Company Car (again)

paulhm9

Most of the threads I have found so far talk about tax implications of a company car from the point of view of an employee. In my sons case he runs a small (one man) consultancy as a Limited Company that, due to location of several clients, may need to buy a vehicle. He may also get large enough to register for VAT. He obviously pays himself salary and dividend.

So he can optimise his tax situation from both sides of the coin, eg as the Ltd company and as the employee. He does not mind paying for advice to set this up but does anyone have any thoughts to help or who is best to advise? For example some car manufacturers advertise leasing arrangements but they would be biased of course.

Thanks

jimmo

Speaking as a former taxman, and therefore not directly involved, I have to say that it amazes me how many people set up their own limited companies without taking professional advice and then come on here seeking tax advice. Operating a limited company involves a hell of a lot more red tape than operating as a sole trader and, if you get it wrong, the penalties imposed, by HMRC and, particularly by Companies House, will more than negate any tax efficiencies of being limited.
Also, another aspect I have no professional knowledge of is VAT. As I understand it, if a trader’s customers are all VAT registered, it is probably better for the trader (individual or company0 to be VAT registered than not.
Turning now to your question, your son is an employee of his own limited company. His options are to finance his own car and claim mileage allowances from the company or have the company finance the car and he face a tax charge of having a company car. A lot then depends on which car, the CO2 emissions, its costs and his annual business mileage. General advice on here is that a personal car and mileage allowance is more tax efficient but there are so many variables that your son would be much better advised to look for professional advice than relying on a forum.

dori2o

jimmo wrote: »

Speaking as a former taxman, and therefore not directly involved, I have to say that it amazes me how many people set up their own limited companies without taking professional advice and then come on here seeking tax advice. Operating a limited company involves a hell of a lot more red tape than operating as a sole trader and, if you get it wrong, the penalties imposed, by HMRC and, particularly by Companies House, will more than negate any tax efficiencies of being limited.
Also, another aspect I have no professional knowledge of is VAT. As I understand it, if a trader’s customers are all VAT registered, it is probably better for the trader (individual or company0 to be VAT registered than not.
Turning now to your question, your son is an employee of his own limited company. His options are to finance his own car and claim mileage allowances from the company or have the company finance the car and he face a tax charge of having a company car. A lot then depends on which car, the CO2 emissions, its costs and his annual business mileage. General advice on here is that a personal car and mileage allowance is more tax efficient but there are so many variables that your son would be much better advised to look for professional advice than relying on a forum.

I agree, he needs to sit down with someone and look at all possibilities.

In terms of company cars/vans it will in most cases depend on what kind of vehicle he wants/needs to drive.

Cars with very low CO2 emissions and which are reasonable priced will attract a low tax charge, very low in a few cases.

If he wants to drive what I call a 'statement' car, i.e. large German made cars, or a 'sports' type car then he's obviously going to suffer a larger hire/purchase cost within the company itself, and he will suffer a much higher car benefit charge.

Then there is the issue of the possibility of using a van rather than a car. This includes the option of double cab pickups (which must have a payload of 1 tonne/1000kg+) i.e. Nissan Navara, Toyota Hilux, Mitsubishi L200 etc.

The benefit charges for Vans and the Van Fuel is a set figure. The list price and CO2 emissions have no bearing on the tax charge.

For the current tax year the van benefit charge is £3150 and the Van fuel charge is £594, so assuming he is a 20% taxpayer the tax payable would be £748 per year.

However, van benefit is different to car benefit in that it is not charged if the only private use you have is commuting (home to work/work to home travel).

Even better is the fact that trivial private use, i.e. stopping at the shops on the way home, even going to the local tip once in a blue moon isn't counted as private use either. It would only count if there was a significant element of private use of the vehicle.

Therefore if the only thing he wants the vehicle for is business, and he would be happy running a normal van (i.e. peugeot bipper, fiat fiorino, renault kangoo) or even something like a Ford Fiesta van, a Vauxhall Corsavan, or a MINI Clubvan which in reality are just the same as the car but with no rear windows (and other subtle changes) but are treated as vans for tax purposes, and he doesn't want to use the vehicle for everyday personal use, then he personally would suffer no Benefit in Kind tax, the only cost would be to the comnpany to lease/buy the vehicle. Plus these smaller vans mentioned often have very good ECO models from which you can generally get 60-65 mpg, so saving on fuel costs for the business.

Running a double cab pickup, with no private use, would obviously cost more in terms of hire/purchase costs for the business.

I personally in your sons position would seek independent help as cheaply as possible, i.e. free 1/2 hour/1hr consultations if possible.