Company Car...Accountant says yes!
Read through all the threads on this ages ago and the general guide is pretty much always that it costs more. However my accountants sent out this below to their contractors claiming that under certain circumstances I could save over £5k by having a contract hire through the company.. any thoughts?
Generally, it is well know that eco friendly cars are now becoming a more attractive motoring option, but perhaps it isn’t quite well know that there are serious tax advantages by having such a car paid for by your limited company.
Illustration
Assumptions
• You take out a lease arrangement where the car is returned after 3 years
• BMW 320ED 4dr Saloon £299.00+ Vat, 109g/km CO2 retails at £27,000, from the attached list
• you are a 40% tax payer
• you pay for your own personal mileage
Company impact
• Corporation tax saving of around £750
• Employers national insurance payment on the benefit in kind of around £450
• VAT payment as not all the VAT can be claimed, around £310 (assuming not in the flat rate scheme)
• benefit in kind taxed at 40%, payment by you the employee = £1,400
• total company impact and additional personal tax on the benefit therefore around £1,410 in total
If car paid for personally from dividends
• an additional dividend of around £7,500 would be required each year to pay for the VAT inclusive monthly lease payments. You would pay 43.5% tax on these additional dividends (Corporation tax and High Rate tax) therefore handing over £3,262 to HMRC
Summary
• in this indicative example the tax paid personally of £3,262 compares to £1,410 if paid directly through your limited company – a saving of £1,852 each year, so £5,556 over the 3 years combined
• even by remaining in the flat rate VAT scheme the benefits outweigh the costs by around £1,500 per year
• please note, this is purely an example for illustrative purposes and changes in your tax position and the assumptions above will change the savings calculated
Generally, it is well know that eco friendly cars are now becoming a more attractive motoring option, but perhaps it isn’t quite well know that there are serious tax advantages by having such a car paid for by your limited company.
Illustration
Assumptions
• You take out a lease arrangement where the car is returned after 3 years
• BMW 320ED 4dr Saloon £299.00+ Vat, 109g/km CO2 retails at £27,000, from the attached list
• you are a 40% tax payer
• you pay for your own personal mileage
Company impact
• Corporation tax saving of around £750
• Employers national insurance payment on the benefit in kind of around £450
• VAT payment as not all the VAT can be claimed, around £310 (assuming not in the flat rate scheme)
• benefit in kind taxed at 40%, payment by you the employee = £1,400
• total company impact and additional personal tax on the benefit therefore around £1,410 in total
If car paid for personally from dividends
• an additional dividend of around £7,500 would be required each year to pay for the VAT inclusive monthly lease payments. You would pay 43.5% tax on these additional dividends (Corporation tax and High Rate tax) therefore handing over £3,262 to HMRC
Summary
• in this indicative example the tax paid personally of £3,262 compares to £1,410 if paid directly through your limited company – a saving of £1,852 each year, so £5,556 over the 3 years combined
• even by remaining in the flat rate VAT scheme the benefits outweigh the costs by around £1,500 per year
• please note, this is purely an example for illustrative purposes and changes in your tax position and the assumptions above will change the savings calculated
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