finance etc.
He owns his own company and tells me he took out a personal contract hire on his car (BMW 530D), costing £450/month. He says the company pay him this (£450/month) as he uses it for business use, but interestingly he says there is no tax liability e.g. he gets the £450/month in his hand.
First I've heard of this. Is it true? He is well advised by an accountant, so got me interested.
He also said that as it's a PCH, there is no footprint on his credit record. Again, any thoughts on that?
He owns his own company and tells me he took out a personal contract hire on his car (BMW 530D), costing £450/month. He says the company pay him this (£450/month) as he uses it for business use, but interestingly he says there is no tax liability e.g. he gets the £450/month in his hand.
First I've heard of this. Is it true? He is well advised by an accountant, so got me interested.
He also said that as it's a PCH, there is no footprint on his credit record. Again, any thoughts on that?
So, it sounds to me that he has a personal car and the company pays to him an amount of cash every month equivalent to the additional money he personally needs each month to make the monthly leasing payment.
This extra cash amount is really identical to what many employers would call a "Car Allowance".
HMRC would view this as additional salary and would expect the employer (i.e. his company) to account for the necessary PAYE and NIC (employee's and employer's) arising on it.
Depending on the CO2 rating of the car, this SOMETIMES (but not always) works out better than having the company owning/leasing the car and the employee being taxed under the Benefit in Kind system.
As he owns/leases the car personally, the company should NOT pay directly for any of the running costs of this car.
This extra cash amount is really identical to what many employers would call a "Car Allowance".
HMRC would view this as additional salary and would expect the employer (i.e. his company) to account for the necessary PAYE and NIC (employee's and employer's) arising on it.
Depending on the CO2 rating of the car, this SOMETIMES (but not always) works out better than having the company owning/leasing the car and the employee being taxed under the Benefit in Kind system.
As he owns/leases the car personally, the company should NOT pay directly for any of the running costs of this car.
Is your friend claiming that he pays no tax or NI at all on the use of this car or is he just ignorant of the fact that he should be paying tax and NI on the Car Allowance he receives from the company?
Does he understand the impact of him paying for the car personally and the implications it has for the company regarding Capital Allowances and/or VAT reclaims?
Is he claiming mileage from the company for business trips (after all, he is using his own car)?
Does he understand the impact of him paying for the car personally and the implications it has for the company regarding Capital Allowances and/or VAT reclaims?
Is he claiming mileage from the company for business trips (after all, he is using his own car)?
Kudos said:
He owns his own company and tells me he took out a personal contract hire on his car (BMW 530D), costing £450/month. He says the company pay him this (£450/month) as he uses it for business use, but interestingly he says there is no tax liability e.g. he gets the £450/month in his hand.
So who pays for the insurance, service & maint etc?I guess if the car was used excusively for business then this might be feasible - you can claim anything about HMRC, it's only an issue if they look into it. OTOH, if it really is exclusively business then the company might as well own it.
I find I hear this sort of story a lot, but when you dig into it, it's never quite as described. Perhaps the money is made up of mileage allowance - mine is £500-£750/mth paid at the full 40p/25p levels and that's tax free. But the £600/mth allowance I also get is taxed at my normal rate.
Deva Link said:
Kudos said:
He owns his own company and tells me he took out a personal contract hire on his car (BMW 530D), costing £450/month. He says the company pay him this (£450/month) as he uses it for business use, but interestingly he says there is no tax liability e.g. he gets the £450/month in his hand.
So who pays for the insurance, service & maint etc?I guess if the car was used excusively for business then this might be feasible - you can claim anything about HMRC, it's only an issue if they look into it. OTOH, if it really is exclusively business then the company might as well own it.
I find I hear this sort of story a lot, but when you dig into it, it's never quite as described. Perhaps the money is made up of mileage allowance - mine is £500-£750/mth paid at the full 40p/25p levels and that's tax free. But the £600/mth allowance I also get is taxed at my normal rate.
I'm from the same camp as you two - either it's a company car with the associated BIK, or it's a car allowance treated as cash with NIC etc.
Think I'll call a custard test on this one and demand more proof.
Out of interest, is there such a "best practice" for cars via businesses, or are there too many if's/buts?
Think I'll call a custard test on this one and demand more proof.
Out of interest, is there such a "best practice" for cars via businesses, or are there too many if's/buts?
The treatment of cars in businesses has two major considerations -
the tax effect and NI it has on the individual
the tax, NI and VAT effect it has on the business
What works out well for one may work out not so well for the other.
The situation is even more complex as one needs to take into account whether the individual is the proprietor of the business. Further permutations arise depending on whether the proprietor is a sole trader/partner or the director of a limited company.
the tax effect and NI it has on the individual
the tax, NI and VAT effect it has on the business
What works out well for one may work out not so well for the other.
The situation is even more complex as one needs to take into account whether the individual is the proprietor of the business. Further permutations arise depending on whether the proprietor is a sole trader/partner or the director of a limited company.
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