Help leasing car through Limited Company

Lobo

Im seeking some advice regarding buying a car through my limited company business on a finance lease.
Some background on my business. Its ltd company with 2 directors. We take out money via dividends. COmpany revenue is approx 80-100k a year.
Im looking to do a 24 month lease on a car with following details:
List price = 31k
CO2 tax rate = 24%
Rental = 450 + VAT
My questions are - what will be the cost to the company in total?
I understand I get 50% of the VAT back.
Can the rental be offset against the income for company tax.
What else can I offset against income - insurance/petrol/servicing?
Also, I understand I need to pay benefits tax? What does this amount to, considering I will be taking money out via dividends?
Some figures would be useful here aswell.
Appreciate your help in advance.

Elaine_Wilson

Quite a few questions here.

Firstly, you are correct about the VAT restriction.

The total cost to the company depends on what exactly you mean. You will make 24 payments of £450 plus half the VAT. Since this falls far short of the cost of the car you will need to consider what payments, if any, are due at the end of the lease period.

All the payments made (less any VAT reclaimed) will be an allowable deduction from profits for corporation tax purposes. All other expenses of the vehicle will also be able to be deducted. So a reduction in tax of about 21% of the amounts paid out.

The whole amounts are claimable against the profits because the private use element is dealt with through the benefits regime (as you obviously realise). Your benefit will just be the 24% of the list price of £31,000 or some £7,440. This figure will be taxed as additional earnings, presumably at 20% if you keep your salary low. It will, however, push more of your dividends into higher rate so affecting the overall tax you pay.

The company will also have to pay national insurance on the amount of the benefit.

Lobo

Excuse my ignorance here - this is my first year running. Can I get some figures here if possible?
approx what would each shareholder be able to take out of the company. The car is benefit for 1 individual (lets say its an 8k benefit).
What would each person take out, breaking it down into:
Tax paid on salary
Tax paid on corp tax
Tax paid on dividend
Understand this is alot to ask, but Im not sure how this works.
thanks in advance.

Elaine_Wilson

OK. Let's work through it with rough figures. You will need to refine these later.

First look at the company's position.

Turnover (say) 90,000
less expenses -

Leasing 6,000
Director's salaries 11,000 (2 @ £5,500)
NIC on benefit 1,100
Other expenses 1,900

Total expenses 20,000

Profit 70,000

The corporation tax on this will be 21% which is £14,700. This is payable 9 months and 1 day after the end of the accounting period.

This leaves £55,300 in the company's coffers. Assuming you distribute the whole amount each director will receive £27,650.

Now the director's position. I'm going to assume the personal allowance is £5,500 to keep the figures simple. The salaries would have been covered by this allowance so no tax was deducted. First the director without the benefit.

Salary 5,500 covered by personal allowance

Dividend (grossed up @ 10%) 30,722

This is all within the basic rate band so no additional tax due.

The director with the benefit.

Again the salary is covered by the personal allowance but the benefit will be adjusted in the code number. So tax on £8,000 (@20% = £1,600) will be deducted by the company and paid to HMRC. The net salary received would therefore only be £3,900.

His total income is -

Salary 5,500
Benefit 8,000
Dividend 30,722

Total 44,222

Less personal allowance 5,500

Taxable income 38,722

Basic rate band 36,000

Taxable at higher rate 2,722

Extra tax due @22.5% since the extra income is a dividend amounts to £612.

I think I've rambled on enough. Work through this and let me know what isn't clear.

Debt_Free_Chick

I assume the other shareholder has no problem with this? Effectively, the cost of providing a car to you will reduce the profits and hence his dividend.

cash99

Elaine_Wilson wrote: »

All the payments made (less any VAT reclaimed) will be an allowable deduction from profits for corporation tax purposes. All other expenses of the vehicle will also be able to be deducted. So a reduction in tax of about 21% of the amounts paid out.

What about the expensive lease car rules. Do these no longer apply?

Elaine_Wilson

cash99 wrote: »

What about the expensive lease car rules. Do these no longer apply?

Ah, as far as I know they still do. I took into account the VAT aspect but forgot about the tax deduction part. Thanks for pointing this out.

Lobo, there is a restriction on the amount of the lease you can set against the profits for tax purposes. You can only claim 19.5/31 of the payments made.

The denominator of this fraction is the list price and the numerator is halfway between £12,000 and the list price.

Sorry. I was conscious that I was simplifying the situation a lot but this is significant so I should have thought to mention it.