Tax confusion - Company Car - HELP!!!

bluenoseneil

I am 3 months into a new job as a Sales Manager with a VC-backed business.

My role requires a car and the business have offered me a fully expensed vehicle of my choice (within reason).

However as a young VC business they don't yet show 2 years of completed accounts and as such cannot obtain finance through someone like Lex for a car.

Therefore they are asking me to purchase a car on finance - new or used - and they will fully reimburse for:

- Monthly lease costs
- Loan repayment interest
- Fuel
- Repairs
- Servicing & MOT

My questions are as follows:

(1) Being that I am buying the car BUT its cost is basically being paid back to me, where do I stand on Tax Calculations?

(2) Is there any real benefit to buying a USED vehicle? Can I basically get a better spec car or will I still be taxed against the vehicle's original List Price and CO2 emission ratings?

(3) Are there any risks inherent in this process? The other option for the business is to essentially buy a car outright but as a VC company they'd rather not have a £25k+ vehicle showing on the books as an asset, which I understand.

Thoughts please?

Nicola_Ed

Hi

To clarify if you own the car then it is not a "company car" and you will not be taxed under the company car rules that I think you are referring to. In answer to your questions:-

1. You will be liable to pay income tax on all the costs your employer pays in relation to "your" car.
2. As this is not a "company car" the tax you pay will not be based on the list price of the car.
3. The risk is that if you leave your job/ employer ceses to trade you will have to continue to make the repaymemts on the car.

An option would be for your employer to pay you a rate per business mile - this amount will be paid tax free for 45p for the first 10,000 miles in a tax year and 25p for miles over this threshhold. How many miles do you expect to do in a year?

bluenoseneil

Nicola,

Thanks for the response and clarification.

I will be doing over 30,000 miles p/a easily. Would I be better claiming back all costs separately or doing it on a per mile basis? I just don't want to be out of pocket in any way and have never done it like this before, hence my caution.

The business has agreed to fully finance the vehicle as if it were a company car, so that means fuel, repairs, servicing, insurance....the whole lot essentially.

All I need to work out is how this affects my tax. I am guessing I am (a) better off and (b) can therefore potentially go out and purchase a nicer car as if it's second hand it will cost me less....i.e. more bang for the buck.

I appreciate the risk inherent is having a car of my own to sell off if I left the firm but I think I would need to get an agreement in place to cover myself in that eventuality, as basically we don't really have another choice in this situation.

Thoughts?

CLAPTON

only you can work out whether you are better off claiming expenses rather than mileage.
Mileage can be worked out easily and is independant of which car you have, whereas the costs of running a car obviously depend upon which car you choose.

00ec25

your options are:

either: the company pays you a mileage rate and you can only claim for business miles not any private miles you drive. If they use the offical HMRC approved rates of 45p per mile for the frist 10,000 miles and 25 p thereafter on 30,000 miles you would get £9,500 per year tax free . From that you would have to pay ALL the costs of the car , ie lease, service, AND fuel, but you would not be taxed on the money the company pays you

or the company pays you a different mileage rate , if less than approved rate you are allowed to claim back the tax on the differnnce, eg say they pay 40ppm you can claim the tax (at 20 or 40%) on that 5 p difference so you'd get back an extra 1ppm 20% or 2ppm 40%. The total you get may not therefore cover your operating costs. If the company pays more than 45/25 then you would OWE tax on the excess

or the company reimburses you the costs of you owning the car - as explained above it is your private car in thic case, not a company car. To HMRC that payment is exactly the same as you getting extra salary of £x per year - you will be taxed on that value and therefore your net income for the year after tax will be less than you have actually paid out in lease and servicing unless the comapny is prepared to "gross up" the payment so you receive the actual cost to you in your net pay .
If the company also reimburses you for the fuel you purchased then the rules above apply - must be for business mileage only and must be at the approved rate to remain tax free

ignore any refencnes to list prioce and co2 etc - you will not have a company owned car so they are irrelevant

Nicola_Ed

Hi

My own personal view is not based solely on the tax implications. I would purchase a reasonably priced car which could be funded out of the tax free mileage paid to you for the business miles. £9,500 should be sufficient not including capital repayments. (Despite what you have said regarding having an agreement with your employer if the company goes "bust" it may be worthless) A company car can then be purchased when your employer is more financially stable. This is more of a commercial response that one based on a set of figures so others may disagree!

bluenoseneil

00ec25 wrote: »

your options are:

either: the company pays you a mileage rate and you can only claim for business miles not any private miles you drive. If they use the offical HMRC approved rates of 45p per mile for the frist 10,000 miles and 25 p thereafter on 30,000 miles you would get £9,500 per year tax free . From that you would have to pay ALL the costs of the car , ie lease, service, AND fuel, but you would not be taxed on the money the company pays you

or the company pays you a different mileage rate , if less than approved rate you are allowed to claim back the tax on the differnnce, eg say they pay 40ppm you can claim the tax (at 20 or 40%) on that 5 p difference so you'd get back an extra 1ppm 20% or 2ppm 40%. The total you get may not therefore cover your operating costs. If the company pays more than 45/25 then you would OWE tax on the excess

or the company reimburses you the costs of you owning the car - as explained above it is your private car in thic case, not a company car. To HMRC that payment is exactly the same as you getting extra salary of £x per year - you will be taxed on that value and therefore your net income for the year after tax will be less than you have actually paid out in lease and servicing unless the comapny is prepared to "gross up" the payment so you receive the actual cost to you in your net pay .
If the company also reimburses you for the fuel you purchased then the rules above apply - must be for business mileage only and must be at the approved rate to remain tax free

ignore any refencnes to list prioce and co2 etc - you will not have a company owned car so they are irrelevant

Ok, thanks for the info. I think I am getting this now.

This is what my company sent me:

"We will provide £450 per month as a car allowance and this will be in your payslip.

As you will be responsible for running the car (insurance etc) and you may want to purchase a vehicle where a deposit is required. We will provide you with a £3,000 loan which is to be paid back evenly over a 12 month period.

The company is also to provide the fuel and so this will be a taxable benefit which will be shown on your P11D at the end of the year.

However, each month you are required to record your business miles to be signed off and this will mitigate your taxable benefit of the fuel. Here you will be able to claim 45p per business mile up to 10,000 business miles in the tax year and thereafter 25p per mile."

I can confirm that I am budgeting for the following expenditure:

- Car loan - £400
- Insurance - £120
- Repairs - £100

Based on all of this info AND me driving 30,000 miles p/a, can you walk me through how to calculate the affect on Net salary and prove I am not disadvantaged financially?

00ec25

Let us assume you are a 20% basic rate tax payer and that the extra GROSS money and benefits for the car will not take you above £42,475 pa (if it does then some of the extra is taxed at 40%)

bluenoseneil wrote: »

"We will provide £450 per month as a car allowance and this will be in your payslip. ."

This is treated as pure salary so will incur income tax and NI
Your net pay will be 450 – (450x20%) – (450 x 12%) = £306 pm ie £3,672 pa

bluenoseneil wrote: »

"As you will be responsible for running the car (insurance etc) and you may want to purchase a vehicle where a deposit is required. We will provide you with a £3,000 loan which is to be paid back evenly over a 12 month period. ."

As the total size of the interest free loan is less than £5k this will be free of any tax (small loan exception rule: http://www.hmrc.gov.uk/paye/exb/a-z/l/loans.htm )

the repayment is 3000/12 = 250 pm . No idea where you got 400 pm from?

bluenoseneil wrote: »

"he company is also to provide the fuel and so this will be a taxable benefit which will be shown on your P11D at the end of the year.

However, each month you are required to record your business miles to be signed off and this will mitigate your taxable benefit of the fuel. Here you will be able to claim 45p per business mile up to 10,000 business miles in the tax year and thereafter 25p per mile."

You will be taxed on the total amount paid by the company, you will be claiming back (tax free) your business usage. An example is best…

Lets say you get a car that does 30 miles/gallon and you do 35,000 miles per year with petrol costing £1.40 per litre. That will cost your company (35,000/30 x 4.54 x 1.40) £7,415.33. they will report that on your P11D and you will be pay 20% tax on it of £1,483

However, of the 35k miles, 30k were business so you claim business mileage (10,000 x 0.45 + 20,000 x 0.25) = £9,500. As the company has used the approved rates there is no tax implication

Summary for the example
You get £3,672 + 9,500 business mileage less 1,483 P11D benefit = £11,689
In that example you’d get £11,689pa after tax with which to pay for the capital cost of the car and any servicing costs (your fuel cost is nil obviously).

Also obviously getting near 12k extra per year means its highly likely you would breach the 42,475 threshold and become a higher rate tax payer so the excess over 42475 would be subject to 40% tax

NOTE
the above assumes your company is willing to pay both the full cost of fuel and still pay 45ppm. That is an extremely generous offer as the 45ppm is designed to cover both the caopital cost of the car and all its running costs so your compnay is actually paying twiice, gives you 450pm towards capital costs and pays all your fuel then still gives you 45ppm. That is why you are taxed on the 450 and fuel becuase you are being paid twice for the same thing

bluenoseneil

Thanks again for the clarification.

To explain a few things:

• The £400 loan repayment is the PCP on my car
• The car is diesel so assume £1.50 a litre for fuel and it does 56.5 MPG
• I didn't count the £250 per month I will be paying back my company for the £3,000 they are lending me, but of course this needs factoring in
• Insurance - £120 a month
• Repairs - £100 a month
• My current salary is £45,000 p/a

Assuming all these things AND that I will do 30,000 miles p/a and around 10,000 will be private with the rest being business related, can you run your calcs again?

Sorry to be a pain, but you are being IMMENSELY helpful!!

00ec25

bluenoseneil wrote: »

can you run your calcs again?

I appreciate the compliment but given you are already a higher rate tax payer earning 45K we are talking very basic maths here which you must be able to do yourself for heavens sake, otherwise why are you worth that sort of salary? !

substitute 40% for 20% - if you want to post up your results I'm more than happy to check and say whether your answer is correct

bluenoseneil

Thanks for your reply. Thankfully, They are paying me for my sales skills and technical ability, not my mathematical prowess ha ha!

As a manager, you learn to delegate certain things that others are better served to perform for you as tasks. I have simply employed this logic here!

As I said, I am not an accountant so would appreciate your help in spelling it out for me in black-and-white! Sorry again!