Contractor Newbie - Car Purchase Query

[BolshieBastard]

No to company cars, as a (normally) one man company, you'll pay employers and employees NI on it ie you'll pay HMRC twice for the privilege.

If you want to buy a car, best way is a PCP or if under 10 grand, pay cash. Dont lease a car as the exit penalties are almost the same as paying until full term.

Dont buy a crew cab pick up and try and reclaim the VAT. If you get investigated, you will have to repay this with interest unless you are in the building \ associated trade. another reason not to buy these crew cabs is because they are class as light commercials, they have different speed limits on roads so you could pick up speeding tickets far easier than in a car.

[rawly]

As has been said, my general advice would be not to have a company car, if you are still interested a summary is detailed below:

Employer Implications:

1) When purchasing a new car, VAT is not reclaimable; if you purchase a second hand car then VAT is not normally charged, however, if it is then the VAT is reclaimable
2) If a car is obtained under a lease contract then VAT is normally chargeable on the monthly cost. If you are on the flat rate VAT scheme then none of this can be reclaimed, if you are on the standard VAT scheme then only 50% of the VAT can be claimed. VAT charged on any maintenance portion of the lease can be reclaimed in full if clearly identifiable (standard VAT scheme only)
3) The tax treatment (i.e. the benefit in kind value) is not dependant on whether the car is leased or purchased outright; however, the Corporation Tax treatment does vary depending on how the car is obtained (see points 4 and 5)
4) If the car is purchased outright (or on finance) then the Corporation Tax relief is as follows:

a. Cars with emissions up to 110g/km 100% in first year
b. Cars with emissions between 111g/km and 160g/km 20% per year (reducing balance)
c. Cars with emissions over 160g/km 10% per year (reducing balance)
5) If the car is leased or on contract hire the Corporation Tax relief is as follows:
a. Cars with emissions up to 160g/km 100% of lease cost
b. Cars with emissions over 160g/km 85% of lease cost
6) The employer has to pay 13.8% Class 1A national insurance on the benefit in kind value (a calculation of this is detailed below).
You should note that no balancing allowances are given if the car is sold for a tax loss, however, a balancing charge may apply if the car is sold for a tax profit and, because of this, it is normally more tax efficient to lease the car rather than purchasing it outright, unless the car has emissions up to 110g/km.
Employee Implications:
1) The employee will be in receipt of a benefit in kind and as such will incur additional tax at their marginal rate. In effect the benefit in kind is treated as salary and taxed as such
2) The benefit in kind will use up part of their basic rate band and as such will mean less dividends can be taken that are effectively tax free
3) The employee will no longer be able to claim mileage at the tax free rates of 45ppm/25ppm. They may, however, be able to claim a reduced rate if fuel is not provided (see below)
Calculating the Benefit in Kind:
The benefit in kind value is based on the list price of the car when new (including optional extras), the CO2 emissions and the fuel type. To calculate the benefit in kind you follow 4 simple steps:
1) Look at the car’s CO2 emissions and deduct 120 (unless CO2 emissions are below 121, see below)
2) Divide the answer by 5 and round down to the nearest whole percentage
3) Add on 15% (18% if diesel) to give you the car benefit percentage, note the maximum this can be is 35%
4) Multiply the list price (including optional extras) by the calculated percentage to give the benefit value.

Added to the above, the general direction of taxation of company cars is generally a move upwards!

Alan

A Special case is buying a Low Emisions Hybrid or Electric, which has very low BIK and 100% writedown in Year 1. (Max £5,000), and often a £5,000 Government Grant also to offset the cost.

For instance, you could buy the new Vauxhall Ampera MRRP £37,250.

Government grant(-£5,000) = £32,250. 100% writedown in first year another £5,000 off (saving you Corp Tax on Profit in first year) = £27,250 value for the purpose of Tax.

You could further reduce the P11d by a personal employee contribution of £5,000 (max allowable), so cost to company (and P11d price =£22,250.

Curreny it is 5% BIK bracket, so £1,112.50 Employee Tax hit plus 13.5% Class A NI of that = £150 per annum to Employer.

However, the governments commitment to lower BIKs on these vehicles is due to change in 2015, and may end up being 13%. This policy may change as the current feeling is it is putting off companies investing in Greener cars, after they made this change. So it might change again (or not!)

You have to weigh up how the £5,000 writedown in Year 1 would make it worth getting over a period of years offsetting the extra BIK and NI contributions. At the moment you are still better off over a 3-5 year period - an estimation. Be nice to see some figures projected!

Just food for thought! Just out of interest there is a cheaper model of the Ampera due out later this year coming in at £29,000 MRRP, so with all the savings, this could be £10,000 less to buy than the current models, and more within the realms of a 'normal' car price! (almost!)

Other things to consider. All your maintenance would be via company expenses. But insurance might have to be separate business policy. Unless you can be the "Keeper" and add it to your existing policy - something I am unsure of!

Oh! Naturally using up £20,000 or so of available profit to buy a car also means your not drawing this down as Dividends, so depending on your overall yearly profit it's taking you most likely out of any Upper thresholds you could have hit by issuing this as a Dividend.

[BolshieBastard]

For instance, you could buy the new Vauxhall Ampera MRRP £37,250.

Why anyone would spend £32,000 after government subsidy on what is basically a glorified Cavalier (OK, bit of a joke, I know) is beyond me.

It would make far more economic sense to buy a low emission petrol (if you do low \ medium mileage) or maybe a diesel if you do high mileage (but beware, new diesels have a host of technology on them meaning if not driven as intended will give you big bills ie clogged DPF's and dual mass flywheel failure).

The running costs v electro mechanical is significantly in favour of modern low emission petrol. People buying electric are doing so only to make a statement, not make a saving.

[rawly]

Why anyone would spend £32,000 after government subsidy on what is basically a glorified Cavalier (OK, bit of a joke, I know) is beyond me.

It would make far more economic sense to buy a low emission petrol (if you do low \ medium mileage) or maybe a diesel if you do high mileage (but beware, new diesels have a host of technology on them meaning if not driven as intended will give you big bills ie clogged DPF's and dual mass flywheel failure).

The running costs v electro mechanical is significantly in favour of modern low emission petrol. People buying electric are doing so only to make a statement, not make a saving.

It's a valid point! There are cheaper vehicles around the corner. I guess the point is IF you were going to buy one of these Personally, would you be better off doing vi a company or not.

The Merits of whether you like this sort of vehicale type is a subjective one! I actually think the Ampera looks very nice! And I say that having had 4 Prius's previously (and they are ugly!!!)

[NogBadtheNotsoGood]

Erm, just to point out, it comes out of your pocket in the end (minus tax etc), particularly if you are new and don't have the spare reserves. The company buys the car which means your divis will be appropriately reduced. You need cannot spend money that is owed to the tax and VAT man. I think you need to be very careful here. Buying the car to save on tax maybe but buying it through the company so you don't have to spend your money may be a little flawed.

I am mindful of a statement I have read (I think from you), you cannot spend money that isn’t yours to spend.
I know roughly what I am going to have to cough for the Tax/VAT man, I know roughly what I can take in divs and pay to stay just below the 'hunt' threshold... What I don’t know yet is how to get at the rest that’s left over!

Can I pay my Mrs a one off lump some like in the scene in The Shawshank Redemption... Car sorted

I need to take guidance from the accountant I feel he has been quite unresponsive though (anyone recommend a very good accountant in Milton Keynes area)...

[northernladuk]

I am mindful of a statement I have read (I think from you), you cannot spend money that isn’t yours to spend.
I know roughly what I am going to have to cough for the Tax/VAT man, I know roughly what I can take in divs and pay to stay just below the 'hunt' threshold... What I don’t know yet is how to get at the rest that’s left over!

Can I pay my Mrs a one off lump some like in the scene in The Shawshank Redemption... Car sorted

I need to take guidance from the accountant I feel he has been quite unresponsive though (anyone recommend a very good accountant in Milton Keynes area)...

I did the thread on recommendations as it gets asked a lot on here. One of them has already responded to you.

http://forums.contractoruk.com/accou...-requests.html

Don't worry too much about the locality IMO. Better to go with someone that knows what they are doing rather than local. I have never been to my accountants in 4 years as many others haven't.

You do need to take guidance in to account though, a lot of people have all voiced the same opinion and you are still considering. Granted it is free and has to be treated as such but there is a very common theme here. If you are looking for only the answer you want to hear then this is the wrong place sorry.

[Tomo1971]

another reason not to buy these crew cabs is because they are class as light commercials, they have different speed limits on roads so you could pick up speeding tickets far easier than in a car.

Nope.

The are 'dual purpose vehicles"* and as such are allowed the same speeds as cars.

*some are not classed as DP vehicles but most are, its all on the weight of them unladen. I think (without checking) its if under 2040kg unladen and has a system whereby the wheels can all be driven by the engine (ie four wheel drive) then its a DP vehicle.

Whereas some vans that are car sized (VW Caddy, Transit Connect to name two) are restricted to the lower speed limits as they are over 2000kg LADEN and have not got 4wd.

Steve

PS, google for exact weights…