Car Lease Tax Question

used_car_manager

hi

i have a small ltd company, just me providing a service to my clients. On average it takes £50k-£60k per year with very little overheads. I run my own personal car to visit local clients so probably do 6k miles per year, i used my personal car when i set up just over 3 years ago as i didnt want to buy anything newer until i knew my business was established. 

Someone has mentioned i may be better off getting a car on business lease as i can claim it back, i mentioned this to my accountant but to be honest he talks in accountants speak and it baffled me a bit and i did not think it was right for me, however having spoke to someone different they have explained it lay mans terms but my accountant has now gone on holiday so i cant ask him for 2 weeks.

So here goes, bear with me!! When i am told that you can claim 100% back for an electric car or hybrid, what does that mean exactly? I have used round numbers to make it easier on my maths.

Does it mean that if i pay £400 per month over a year which is £4800 in rental payments i can claim it all back and does that mean either the £4800 comes off my gross so for example putting all other over heads aside, 50k gross minus the £4800 so i pay tax on £45200 rather than the £50k or if my tax bill tax bill was £10k would the £4800 deducted from the £10k, so £5200 to the tax man and £4800 in car lease payments...

thanks

[Deleted User]

Which entity will be leasing the car - you or the company?

Your last scenario is just not happening! One claims tax relief on the payments not tax.

DullGreyGuy

Presumably you aren't VAT registered?

Assuming you aren't then your company enters into a leasing agreement, remember that business leases are listed excluding VAT so factor in the 20% increase for VAT. If the vehicle is £400 a month inc of VAT then yes your business has earned £4,800 less profit this year so will pay less corporation tax and you'll have less dividends to take due to the lower profits. 

Now the problem, as you can use the car for personal use as well as business then you (not your company) will have to pay the tax on the "benefit in kind" of having access to a free car. BIK is based on the value of the vehicle when new and its emissions. The advantage of electric cars is that the BIK is exceptionally low... look to buy a gas guzzler and the BIK would very likely offset the tax benefits - you'd pay £55k in tax a year for having a Rolls Royce Phantom as a company car and that assumes no optional extras (and that you are a 40% tax payer)

If you were VAT registered then you'd be able to recover 50% of the tax from the lease payments. 

used_car_manager

[Deleted User] said:

Which entity will be leasing the car - you or the company?

Your last scenario is just not happening! One claims tax relief on the payments not tax.

could you give me a simple example based on my numbers if its not too much trouble?

BoGoF

used_car_manager said:

[Deleted User] said:

Which entity will be leasing the car - you or the company?

Your last scenario is just not happening! One claims tax relief on the payments not tax.

could you give me a simple example based on my numbers if its not too much trouble?

You would claim the leasing costs (adjusted for personal use) against your profits. Just like any normal business expense. But if the company is buying the car you are going to be liable to a benefit in kind.

DullGreyGuy

BoGoF said:

used_car_manager said:

[Deleted User] said:

Which entity will be leasing the car - you or the company?

Your last scenario is just not happening! One claims tax relief on the payments not tax.

could you give me a simple example based on my numbers if its not too much trouble?

You would claim the leasing costs (adjusted for personal use) against your profits. Just like any normal business expense. But if the company is buying the car you are going to be liable to a benefit in kind.

BIK applies to cars leased as well as bought by the employer. 

Never heard of only being able to claim part of lease costs against corporate profits because of personal use... it's no different to any other employee benefit which is 100% deductible. 

The OP could pay their employer to have personal use of the vehicle which reduces the BIK but never looked into how that works in detail to see if it's cost effective. 

used_car_manager

BoGoF said:

used_car_manager said:

[Deleted User] said:

Which entity will be leasing the car - you or the company?

Your last scenario is just not happening! One claims tax relief on the payments not tax.

could you give me a simple example based on my numbers if its not too much trouble?

You would claim the leasing costs (adjusted for personal use) against your profits. Just like any normal business expense. But if the company is buying the car you are going to be liable to a benefit in kind.

so against profits and not full year leasing costs off my tax bill?

BoGoF

DullGreyGuy said:

BoGoFh said:

used_car_manager said:

[Deleted User] said:

Which entity will be leasing the car - you or the company?

Your last scenario is just not happening! One claims tax relief on the payments not tax.

could you give me a simple example based on my numbers if its not too much trouble?

You would claim the leasing costs (adjusted for personal use) against your profits. Just like any normal business expense. But if the company is buying the car you are going to be liable to a benefit in kind.

BIK applies to cars leased as well as bought by the employer. 

Never heard of only being able to claim part of lease costs against corporate profits because of personal use... it's no different to any other employee benefit which is 100% deductible. 

The OP could pay their employer to have personal use of the vehicle which reduces the BIK but never looked into how that works in detail to see if it's cost effective. 

Getting myself confused between Ltd and sole trader. You are correct

DullGreyGuy

used_car_manager said:

BoGoF said:

used_car_manager said:

[Deleted User] said:

Which entity will be leasing the car - you or the company?

Your last scenario is just not happening! One claims tax relief on the payments not tax.

could you give me a simple example based on my numbers if its not too much trouble?

You would claim the leasing costs (adjusted for personal use) against your profits. Just like any normal business expense. But if the company is buying the car you are going to be liable to a benefit in kind.

so against profits and not full year leasing costs off my tax bill?

It is a business expense so if you had £70,000 of revenue you take off however many lease payments you've made in the company year (could be 12 could be 2 if the lease started just before the end of the company year), your salary, any other business expenses. What's left is the company profit which you'll pay 19%-25% corporation tax. 

Won't come off your tax bill because it's the company thats hiring it. However you get a car and a reduced dividends so will pay less personal tax on your dividends. The stinger is the BIK which may offset any savings if you have a gas guzzler. 

dealio123

Presumably you’re claiming 45p a mile through your business currently using your personal car? 
So to try and give a comparison. 

Working on a very basic assumption, you’ll obviously have more expenses each month e.g accountant etc. 

Current situation 
£50,000  
- £12750 salary 
- £2700 (business mileage 6k @ 45p)
x19% corp tax  =  £6564.50

Available dividends = £34,550

Future situation 
£50,000 
- £12750 salary 
- £4800 (lease payments) 
x 19% corp tax = £6165.50 
Available dividends = £32,450

So you’ll see from the above you’ve only saved about £400 in corp tax over the year but you’ve gained a car from it as another user above has said. 

You can also put car insurance and the EV charging point through the business for the vehicle, again adding to your expenses and therefore lowering your corp tax. 

An EV has a BIK of 2% whereas hybrids can range from 5% up to 20%, so probably not worth doing, in some cases and you may also have to pay a fuel tax (if you choose too).

Probably worth going on a leasing company website (select car leasing) clicking on the car you want, selecting the business option, applying your terms and scrolling down to the table that shows the BIK you’d have to pay. 

Remember with leases you’re tied in for usually a minimum of 24 months. 

John1l93

Apologies for jumping on the thread, but just to be clear if as a self employed vat registered sole trader I were to lease a full electric car and declared it 80% for business use I would be able to claim 80% of the annual lease costs back on my self assessment form.
Sorry if I've over simplified it, but as you can probably tell I'm a little naive in these things.