Company Car Q

[kryten22uk]

Hmm, I thought electric cars were cheaper/exempt. Having checked Golf E, BMW i8, and Tesla, it seems not.....

There is currently no BIK benefit for electric cars, but come tax year 2020/21 it will be a bonanza, as the BIK drops from 16% to 2%. At that point, the tables will turn and it will be hugely more beneficial to buy a new electric car via your LTD than personally (and even hybrids so long as they have a good elec-only range).

[pr1]

I spoke to my accountant about getting a car via the LTD, as mixed personal/business use. He said that I cannot re-claim any VAT as it's mixed use, however it will be treated as a capital allowance. If this rings true, for hypothetical purposes, what would the tax saving be on say a £20,000 vehicle? He claim's it's 20% i.e. corp tax savings.

corp tax rate is 19%

[Alchemy Accountancy]

As others have said, it is generally not a good idea to have a company car in a one-person company - the reason for this is that not only do you bear the cost of the car itself, but also the benefit in kind tax as both employer and employee.

The benefit in kind (BIK) is calculated as a percentage of the list price of the car when new (this doesn't change for second hand cars), with the percentage being determined by its CO2 emissions. The calculated BIK will be added to your taxable income and taxed at your marginal rate of income tax - this will also have an effect of pushing that same portion of dividends into the next rate of tax. Additionally, as the employer, you will pay employers NI on the BIK amount at a rate of 13.8%.

The BIK rates are increasing over the next couple of years (the exception being electric vehicles from 2020/21), so if the BIK for the car that you are looking at now is 29% of the list price, it will be 33% in a couple of years.

When you eventually sell the car you will need to account for VAT on the sale price, and will pay Corporation tax on this also (reducing the benefit of any relief that you had on the initial purchase).

You are best purchasing the car personally and claiming for business mileage at HMRC rate of 45p per mile for the first 10,000 miles in a tax year and 25p per mile thereafter.

Hope this helps!
Craig

[craigy1874]

As others have said, it is generally not a good idea to have a company car in a one-person company - the reason for this is that not only do you bear the cost of the car itself, but also the benefit in kind tax as both employer and employee.

The benefit in kind (BIK) is calculated as a percentage of the list price of the car when new (this doesn't change for second hand cars), with the percentage being determined by its CO2 emissions. The calculated BIK will be added to your taxable income and taxed at your marginal rate of income tax - this will also have an effect of pushing that same portion of dividends into the next rate of tax. Additionally, as the employer, you will pay employers NI on the BIK amount at a rate of 13.8%.

The BIK rates are increasing over the next couple of years (the exception being electric vehicles from 2020/21), so if the BIK for the car that you are looking at now is 29% of the list price, it will be 33% in a couple of years.

When you eventually sell the car you will need to account for VAT on the sale price, and will pay Corporation tax on this also (reducing the benefit of any relief that you had on the initial purchase).

You are best purchasing the car personally and claiming for business mileage at HMRC rate of 45p per mile for the first 10,000 miles in a tax year and 25p per mile thereafter.

Hope this helps!
Craig

I am also called Craig and for a moment I thought I had written this!

Perfect summary of the reasons why company cars are hardly worth it.

[Jessica@WhiteFieldTax]

When you eventually sell the car you will need to account for VAT on the sale price,

Presumably only if they are on FRS? My understanding is under conventional vat it would be under margin scheme, even if trader is not a car dealer.

Don't disagree with the sentiment though, I can't off hand think of any clients with company cars.

[Alchemy Accountancy]

Presumably only if they are on FRS? My understanding is under conventional vat it would be under margin scheme, even if trader is not a car dealer.

Don't disagree with the sentiment though, I can't off hand think of any clients with company cars.

Yes, to clarify, my point was relevant for users of the FRS. Section 15.9 of VAT note 733 explains how it is done here: VAT Notice 733: Flat Rate Scheme for small businesses - GOV.UK

[Maslins]

Don't disagree with the sentiment though, I can't off hand think of any clients with company cars.

We have a handful who wanted a company Tesla and nothing we could say would put them off!

In year 1, it can seem great. You get a brand new shiny car, your company pays for it, and the BiK seems reasonable given the value of the car. In years 2-3 it's far less appealing. The BiK is typically increasing each year (as the goalposts move), despite the car being worth less.

Plus as happened to another recent poster, what if you get a permie job a year into the lease? You're stuck with it, or have to find a way to end it early, probably paying a premium.

[sira]

Thank you all for your comments. I re-discussed with my accountant, and decided to go down the personal leasing route for a couple years, to maintain better cash flow and ride out market uncertainty.

Never leased, so any tips / broker suggestions are most welcome.

[WTFH]

Thank you all for your comments. I re-discussed with my accountant, and decided to go down the personal leasing route for a couple years, to maintain better cash flow and ride out market uncertainty. <br>
<br>
Never leased, so any tips / broker suggestions are most welcome.

<br>
<br>
1. Work out your monthly budget and deposit.<br>
2. Make a decision on what sort of payment process you want: Contract Hire, Contract purchase, etc.<br>
3. Find the car that meets your requirements list.<br>
4. Go to a dealer or leasing company. Lings Cars is a good place to start, once you accept that their website is so terrible it’s brilliant.<br>
<br>
You didn’t like it when we tried to help you about buying a car through the company, so I doubt you’ll be happy with this.

[northernladuk]

Thank you all for your comments. I re-discussed with my accountant, and decided to go down the personal leasing route for a couple years, to maintain better cash flow and ride out market uncertainty.

Never leased, so any tips / broker suggestions are most welcome.

Do you want us to drive it for you as well?