New EV through LTD co in practice?

NorthernJoe

Hoping for a bit of advice/guidance specifically around the practicalities of buying a new EV through a LTD company. I’ve read around this but can’t see an actual worked example. 

 NHS doctor with private practice. I am contemplating setting up a LTD company for private work mainly to try to reduce pension AA charges. 

 I do however, also need a new car. 

 I think you can buy a new EV through a LTD and claim 100% of the cost of the vehicle against the companies tax bill for the year? 

For round figures sake, I plan to buy a new EV at £50,000 and my in-year earnings through the LTD company are £120,000. 

 

Do I deduct the cost of the EV from my earnings/profilts? - £120,000 - £50,000 = meaning I have profits of £70,000 on which tax is due

 

or,

 

do I deduct the £50,000 cost of the EV from my actual tax bill at the end of the year? 

Profit £120,000 = approx. £28,000 corporation tax. 

 

Obviously if it is the latter, I may need to earn more to pay for the actual vehicle or build up more equity in the company. Not sure if Labour will change the rules on all this. 

 

Hope that makes sense! 

 

[Deleted User]

There are no circumstances where it could ever be the latter. Expenses of whatever kind are never deducted from a tax liability. 

You would personally have a benefit in kind on the vehicle. How do you propose withdrawing your new company profits? 

I would strongly suggest that you engage an accountant. 

Grumpy_chap

NorthernJoe said:

Hoping for a bit of advice/guidance specifically around the practicalities of buying a new EV through a LTD company. I’ve read around this but can’t see an actual worked example. 

 NHS doctor with private practice. I am contemplating setting up a LTD company for private work mainly to try to reduce pension AA charges. 

 I do however, also need a new car. 

 I think you can buy a new EV through a LTD and claim 100% of the cost of the vehicle against the companies tax bill for the year? 

For round figures sake, I plan to buy a new EV at £50,000 and my in-year earnings through the LTD company are £120,000. 

 

Do I deduct the cost of the EV from my earnings/profilts? - £120,000 - £50,000 = meaning I have profits of £70,000 on which tax is due

 

or,

 

do I deduct the £50,000 cost of the EV from my actual tax bill at the end of the year? 

Profit £120,000 = approx. £28,000 corporation tax. 

 

Obviously if it is the latter, I may need to earn more to pay for the actual vehicle or build up more equity in the company. Not sure if Labour will change the rules on all this. 

 

Hope that makes sense! 

 

You should engage the professional services of an Accountant.

Anyway, I bought my EV through my Ltd Co.  It will work like this:

• Ltd Co invoices £120k (+VAT) for services.  At £120k turnover, the Ltd Co must register for VAT.
• Ltd Co records all expenses and reclaims input VAT as appropriate.  So, items such as a stethoscope, or premises rental, or ECG machine, or bandages.
• Your salary (plus employer's NI) drawn from the business and any employer pension contributions made by the business are recorded as expenses.  Your salary drawn is also subject to income tax and employee's NI, but these are not expenses of the Ltd Co.
• The EV is an expense like any other.  Except, assuming there will be some private use of the EV, there is no input VAT reclaimable.  The EV can be written down in full in the first trading period so long as the EV is directly purchased by the Ltd Co and is a brand new vehicle.  The write-down rules are different if the EV is previously registered.
• The EV is then a company car, so subject to BIK taxation, which is currently low.  The company covers all the costs such as insurance, road tax, maintenance, tyres - as would be the case for any employee with a company car.  Mileage can be claimed by the individual and paid by the company without tax liability so long as the standard AMAP (Advisory Fuel Rates) are used, currently 8 pence per mile for EV.  
• The Ltd Co pays corporation tax on whatever profit remains after income less all allowable expenses.
• What remains in the Ltd Co after that can be held as retained funds or drawn as a dividend.  Dividend is subject to taxation, though there is a small dividend allowance where no tax is actually due.  Retained funds can be useful to improve the timing of drawings so managing the tax band that the individual falls in for any specific tax year.

If the company does not have sufficient funds to buy the car, the company can borrow money from the Director and then repay that once the funds have accrued.  The Director's Loan will show as a debt on the balance sheet.  No issues with the Director loaning the Ltd Co money, but there are restrictions on the inverse (Ltd Co loaning money to Director).

Your Accountant might well discuss the various VAT-schemes that you might find worthwhile.  These options do not always reduce the overall VAT liability but can reduce the administrative burden.

It is quite possible that the first year and second year of trading would operate and no corporation tax or personal tax liability arise.

SiliconChip

Entirely agree with @[Deleted User] that you should see an accountant. Just as you are an expert in the medical field, an account will be an expert in their own field.

NorthernJoe

SiliconChip said:

Entirely agree with @[Deleted User] that you should see an accountant. Just as you are an expert in the medical field, an account will be an expert in their own field.

Thanks - I have a very good specialist medical accountant as I've been working as a sole-trader for a number of years. Will obviously set up LTD company & any EV purchase through accountant. 

I'm working out potential pension annual allowance liabilities and so just exploring options on a Sunday morning with the combined knowledge/experience of the MSE community. 

NorthernJoe

You should engage the professional services of an Accountant.

Anyway, I bought my EV through my Ltd Co.  It will work like this:

• Ltd Co invoices £120k (+VAT) for services.  At £120k turnover, the Ltd Co must register for VAT.
• Ltd Co records all expenses and reclaims input VAT as appropriate.  So, items such as a stethoscope, or premises rental, or ECG machine, or bandages.
• Your salary (plus employer's NI) drawn from the business and any employer pension contributions made by the business are recorded as expenses.  Your salary drawn is also subject to income tax and employee's NI, but these are not expenses of the Ltd Co.
• The EV is an expense like any other.  Except, assuming there will be some private use of the EV, there is no input VAT reclaimable.  The EV can be written down in full in the first trading period so long as the EV is directly purchased by the Ltd Co and is a brand new vehicle.  The write-down rules are different if the EV is previously registered.
• The EV is then a company car, so subject to BIK taxation, which is currently low.  The company covers all the costs such as insurance, road tax, maintenance, tyres - as would be the case for any employee with a company car.  Mileage can be claimed by the individual and paid by the company without tax liability so long as the standard AMAP (Advisory Fuel Rates) are used, currently 8 pence per mile for EV.  
• The Ltd Co pays corporation tax on whatever profit remains after income less all allowable expenses.
• What remains in the Ltd Co after that can be held as retained funds or drawn as a dividend.  Dividend is subject to taxation, though there is a small dividend allowance where no tax is actually due.  Retained funds can be useful to improve the timing of drawings so managing the tax band that the individual falls in for any specific tax year.

If the company does not have sufficient funds to buy the car, the company can borrow money from the Director and then repay that once the funds have accrued.  The Director's Loan will show as a debt on the balance sheet.  No issues with the Director loaning the Ltd Co money, but there are restrictions on the inverse (Ltd Co loaning money to Director).

Your Accountant might well discuss the various VAT-schemes that you might find worthwhile.  These options do not always reduce the overall VAT liability but can reduce the administrative burden.

It is quite possible that the first year and second year of trading would operate and no corporation tax or personal tax liability arise.

Thanks - that's really helpful - I think most private medical practice exempt from VAT (for now at least) which maybe makes it more straightforward. 

Grumpy_chap

I am not an Accountant but, AIUI, even if supplies are VAT-exempt it is still necessary to register for VAT once the threshold is reached.  Even if not necessary, you may still wish to register voluntarily.

An Accountant is required.

Bookworm105

Grumpy_chap said:

I am not an Accountant but, AIUI, even if supplies are VAT-exempt it is still necessary to register for VAT once the threshold is reached.  Even if not necessary, you may still wish to register voluntarily.

An Accountant is required.

in OP's context of the supply of private medical services, those are exempt supplies, and therefore it is unlikely the Ltd would cross the VAT threshold as exempt does not count towards the Vat turnover total, plus: If all your supplies are exempt, you will not be able to register for VAT.

HOWEVER, if the work undertaken is cosmetic / aesthetic rather than medical then that is standard rated Vat and would count towards the registration threshold.

as "many" of the purchases the Ltd may make may be exempt medical devices/supplies, the benefits of voluntary VAT registration to recover input tax are far from obvious, especially as the end customer is likely to be a consumer unable to recover any Vat charged to them anyway so increasing your selling price by 20%.

Consulting their accountant is a must because if the supply is a mix of exempt and standard then VAT gets rather complex depending on which method is adopted (eg partial recovery)

Fromdownwest

Grumpy_chap said:

NorthernJoe said:

Hoping for a bit of advice/guidance specifically around the practicalities of buying a new EV through a LTD company. I’ve read around this but can’t see an actual worked example. 

 NHS doctor with private practice. I am contemplating setting up a LTD company for private work mainly to try to reduce pension AA charges. 

 I do however, also need a new car. 

 I think you can buy a new EV through a LTD and claim 100% of the cost of the vehicle against the companies tax bill for the year? 

For round figures sake, I plan to buy a new EV at £50,000 and my in-year earnings through the LTD company are £120,000. 

 

Do I deduct the cost of the EV from my earnings/profilts? - £120,000 - £50,000 = meaning I have profits of £70,000 on which tax is due

 

or,

 

do I deduct the £50,000 cost of the EV from my actual tax bill at the end of the year? 

Profit £120,000 = approx. £28,000 corporation tax. 

 

Obviously if it is the latter, I may need to earn more to pay for the actual vehicle or build up more equity in the company. Not sure if Labour will change the rules on all this. 

 

Hope that makes sense! 

 

You should engage the professional services of an Accountant.

Anyway, I bought my EV through my Ltd Co.  It will work like this:

• Ltd Co invoices £120k (+VAT) for services.  At £120k turnover, the Ltd Co must register for VAT.
• Ltd Co records all expenses and reclaims input VAT as appropriate.  So, items such as a stethoscope, or premises rental, or ECG machine, or bandages.
• Your salary (plus employer's NI) drawn from the business and any employer pension contributions made by the business are recorded as expenses.  Your salary drawn is also subject to income tax and employee's NI, but these are not expenses of the Ltd Co.
• The EV is an expense like any other.  Except, assuming there will be some private use of the EV, there is no input VAT reclaimable.  The EV can be written down in full in the first trading period so long as the EV is directly purchased by the Ltd Co and is a brand new vehicle.  The write-down rules are different if the EV is previously registered.
• The EV is then a company car, so subject to BIK taxation, which is currently low.  The company covers all the costs such as insurance, road tax, maintenance, tyres - as would be the case for any employee with a company car.  Mileage can be claimed by the individual and paid by the company without tax liability so long as the standard AMAP (Advisory Fuel Rates) are used, currently 8 pence per mile for EV.  
• The Ltd Co pays corporation tax on whatever profit remains after income less all allowable expenses.
• What remains in the Ltd Co after that can be held as retained funds or drawn as a dividend.  Dividend is subject to taxation, though there is a small dividend allowance where no tax is actually due.  Retained funds can be useful to improve the timing of drawings so managing the tax band that the individual falls in for any specific tax year.

If the company does not have sufficient funds to buy the car, the company can borrow money from the Director and then repay that once the funds have accrued.  The Director's Loan will show as a debt on the balance sheet.  No issues with the Director loaning the Ltd Co money, but there are restrictions on the inverse (Ltd Co loaning money to Director).

Your Accountant might well discuss the various VAT-schemes that you might find worthwhile.  These options do not always reduce the overall VAT liability but can reduce the administrative burden.

It is quite possible that the first year and second year of trading would operate and no corporation tax or personal tax liability arise.

Interesting poinr re directors loan.

Is there a requirement for this to be reapid within a certain timeframe?

Arguments sake - EV purchase £45k

£30k available 'cash' in ltd company

Could a DL be used for the£15k?

I assume it is just a paper transaction, and the director does not to have to actually loan £15k from their personal bank account?

Grumpy_chap

Fromdownwest said:

Interesting poinr re directors loan.

Is there a requirement for this to be reapid within a certain timeframe?

Arguments sake - EV purchase £45k

£30k available 'cash' in ltd company

Could a DL be used for the£15k?

I assume it is just a paper transaction, and the director does not to have to actually loan £15k from their personal bank account?

To be clear, by "Director's Loan" I was referring to a loan to the Ltd Co from the Director. 
The requirements for this to be repaid will be subject to the agreement between the Ltd Co and the individual (Director) making the loan.  If it is never to be repaid, the Director may find that providing the funds as additional share capital is an alternative to consider.  IMO, the Director Loan route is simpler.

As to being a paper transaction - that can be the case between the Director and the Ltd Co., but the car company will require the full £45k (£30k company funds plus £15k loan) so it may be simpler for the Director to actually pay the £15k into the Ltd Co and then for the Ltd Co to make the purchase of the EV at £45k.  This approach also helps to make it absolutely clear that the EV is a company asset and the Ltd Co has a debt to be repaid.

DullGreyGuy

Bookworm105 said:

Grumpy_chap said:

I am not an Accountant but, AIUI, even if supplies are VAT-exempt it is still necessary to register for VAT once the threshold is reached.  Even if not necessary, you may still wish to register voluntarily.

An Accountant is required.

in OP's context of the supply of private medical services, those are exempt supplies, and therefore it is unlikely the Ltd would cross the VAT threshold as exempt does not count towards the Vat turnover total, plus: If all your supplies are exempt, you will not be able to register for VAT.

Insurance is also an exempt item @bookworm105 and whilst some insurers sell both insurance and non-insurance products/services there are certainly some companies only sell insurance and yet they are VAT registered... a former client wanted all costs inclusive of VAT because they couldn't recover any at all but they do have a UK VAT number. Obv these are complex organisations with service and SPV entities but surprised by the comment, its similar that the service companies dont have to charge VAT to the insurance company because they have fully authority and so counts as insurance activities.