Getting car out of the company to reduce tax

apples1

We have two company cars in our limited company. One is currently worth about £1500 and the other about £5000. If I understand things correctly we pay tax on them as a benefit in kind based on the brand new list price of each car. I think this is costing us dearly and think it would be better to take the cars out of the company. (we also buy fuel on one of the cars and pay tax on fuel as benefit in kind too).

So to get the cars to belong to us not our Company so there is no longer any tax liability do we buy them from the company at the current market value (approx £6,500 for the two) and if so who sets the exact figure or are we better to gift them to oursleves from the company and pay tax as a benefit in kind on the gift?

ceeforcat

You buy the cars at their current valuation - obtain this from an independent car dealer.

Presumably you are both directors. Your director's current account should be debited with the corresponding amounts.

apples1

ceeforcat wrote: »

You buy the cars at their current valuation - obtain this from an independent car dealer.

Presumably you are both directors. Your director's current account should be debited with the corresponding amounts.

Thank you for replying, yes we are both directors. We don't have directors current accounts though - it would just come from our personal bank account which we keep totally separate from business other than it is where our salaries are paid into.

Do you know anything about the gifting option and paying tax on the gift of the car? I only ask because someone told Mr Apples that it would be far cheaper that way. They seemed to be saying that if the car was currently worth say £5k then personal tax liability on gifting it would be about £1.5k against a personal cost of £5k to buy the car out. Seems unlikely and but I'd just like to be sure so I can rule it out.

Thanks again.

Nicola_Ed

apples1 wrote: »

Thank you for replying, yes we are both directors. We don't have directors current accounts though - it would just come from our personal bank account which we keep totally separate from business other than it is where our salaries are paid into.

Do you know anything about the gifting option and paying tax on the gift of the car? I only ask because someone told Mr Apples that it would be far cheaper that way. They seemed to be saying that if the car was currently worth say £5k then personal tax liability on gifting it would be about £1.5k against a personal cost of £5k to buy the car out. Seems unlikely and but I'd just like to be sure so I can rule it out.

Thanks again.

Hi - If you own the company, you may wish to look at the financial and tax position for the company and the shareholders as "one". If you buy the cars from the company at market value, there is no income tax to pay for the directors/shareholders and the value of the company/ you has not changed ( the asset in the value of the car has been exchanged for cash of the same value and you have swapped your cash for cars of the same value) If you gift the cars, the value of the cars passes from the company to you, so no change overall, but there is income tax to pay at either 20% or 40% of the cars and the compnany will have to pay Class 1A NIc liability too. This is based on the assumption that the cash you would be using to buy the cars you have in the bank now and you are not going to have to take this from the company.


Hope this makes sense!

HappyMJ

You could do it in one transaction. Buy the cars for £5,000 then the company declares a dividend of £5,000 and you get your money back straight away (less the corporation tax that would be due which is usually less than the combined income tax and NI rate that would have been due by gifting).

ceeforcat

Thank you for replying, yes we are both directors. We don't have directors current accounts though - it would just come from our personal bank account which we keep totally separate from business other than it is where our salaries are paid into.

Actually you do have a director's current account but, if you simply draw your salary each month, you just do not realise it. Your current account would show a 'payment in' of your salary and a 'payment out' of your transfer to your personal account - it really is a bookkeeping entry. As Happy MJ says, transfer the cars from the company at market value. Your director's current accounts are now in deficit by £6500, decare a dividend to clear this and the job is done!

apples1

Thank you all for the posts. We are not in a position to take a dividend out of the company at the moment so the dividend idea isn't an option. So ruling that option out what the most economical way to do this?

ceeforcat

I can't help further but to ask you to put yourself in the position of any other employee - you are, in effect, the same as any
other employee in the company.

The company has bought a company car for you (is this the case or did you transfer your personal cars into the company?). You now wish to buy this car. What options are open to you as an employee?

apples1

ceeforcat wrote: »

I can't help further but to ask you to put yourself in the position of any other employee - you are, in effect, the same as any
other employee in the company.

The company has bought a company car for you (is this the case or did you transfer your personal cars into the company?). You now wish to buy this car. What options are open to you as an employee?

He he I've no idea! Thanks for all your help thus far though.