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Company car for new business

Hi there.
I'm about to start a new ltd company, I already have clients lined up and activities booked.
I would like to have a company car which would be 100% company use, no personal use at all.
Being a new company, it doesn't have any money yet.
So the question is:
- Lend the company money from my personal account and the company buys a car. The company then repays the loan to me in instalments, or
- I buy the car, then transfer it to the company, which then has to pay me back in instalments, or
- Something else I haven't thought of?

Does it make any difference either way? Are there other considerations?
Your help/advice is greatly appreciated.

Comments

  • Savvy_Sue
    Savvy_Sue Posts: 46,908 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Thoughts from your accountant could be useful: they know you and the company's situation better than we do and can ask the relevant questions. 
    Signature removed for peace of mind
  • jlfrs01
    jlfrs01 Posts: 290 Forumite
    Sixth Anniversary 100 Posts Name Dropper
    Lending your company the money is probably most straightforward and you could claim the VAT back but be aware it's likely to be treated as a benefit in kind by HMRC for your own personal tax purposes. 
  • Grumpy_chap
    Grumpy_chap Posts: 17,036 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Combo Breaker
    Gavin74 said:
    Hi there.
    I'm about to start a new ltd company, I already have clients lined up and activities booked.
    I would like to have a company car which would be 100% company use, no personal use at all.
    Being a new company, it doesn't have any money yet.
    So the question is:
    - Lend the company money from my personal account and the company buys a car. The company then repays the loan to me in instalments, or
    - I buy the car, then transfer it to the company, which then has to pay me back in instalments, or
    - Something else I haven't thought of?

    Does it make any difference either way? Are there other considerations?
    Your help/advice is greatly appreciated.
    Your Accountant should advise the best financing route.

    As a new business, is it wise to invest the money in a brand new vehicle from the outset?

    It is unlikely that the new Ltd Co can obtain finance so a Director's Loan to the business is likely the only way the company can raise the funds to pay for the new vehicle.

    Will it be an electric car? 
    If so, to benefit from the 100% first year write down, the car must be brand new and the invoice from the supplying Dealer made out to the company. 
    Otherwise, the company has bought a second-hand EV and subject to the normal write down periods.
    This is not the same issue if buying an ICE car (petrol / diesel).

    It is difficult to have a company car and sufficiently demonstrate the 100% company use, no personal use at all.
    What other transport do you have access to?
    What type of car are you proposing as the company car?
    If you chose an EV, the BIK is sufficiently low that arguing the case for the 100% company use, no private use at all is hardly worthwhile.
  • Gavin74
    Gavin74 Posts: 13 Forumite
    Fifth Anniversary First Post
    Gavin74 said:
    Your Accountant should advise the best financing route.

    As a new business, is it wise to invest the money in a brand new vehicle from the outset?

    It is unlikely that the new Ltd Co can obtain finance so a Director's Loan to the business is likely the only way the company can raise the funds to pay for the new vehicle.

    Will it be an electric car? 
    If so, to benefit from the 100% first year write down, the car must be brand new and the invoice from the supplying Dealer made out to the company. 
    Otherwise, the company has bought a second-hand EV and subject to the normal write down periods.
    This is not the same issue if buying an ICE car (petrol / diesel).

    It is difficult to have a company car and sufficiently demonstrate the 100% company use, no personal use at all.
    What other transport do you have access to?
    What type of car are you proposing as the company car?
    If you chose an EV, the BIK is sufficiently low that arguing the case for the 100% company use, no private use at all is hardly worthwhile.
    Thanks Grumpy chap.
    Firstly, I'm considering a new accountant as this one doesn't seem very helpful.
    I've got a couple of contracts which will easily cover the cost of the car, and I don't need an income for a while. Obviously I won't buy a car until the contracts are signed.
    I was looking at nearly new petrol/electric hybrids, so normal write down.
    I have another car which I don't want to be putting business miles onto (not to mention it's a completely impractical car for business).
    My accountant was suggesting that I'll still have to declare it as a BIK and pay personal tax on it, even if I never use it for personal.
  • Grumpy_chap
    Grumpy_chap Posts: 17,036 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Combo Breaker
    Gavin74 said:

    I have another car which I don't want to be putting business miles onto (not to mention it's a completely impractical car for business).
    My accountant was suggesting that I'll still have to declare it as a BIK and pay personal tax on it, even if I never use it for personal.
    The trouble is, I think your Accountant is probably about right.
    It is possible to have a car that is not available for personal use and avoid the BIK.
    From practical perspectives, though, that is very hard to prove for a single-person owner-Director of Ltd Co.  

    If the non-company car is a 2-seater or something (you said impractical) and the company car is a regular four-dour four-seat family saloon then convincing the HMRC that the family car is never used for personal use and the 2-seater is not just a summer weekend car will be nigh on impossible. 
    It is a binary test, so one trip to the dump, one shopping trip to collect a bulky item, one lift given to the elderly parents and the BIK is due.

    There are several article about this for single-person owner-Director Ltd Co. 
    The trouble is, the car has to be unavailable for use and that has to be enforced.
    In the example linked below, even the car being SORN and / or untaxed was not sufficient.
    For a regular employee, the "non-availability" can be addressed by a letter / policy but that may not stand up for the single-person owner-Director Ltd Co because there is no enforcement.  You, as Director, could write a letter to you, employee, saying the car cannot be used.  What are you, Director, going to do if you, employee, break the rules?  Are you going to sack yourself?

    https://www.mytipsandadvice.co.uk/2023-03/when-is-a-car-not-available-for-private-use-UKTATXAR_EU23120501

  • Gavin74
    Gavin74 Posts: 13 Forumite
    Fifth Anniversary First Post
    The trouble is, I think your Accountant is probably about right.
    It is possible to have a car that is not available for personal use and avoid the BIK.
    From practical perspectives, though, that is very hard to prove for a single-person owner-Director of Ltd Co.  

    If the non-company car is a 2-seater or something (you said impractical) and the company car is a regular four-dour four-seat family saloon then convincing the HMRC that the family car is never used for personal use and the 2-seater is not just a summer weekend car will be nigh on impossible. 
    It is a binary test, so one trip to the dump, one shopping trip to collect a bulky item, one lift given to the elderly parents and the BIK is due.

    There are several article about this for single-person owner-Director Ltd Co. 
    The trouble is, the car has to be unavailable for use and that has to be enforced.
    In the example linked below, even the car being SORN and / or untaxed was not sufficient.
    For a regular employee, the "non-availability" can be addressed by a letter / policy but that may not stand up for the single-person owner-Director Ltd Co because there is no enforcement.  You, as Director, could write a letter to you, employee, saying the car cannot be used.  What are you, Director, going to do if you, employee, break the rules?  Are you going to sack yourself?

    https://www.mytipsandadvice.co.uk/2023-03/when-is-a-car-not-available-for-private-use-UKTATXAR_EU23120501

    Thanks Grumpy chap, that's very helpful.

    As per usual, it feels like HMRC are determined to make life difficult for individuals and one-man bands.
  • Grumpy_chap
    Grumpy_chap Posts: 17,036 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Combo Breaker
    Gavin74 said:

    As per usual, it feels like HMRC are determined to make life difficult for individuals and one-man bands.
    You may interpret it in that way.

    HMRC very probably interpret it as preventing the widespread advantage of a potential loophole.

    FWIW, I actually think if there was a means by which company cars would be provided and a simple statement (without enforcement) could avoid the BIK, then it would become a widely-exploited tax avoidance.
    Also, so far as I am aware, there are very few companies, whether large or small, that allow employees the use of a company car but without BIK applying under the premise of the "no private use" statement so this is not an action by HMRC that only affects one-man bands.

    As a one-man band, you are able to take advantage of some tax benefits that are not available to employees of large firms (assuming your contracts are outside IR35) and that does include the favourable treatment should you opt for an EV.  This may well be a case of "be careful what you wish for" as any moves towards making one-man bands more equal for taxation purposes to employees are likely to be in the direction of tighter rules for the small business.
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