Contractor Newbie - Car Purchase Query

[NogBadtheNotsoGood]

Contractor Newbie

Good Afternoon board… I really am a contractor newbie, just 2 weeks into a 12 month contract.
I am set up as a Ltd company, I am going down the route of the flat rate VAT scheme, I have yet to employ an accountant, one in mind, but not sorted yet, I was wondering…

I have been a perm all my working life, and have just had to give back my company car, so I am carless, I don’t have the money behind me to purchase a car and well putting it bluntly I am not sure I would be able to get a loan currently (a fully paid up IVA in my past) .

What would the best route be to purchasing a car without incurring the wrath of the TAX/VAT man?

I do not want a brand new vehicle; I just want something to take me out of the reliance of other folks without putting my family in jeopardy by buying a heap, that said do not really wish to spend anymore than say £7.5k.

What would be the best option…? I can probably rely on public transport and people’s goodwill until the end of August, but beyond that I think I might be pushing it, plus I should have a little £ buffer built up by then, but what are the better options available to me in your experience(s).

Many Thanks

[SimonMac]

Short answer the majority of cases it will not be tax efficient to get a car through the company.

Long answer, have you tried searching?

[NogBadtheNotsoGood]

Short answer the majority of cases it will not be tax efficient to get a car through the company.

Long answer, have you tried searching?

OK... No but sort of... a little knowledge is a lot of power, chairman loans was the steer I was given by more seasons contractor pals than I... It blew my tiny mind so I took the easy option

[Nixon Williams]

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

[northernladuk]

If you were even considering a company car route it would have to be under 110g Co2 to be make it even worthwhile putting through the company. If you want anything else it just isn't worth it.

Remember you also have personal use of it so will get taxed on it and will be an asset of the company. I have looked in to this a number of times and as mentioned a search will bring back some very lengthy posts on this subject.

All in it just wasn't worth it.

Buy yourself a car, get used to the other aspects of contracting that are much more worthwhile and if you really feel strongly about it sell it to the company at a later date.

You can claim .45p a mile travelling too and from your temporary place of work (Unless it is in the same geographical area you perm job was) if it was your own so can make a bit on that.

[NogBadtheNotsoGood]

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:


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

Alan

Yikes...

I dont actually wish to put the car through the company as such, I just want the company to pay... But I know I cannot do that... Mini Metro for me then.

I found this from NorthernladUK which I think may be closer to what I am looking for but havent

[NogBadtheNotsoGood]

If you were even considering a company car route it would have to be under 110g Co2 to be make it even worthwhile putting through the company. If you want anything else it just isn't worth it.

Remember you also have personal use of it so will get taxed on it and will be an asset of the company. I have looked in to this a number of times and as mentioned a search will bring back some very lengthy posts on this subject.

All in it just wasn't worth it.

Buy yourself a car, get used to the other aspects of contracting that are much more worthwhile and if you really feel strongly about it sell it to the company at a later date.

You can claim .45p a mile travelling too and from your temporary place of work (Unless it is in the same geographical area you perm job was) if it was your own so can make a bit on that.

Great stuff... I found your other post and thought I would have a look see tonight as I think that is more akin to what I am thinking/asking

Thank you

[NickNick]

You can claim .45p a mile travelling too and from your temporary place of work

I claim 100 times that amount....

[kingcook]

I claim 100 times that amount....

Just clicked...

[northernladuk]

Yikes...

I dont actually wish to put the car through the company as such, I just want the company to pay... But I know I cannot do that... Mini Metro for me then.

I found this from NorthernladUK which I think may be closer to what I am looking for but havent

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.