Ltd Co - Vehicle Lease - Good Idea?

Albert_Tatlock_2

I am a Limited Company Director/Contractor and am considering leasing a vehicle through my company. I am trying to understand the full financial implications, i.e. what this would ultimately cost me as an individual.

The majority of usage would be Private and in order to minimise my Benefit in Kind liabilities i would go for a Van-type vehicle such as a Toyota Hilux or Nissan Navara.

For arguements sake let's say the Lease cost of this was £400/month + VAT plus £1,200 + VAT Desposit.

VAT:
I am VAT registered and on the flat-rate scheme. Is the VAT completely reclaimable? I read something somewhere which suggested this might be only 50% reclaimable?

Lease Cost:
If it's £400/month for the lease, that basically means I'll have £400/month less profit, therefore £400/m - 20% Corporation Tax means I'd have £320/month less to take as a dividend? So the £320/m is what it is effectively costing me as an individual?

Personal Tax, Benefit in Kind:
I understand that a van incurs BiK of circa £3.5k (usage + fuel) so my Personal Tax liability would be 40% of this, i.e. circa £1.3k/annum; £110/month?

Employers NIC Class 1AContributions:
13.8% of the Benefit in Kind value, i.e. 13.8% of £3.5k = £483/annum = £40/month (£32/m less in my 'dividend pot')

Fuel, Maintenance, "Road Tax", Insurance:
Can all these be recorded as Company Expenses? Thus reducing my Corporation Tax liability and therefore effectively "saving" me as an individual 20% of the cost as opposed to had i paid these personally?

Summary:
Basically it would cost me as an individual £462/month (Lease Cost + Benefit in Kind + NIC) but I should also take into consideration the tax efficiencies gained through having running costs paid as company expense?


Have I got my head round this or am I mistaken?

trailingspouse

I'm in a similar position, and our accountant advised us against leasing the cars through the company.

Thus - I'm currently paying £222 per month for a Jaguar XF from my personal account (plus all the associated running costs). My company pays me 45p per mile when I use it for business, and re-claims the VAT. It's simple to administer, avoids any complications if the company ceases trading, and (according to my accountant) there would be nothing to gain by leasing it through the business.

Albert_Tatlock_2

Hi TS.



I think the downside of putting a car through your company is the Benefit in Kind which can be a killer. From memory, this taxable benefit is around 35% of the car’s value if buying new. So when you have a £30k or £40k car it’s going to be a taxable benefit of £10k to £13k or so, and for a higher rate tax payer that’s going to cost you potentially £400/month or so.


A commercial vehicle is different in that it’s capped at £3.5k Benefit in Kind which is why a Hilux or Navara or something is attractive.

For me, going the mileage claim route isn’t viable as I have a fixed place of work and don’t do any business travel (save commuting, which isn’t claimable)

zygurat789

http://www.hmrc.gov.uk/manuals/eimanual/eim23150.htm

Not all "vans" qualify as commercial vehicles for BiK purposes

Pennywise

If you're on the VAT flat rate scheme, you can't claim back the input VAT on any expenses, not the lease, not the fuel nor repairs, etc.

However, you could claim back the input VAT if you bought it outright as the FRS allows VAT reclaims on the purchase of assets, such as equipment or a van.

As you've rightly said, a van means far smaller BIK charges, but do you really want a van, especially the "crew cab" style, which are clearly going to be more expensive to run than a normal car due to their size/weight etc., not to mention purchase price. You only get tax relief on the costs, so at 20%, it's still costing 80% of the money you spend. You could save 20% of total costs by buying a smaller/cheaper car in the first place!

Don't let the tax tail wag the dog!!

Albert_Tatlock_2

Thanks zygurat. The Hilux is over 1,000 kg payload even with a hardtop fitted so I think its okay.

Albert_Tatlock_2

Pennywise wrote: »

If you're on the VAT flat rate scheme, you can't claim back the input VAT on any expenses, not the lease, not the fuel nor repairs, etc.

However, you could claim back the input VAT if you bought it outright as the FRS allows VAT reclaims on the purchase of assets, such as equipment or a van.

As you've rightly said, a van means far smaller BIK charges, but do you really want a van, especially the "crew cab" style, which are clearly going to be more expensive to run than a normal car due to their size/weight etc., not to mention purchase price. You only get tax relief on the costs, so at 20%, it's still costing 80% of the money you spend. You could save 20% of total costs by buying a smaller/cheaper car in the first place!

Don't let the tax tail wag the dog!!

Thanks Pennywise for the good info.

I do need a decent sized vehicle as we have a caravan to tow for holidays and we also have a dog. We were looking at a similarly high-spec'd SUV/4x4 which will easily be £40k+

I could easily be £700/month on personal finance/lease for such a vehicle.

We don’t do a load of miles (perhaps 8k/annum, probably less actually) so running costs wouldn't be too prohibitive.

I think the cabin of the truck would be very similar to a high-spec SUV but for approx. £250 to £300/month less!

tombcruse

go for navara

UpToMyNeckInIt

I understand you can avoid the BiK issue altogether if you technically make it a company 'pool' car - available for use by all your employees.

Doing it this way also allows you to reclaim all the vat.

CKhalvashi

UpToMyNeckInIt wrote: »

I understand you can avoid the BiK issue altogether if you technically make it a company 'pool' car - available for use by all your employees.

Doing it this way also allows you to reclaim all the vat.

Although seek accountant advice before doing so.

I drive a high end car, and no way would it go through the company; it's on a 0% purchase deal, with me knowing I'll own the car in two years, as doing the figures it wasn't worth putting it through the company, nor was it worth leasing it.

Pennywise

UpToMyNeckInIt wrote: »

I understand you can avoid the BiK issue altogether if you technically make it a company 'pool' car - available for use by all your employees.

Doing it this way also allows you to reclaim all the vat.

You can't just call it a pool car - it actually has to be one, so you'd need evidence for when the tax inspector challenges you. I.e. it actually needs to be driven regularly by different employees, not predominantly the same person, and it must also not be regularly kept at the home of any particular employee. Of course, it must not be used for any private use of any particular employee. Then you have other aspects such as the insurance policy allowing for all employees or several named drivers. If that's really the case, then fine, it's a pool car, but don't think it's as easy as just saying it is one if you don't have conclusive evidence.

Re VAT, the OP is on the flat rate scheme, so can't reclaim input VAT on any vehicle lease, car nor van, pool or not.