What's the best way to reduce tax on new car purchases for partners?

Spanky_Deluxe

Hi all,

My wife got offered partnership in her firm a few months ago and now gets a percentage share of the profits as a result. We're interested in replacing our car for one on a lease-hire basis. Ideally we'd like to take any funds out of the bi-annual dividends she gets paid instead of her monthly salary.

A friend of mine got offered partnership in his firm a year or so ago and I remember him saying something like his car lease was paid for by the company out of his share of the profits before he got paid his share and so effectively, the monthly payments cost him just over half as much in take-home amounts.

Is that possible, if yes then how does it work?

Pennywise

Before anyone can help you, can you confirm whether it's a partnership or a limited company. You start off saying partnership and then mention dividends which are paid by a limited company. The tax on cars is very different in each scenario.

Spanky_Deluxe

Pennywise wrote: »

Before anyone can help you, can you confirm whether it's a partnership or a limited company. You start off saying partnership and then mention dividends which are paid by a limited company. The tax on cars is very different in each scenario.

It's a limited company that was owned by two people 50|50. She was offered a 10% share of the company going forward with a 10% share of overall profits. It looks like it's all going through as an EMI option with 10% profit share (mainly to avoid the tax implications of being 'gifted' a share of the company.

jamesml

I think you are talking about salary sacrifice. This is where the company provide you with a car in exchange for a reduction in your gross salary.

Not all employers will offer this, but its worth a conversation. You have a reduction in your gross salary (equating to less PAYE and less NI payable) but you then have a taxable benefit as it is a company car (you get taxed on this).

It worked out at a good price for me - I ended up paying about the same after tax as if I was taking the car on finance from the dealer, but I got tax, insurance, service costs, tyres and breakdown included in the price. This element will vary depending on whether the employer has a fleet in place (sounds unlikely) or whether they have to go and lease a car for her and pass on the costs. I'm not sure what the set up is like for the company of running a salary sacrifice scheme - not sure if they can run an ad hoc scheme. I assume they can, as effectively its just a negotiating tool - your wife has negotiated a lower salary in exchange for a company car?

I think do some sums and see where that puts you and the company. Should be fairly easy to do and you will see the impact on the company and on her, and pitch it to the company such that it is mutually beneficial. They will also pay less tax although the savings for them might not necessarily be massive.

agrinnall

jamesml wrote: »

I think you are talking about salary sacrifice. This is where the company provide you with a car in exchange for a reduction in your gross salary.

Although this may well be a sensible way of dealing with it if the company will agree, it's clearly not what the OP is talking about, as the aim is for the cost of the car to come from dividends not salary. And as far as I'm aware salary sacrifice does what it says on the tin.