Car in or out of the company..tax ideas?

GAILEY

Hi,
Hope there is someone out there who can give me their thoughts....
I am one of three directors of a small company (in fact we were 3 self employed who joined together to form the company - we have no staff at all).
I need a new vehicle, as does one of my fellow director - the other has just bought a vehicle.
The feedback we seem to be getting is that it is far better for taxation purposes to keep the cars outside of the business and for the company to pay us mileage at the set rate, than to bring the cars in, at which point it would be treated as a benefit. (to complete the picture - we are currently paid minimum wage as employees of the company and the rest comes to us as shareholder dividend.).
However, I have been hearing various tales of allowance for capital write down, depreciation etc and VAT back if they are in the company and I wonder if I am missing something??
Any pearls of wisdom would be warmly welcomed:o

fengirl_2

Yes, its true that if the cars were brought into the company, the company would obtain relief from Corporation Tax for the running costs of the vehicles, plus capital allowances. The company would also get relief from CT on the mileage allowance it paid to the directors.
On the other hand, the directors would pay income tax on the benefit in kind for the use of the car.
If the directors keep the cars and are merely reimbursed for company mileage, that would be tax free, but of course they have to pay the running costs of the vehicles out of taxed income.
You really need to take detailed advice on this as it all depends on the list price of the cars, how much business mileage is done, what the level of profit of the company is and the highest rate of tax paid by the directors.

mickymellon

unless you want to drive around in an electric car like the G-Wiz which has no emissions and low list price

my accountant also said that there were lots of these around but he's never seen anyone getting in or out of them

GAILEY

I'm thinking more of the Jezza Clarkson gas guzzler actually, as it also needs to tow my 5 berth caravan....and cute as those little Fiat things are I think it might struggle..:)

Any

GAILEY wrote: »

I'm thinking more of the Jezza Clarkson gas guzzler actually, as it also needs to tow my 5 berth caravan....and cute as those little Fiat things are I think it might struggle..:)

http://www.comcar.co.uk/newcar/companycar/taxcalc/g1select.cfm

Have a look here and see how much income tax you would have to pay for the vehicle if bought through the company...

That might give you better idea.

Otherwise, if you buy the car yourself - you get 40p per mile for first 10000 miles and then 25p for the rest (in a tax year).

As Fengirl said - obviously if YOU buy the car it will be on already taxed income.
If company buys it, then you get all that CA etc, but you and the company will pay tax on the benefit..

withabix

All of the Directors of the company I work for run their own cars.

Many of the staff do too, taking cash instead of company car.

There are only two reasons for that: One of them is personal choice, the other one is tax efficiency!

Rolo_Tomasi

I think the main issue here could be the conflict that arises if each of the directors were to drive cars of different values/CO2 emissions which would have different costs associated. If the company was paying for all the running costs for each car how long would it be before one of you decides its not fair because another is running a more expensive car? It is more straight forward to run your own cars and charge the company for business mileage at the rates already mentioned.

GAILEY

Thanks.

The initial thought was that we should keep them out, and that was what the accountant suggested many moons ago...I suppose it was just hearing what people in my profession were doing that made me worry I might be missing out on an opportunity for me and the company to save some tax...reality is that most of my colleagues are self employed individual sole traders without the company..which is probably where the real difference is and why they can perhaps save on tax by doing it and I may not.

Good point about potential conflict also - which is something we need to think about.
Thanks again

James_Trimby

Conflict is a very good point away back saw a solicitors practice breakup over arguements over cars!! This is the first thing I would consider before the tax. The next problem is, for a company car to be the way to go it either needs to be 100% for company use (NO private whatsoever) becoming a "pool car" OR you need to do high personal mileage (then you personally are happy as the benefit in kind charge maybe large but you are getting good value for money per mile) The problem comes back to the fact that all three directors need to be in the same situation to make things fair. If you are not going down the low CO2 route generally you are better off with business mileage claims 40p/25p and much simpler.

You mention VAT, if leasing a company car you can only recover 50% of the VAT NOT the 100% some garages hint is reclaimable.

GAILEY

Thanks James - the point you make is salient - as we are a solicitors practice!

We were thinking more in terms of buying than leasing, and pay flat rate VAT so would get something back on big purchases but not much else...

your postings have all been very helpful, and I am now more confident that we are doing the right thing keeping the vehicles out

James_Trimby

Thanks for the thanks! YOU get NO VAT back on the purchase of a car unless you use that car 100% for business (taxi drivers/pool cars etc okay) it is only leasing where 50% of the vat is recoverable (which is why some garages push leasing strongly for businesses) then you wouldn't go over the flat rate £2k purchase exemption (UNLESS it was a hell of a car!) Sorry mileage claims must continue!