classic car restoration as company car maintenance?

bluphoto7

I've just started up a one-man limited company and although I've heard that company cars are generally bad news - especially if I'm the one who owns the company, I've been playing with an idea for a couple of months which I'd like your opinion on.

Now I know company cars incur a tax liability valued at 20%? of the cars "new" value, so a 20grand Mondeo would have me paying £4000 per year in extra tax - right? But then the company would be liable for any repairs or maintenance etc -is that right? And those maintenance costs come off the company's profits before tax, yes?

Now I have an old 1960's classic which I'm half way through restoring. My dad runs a classic car restoration business, and is very good at what he does.

So I get to thinking, the new value of my car is only £800 (back in 1966), so I'd be liable for approx £175 per year in tax for the use of the car, right? Current value of a good example would be around £8000 - which is below the inland revenue's threshold of £15k, above which a car is classed as a "classic" and is taxed on its current value instead.

Right now the car doesn't look like much, and although I've done a lot of work, the expensive bit (the bodywork) is yet to come.

So I sell my car to my companyfor say £500, and then the company is responsbile for the maintenance. Now, I assume I won't incur any tax liability while I don't have use of the car - right? so for the next 6-12 months the car is being maintained/restored at my dads garage. He charges my company at a normal rate and I give him a company cheque for, say £3000.

Now that £3000 is still less than I would have to pay in many specialist garages. As this bill is over the VAT flat rate £2000 threshold, my company can reclaim the VAT at 17.5%, I think, as well as the costs coming off the profits before tax, rather than out of my pocket after tax. My dad also runs under the flat rate scheme and as such pays VAT to HRMC at a lower rate.

After 12 months my company decides that a classic car is not the type of image they want to give and sell me back my car at the price I originally sold it. That money then goes back into the company's profits and I get it 90% of it back out as dividends.

Now, I don't want to do anything illegal, but I was wondering if I've considered all the pitfalls.

I think I could save a substantial amount of money here.

Thanks
Blu

jimmo

I can only answer from an Income Tax point of view but if you sell your classic car to your company for £500 when it is only worth £200 you will be chargeable to tax on the benefit to you of £300.
If the company subsequently sells the car back to you for £500 when it is worth £3500 you will be chargeable to tax on the benefit to you of £3,000.
Absolutely out of my comfort zone but if the car is a business asset of the company during the period of ownership by the company then maintenance costs are allowable but enhancement costs are capital costs and not allowable.
If the company buys the car from you and it is not used by anyone during the period that the company owns it how do you expect the taxman to accept that it has been a business asset of the company?

Magandang_Buhay

Sounds like a 'tangled web' we are spinning here. Let us try not to gain an advantage dishonestly.

bluphoto7

No dishonesty here.
I'm just trying to work out if it would be to my advantage to have my classic car restored as a company car, or to do it out of my own pocket.

I'm surprised to hear that I have to pay tax on someone selling me something for less than it's actually worth. Sounds like those car-boot sale treasure-hunters are in for a big tax bill!

I'd be quite happy to run the car as a company car if need be - I think I'd only pay tax at 20% of the initial value in 1966 (which was £780).

I'm not looking for a "loophole", I think the HMRC made a concious decision to allow exactly this type of running older cars as company cars.

My dad is genuinely the best classic car restorer I know. Is it specifically lllegal for my company to let him do the repairs. Could I get HIM in trouble?

My question is are there any limits as to what constitutes "maintenance" as opposed to what constitutes "restoration". The total will probably be about the same as having a new engine fitted to a modern company car (would that be maintenance?

maninthestreet

Any form of repair is considered maintenance. Just because it's a badly rusted 40 year old car with a seized engine that required weeks of work and thousands of pounds spent on it make no difference.