The case for your company buying a "QUALEC"?

[gadgetman]

Thanks. So does the car have any "value" as an asset in my company for subsequent years?

The profits would be reduced by the cost of the car. So if the car costs £16k, you would save £3.2k in CT. Subsequent years, zero.

If you get in before April 5th (1st?), there are quite a few more cars eligible, namely those between 111g and 120g of CO2.

[Ruprect]

Any of the accountants care to comment on this? Sounds good to me...

[techno]

<sorry for stupid question>

would you have to buy the car outright rather than something like contract hire...?

<end sorry for stupid question>

[Ruprect]

<sorry for stupid question>

would you have to buy the car outright rather than something like contract hire...?

<end sorry for stupid question>

Presumably it can only be classed as an asset if the company actually owns it...

[Hiram King Of Tyre]

I was looking for something on Euro 5 emissions, the Diesel TT fals into this category

[Fred Bloggs]

Thanks. So does the car have any "value" as an asset in my company for subsequent years?

I am getting close to talking myself into opening a dialogue with my accountant on this. Relating to your question- I would plan on buying a QUALEC in year 1 and part exchanging it every year after. So in year 2 the residual value of the car belongs to the company, I would think......... How this would be regarded for profit and loss and taxation I have no idea. There is also the VAT angle that I'm confused about, could there be a VAt reclaim made too as it is a capital asset purchase?

[dude69]

I am getting close to talking myself into opening a dialogue with my accountant on this. Relating to your question- I would plan on buying a QUALEC in year 1 and part exchanging it every year after. So in year 2 the residual value of the car belongs to the company, I would think......... How this would be regarded for profit and loss and taxation I have no idea. There is also the VAT angle that I'm confused about, could there be a VAt reclaim made too as it is a capital asset purchase?

That's crazy. You buy for £12k. Save £2.4k tax.

Sell for £10k, adding £10k to your profits in year 2, paying £2k tax year 2. So the car has cost £1,600 + BIK cost.

You have had the 100% capital allowance. Therefore if you dispose of the asset for any cost above zero, the balancing charge is 100% of the sale price. Basiclaly you will want to keep for about 3 years, remembering that BIK charge does not go down as a vehicle loses value - it's based on purchase cost.

[Ruprect]

That's crazy. You buy for £12k. Save £2.4k tax.

Sell for £10k, adding £10k to your profits in year 2, paying £2k tax year 2. So the car has cost £1,600 + BIK cost.

You have had the 100% capital allowance. Therefore if you dispose of the asset for any cost above zero, the balancing charge is 100% of the sale price. Basiclaly you will want to keep for about 3 years, remembering that BIK charge does not go down as a vehicle loses value - it's based on purchase cost.

Dude, any chance you could break it down for us dimmers to make it easier to understand, with all the BIK costs?

[Fred Bloggs]

That's crazy. You buy for £12k. Save £2.4k tax.

Sell for £10k, adding £10k to your profits in year 2, paying £2k tax year 2. So the car has cost £1,600 + BIK cost.

Right. Now I'm getting to the kernel of the issue! So the value of the part-ex in my "year 2" scenario is profit?

[dude69]

Dude, any chance you could break it down for us dimmers to make it easier to understand, with all the BIK costs?

The car benefit charge for a full year is obtained by multiplying the price of the car for tax purposes (in most cases, its list price plus accessories less capital contributions) by the 'appropriate percentage'.

The appropriate percentage is 9% for electric, 10% for petrol and 13% for diesel cars of <=120g CO2/km.

This is income. The cost as income tax is then:

non-tax payer: zero
basic rate: 1.8%, 2%, 2.6% per annum
higher rate: 3.6%, 4%, 5.2%
This percentage is of the new cost.

There has been previous discussion of this on these forums, including workings showing whether it is worth it or not. It does not really work out UNLESS you want a brand new car, even with the 100% write-down, because you are still paying depreciation. An £8k Honda Accord is still going to be substantially cheaper in terms of sticker cost, if not necessarily running costs. A Mini Cooper D costs about £14k. That's going to cost you £2,128 in tax over 3 years. Depreciation is not too bad because of the car's image and low tax, say £5k. You get tax relief on that depreciation, in effect, so £1k back. So the cost is about £6,128 before VED, petrol, servicing, etc. As a private buyer, you don't pay the £2,128 BIK, but you do effectively pay the grossed-up cost of the £5k depreciation. That would be £5k / 0.6 = £8,333. So you save about £2,000. This is predicated on you having to take 40% taxed income out to pay for the car. Whether that is accurate is somewhat imponderable due to spousal dividends, capital distributions, etc. As a basic rate tax payer the numbers are £6,250 as a private owner, versus £5,064 through the company.

The more depreciating your car (in actual pounds lost), the better the equation looks in favour of getting 100% write-off, so a less desirable car would work out better still, though this is obviously a false economy in that you are losing more money.

Essentially the BIK % should be less than the actual real-world depreciation - the BIK is really a tax on you not having to suffer that cost. At 10-13%, that's below all cars' real-world depreciation. Higher band cars can go towards 40% BIK, which is just stupid.