Company car vs. cash

bigmun

Hi,

I'm quite ignorant about all these company tax issues, so please bear with me. If one is the sole proprietor of a company and decides to give him/herself some form of a bonus for a new car for private use, would it be more tax efficient to go for the cash or get a company car? Suppose the car costs £20k and CO2 of 18%. My thinking is that

* If the owner buys the car him/herself, then the bonus will need to be £20k after tax, which means £25k before tax assuming the 20% bracket.

* If the company buys the car and provides it to the owner, then the owner pays a car tax of £720/yr (£20k * 18% * 20%).

It seems to me that the company car route is more tax efficient since it'd need 7 years of £720/yr company car tax to break even with the £5k income tax. The £25k income boost could push the owner to the 40% bracket too. Also, the servicing costs incurred are tax deductible, right?

I really want to hear your advices!

Thanks

pjclar02

Hello there

Can you just confirm - are you a sole trader (i.e. self-employed) or are you the sole director/shareholder of a limited company?

Thanks

thenudeone

You're forgetting the quite generous mileage allowance that you can be paid if you use a personal car for business use.
For example if you travel 10000 miles pa on business, your company could pay you £4k pa in mileage allowances, tax free. If it decides to give an additional allowance or pay higher rates, that would be taxable.

This is obviously not available if the company provides the car directly.

I'm not sure whether there are any restrictions on this allowance for company owners / sole traders.

nikki1520

I think you'll find that you need to pay company car tax on the value of the car at it's new value for as long as you have it, and then also tax based on the emissions (company car fuel tax) - and the rate you pay at depends on your personal rate of income tax. Theres a calculator here:
http://www.hmrc.gov.uk/calcs/cars.htm

You'll need to have the C02 figure as well - I don't know what the 18% relates to?

Also depends whether your "employer" pays for private mileage, whether you as the employee makes any capital contributions, and so on.

bigmun

pjclar02 wrote: »

Hello there

Can you just confirm - are you a sole trader (i.e. self-employed) or are you the sole director/shareholder of a limited company?

Thanks

Hi

Let's suppose sole directory of a limited company. How different is the case for self-employed?

Thanks

bigmun

thenudeone wrote: »

You're forgetting the quite generous mileage allowance that you can be paid if you use a personal car for business use.
For example if you travel 10000 miles pa on business, your company could pay you £4k pa in mileage allowances, tax free. If it decides to give an additional allowance or pay higher rates, that would be taxable.

This is obviously not available if the company provides the car directly.

I'm not sure whether there are any restrictions on this allowance for company owners / sole traders.

I'm aware of the business mileage allowance, but typically very low mileage needs to be done for business. I was just thinking if it'd make better off if an owner takes cash from the company to buy a car for personal use or get the company to purchase the car. The business's interest needs to be accounted for too since the owner is the sole-director.

bigmun

nikki1520 wrote: »

I think you'll find that you need to pay company car tax on the value of the car at it's new value for as long as you have it, and then also tax based on the emissions (company car fuel tax) - and the rate you pay at depends on your personal rate of income tax. Theres a calculator here:
http://www.hmrc.gov.uk/calcs/cars.htm

You'll need to have the C02 figure as well - I don't know what the 18% relates to?

Also depends whether your "employer" pays for private mileage, whether you as the employee makes any capital contributions, and so on.

The 18% is the BIK rate and no payment for private mileage. I'm thinking of no capital contributions, but am confused about its purpose. Why would an employee contribute payments to a car which he/she doesn't and won't own?

nikki1520

bigmun wrote: »

The 18% is the BIK rate and no payment for private mileage. I'm thinking of no capital contributions, but am confused about its purpose. Why would an employee contribute payments to a car which he/she doesn't and won't own?

Because at the end of the period they will have an option to buy it. And it reduces their tax bill if they contribute