Reply to: Car and medical insurance

[css_jay99]

We wrote to them, explained the circumstances and asked them to agree that it was OK, which they did.

cheers,

is the business only insurance part the key point mentioned to HMRC or can i leave that out?

[THEPUMA]

Buying the car new through the company and then selling it to yourself doesn't really work, unless there is a dramatic fall in value (you have to use a realistic market vaue - the Revenue are not that gullible), plus presumably you will have to buy the car by way of dividend - which may take you into higher rate.

I must confess I am not particularly familiar with the Scottish car market but down here in England values tend to fall considerably when the car is driven off the forecourt.

Your second point re buying the car by way of dividend is also nonsense. The value is lower, therefore you are paying less by way of dividend and incurring less higher rate tax.

[DonaldG]

This link gives a useful calculator of much car benefit you would pay:-

http://www.hmrc.gov.uk/calcs/cars.htm

The general rule it is better not to have the car in the company, unless it has very low CO2 emissions or you are doing a low business mileage and a high personal mileage.

Buying the car new through the company and then selling it to yourself doesn't really work, unless there is a dramatic fall in value (you have to use a realistic market vaue - the Revenue are not that gullible), plus presumably you will have to buy the car by way of dividend - which may take you into higher rate.

Remember if it is your personal car you can claim 40p a mile for the first 10,000 and 25p a mile thereafter. If you are doing a reasonable business mileage then this can repay some of your running costs.

[THEPUMA]

how did you do that?. I was planning to buy and use for Business use only


cheers

css_jay99

We wrote to them, explained the circumstances and asked them to agree that it was OK, which they did.

[css_jay99]

we have managed to get HMRC to accept that there is no BIK if the car is only insured for business journeys.
PUMA

how did you do that?. I was planning to buy and use for Business use only


cheers

css_jay99

[THEPUMA]

If buy a company car (e.g. 2005 plate Astra for £3500),

As long as mileage is company use/any fuel payments is company use (i have my personal car), would I need to pay any additional personal tax?


cheers

css_jay99

If use were 100% business use, it could still be a taxable benefit-in-kind if AVAILABLE for private use. In order to avoid this problem, we have managed to get HMRC to accept that there is no BIK if the car is only insured for business journeys.

PUMA

[css_jay99]

If buy a company car (e.g. 2005 plate Astra for £3500),

As long as mileage is company use/any fuel payments is company use (i have my personal car), would I need to pay any additional personal tax?


cheers

css_jay99

[ratewhore]

Just out of interest, why does a BIK only arise on a claim.
Will the cost of the insurance in the first place not be a BIK on the director if the company pays for it? I dont know the rules!

Dunno. That was my understanding and I can't remember where from.

Check with your accountant.

[chrisl]

Just out of interest, why does a BIK only arise on a claim.
Will the cost of the insurance in the first place not be a BIK on the director if the company pays for it? I dont know the rules!

1) I did. There wasn't a lot in it when it was all added up because i would have had to increase my dividend to afford it. And, of course, I didn't want to own a depreciating asset. My accountant told me that, if it's your company, there's not a lot of difference financially and that it was only disadvantageous if you're an employee.

Also, some people say low mileage - through the business, high mileage, go personal and claim the mileage.

2) I believe the insurance payments fir you can go through the business but, if there are claims, the amount of the claim is a BIK. Wife and child I can't see as anything other than a BIK.

But then, IANAA, so if you haven't got one get one, and ask them...

[THEPUMA]

Ah right ok I see. I forgot to multiply by 20% or add NI!

So as I've already maxed my divis this year that means tax and NI would be about £1300. Going to be zero running costs in first 3 months (unless insurance is one) and zero business miles (I take the train). So company would have to save about £1300 to break even (ignoring any taxes getting money out of company). Which means loss to company must be about £6k (i.e sell car for £28K).

With all the extra paperwork and potential for hassle with HMRC later (plus that I was told company insurance is more expensive than personal car insurance). I'd need to sell the car for much less that £28K to make it worth while, say about £22K. I couldn't honestly justify a 35% depreciation in car value after 3 months.

But I always enjoy finding out how these things work

I don't think your calculation above takes account of the tax saving on the £4K lower dividend you would need to take to finance the acquisition of the car but you are still probably correct that the tax saving isn't worth the hassle based on these particular circumstances.

[ratewhore]

Never, ever buy a company car. Its better to lease it.

Absolutely, that's what I did.

To the OP, choose another car...

[Lewis]

Your tax calculation is wrong. You've either not restricted it to 3 months or not taken the tax on the BIK. It should go something like this:-

£34K x 29% x 3/12 x 20% (or 40%) = £493 or £986
Employer's NI = £315

The calculation is much more complicated than that if you are going to do it properly. In particular you need to take account of the (non-fuel) running costs of the car which the company will be able to pay in the 3 months. On the other hand, you also need to account for the mileage that could have been paid to you tax-free if the car were owned personally.

I suspect you might get away with being a little more aggressive on the depreciation too. Have a look on Autotrader at how much a 3 month old second hand model is selling for.

Ah right ok I see. I forgot to multiply by 20% or add NI!

So as I've already maxed my divis this year that means tax and NI would be about £1300. Going to be zero running costs in first 3 months (unless insurance is one) and zero business miles (I take the train). So company would have to save about £1300 to break even (ignoring any taxes getting money out of company). Which means loss to company must be about £6k (i.e sell car for £28K).

With all the extra paperwork and potential for hassle with HMRC later (plus that I was told company insurance is more expensive than personal car insurance). I'd need to sell the car for much less that £28K to make it worth while, say about £22K. I couldn't honestly justify a 35% depreciation in car value after 3 months.

But I always enjoy finding out how these things work

[THEPUMA]

Hmmm, well I have yet to pay for my new car so this might be of interest, the car has 219 g/Km Co2. I have checked already and the BIK is a fraction under 30% (29% percent I think it was). Car costs £34K.

So if company buys car and I take your 3 month example, I could sell to myself for say £30K but would still have to pay approx £2500 BIK in that period. Company saves corp tax on depreciation, which is what 21% of £4K = approx £800. I am worse off.

Unless I am missing something the car would have to be sold at a heavy discount (i.e. below market value) which makes it a bit of a scam that surely HMRC would see right through...

Your tax calculation is wrong. You've either not restricted it to 3 months or not taken the tax on the BIK. It should go something like this:-

£34K x 29% x 3/12 x 20% (or 40%) = £493 or £986
Employer's NI = £315

The calculation is much more complicated than that if you are going to do it properly. In particular you need to take account of the (non-fuel) running costs of the car which the company will be able to pay in the 3 months. On the other hand, you also need to account for the mileage that could have been paid to you tax-free if the car were owned personally.

I suspect you might get away with being a little more aggressive on the depreciation too. Have a look on Autotrader at how much a 3 month old second hand model is selling for.

[Lewis]

What you might want to do if buying a new car is the old buy it through the company then three months down the line sell it to yourself at market value shimmy. That way the company gets corporation tax relief on the depreciation when you drive it off the forecourt and you only pay the depreciated value out of taxed income.

Hmmm, well I have yet to pay for my new car so this might be of interest, the car has 219 g/Km Co2. I have checked already and the BIK is a fraction under 30% (29% percent I think it was). Car costs £34K.

So if company buys car and I take your 3 month example, I could sell to myself for say £30K but would still have to pay approx £2500 BIK in that period. Company saves corp tax on depreciation, which is what 21% of £4K = approx £800. I am worse off.

Unless I am missing something the car would have to be sold at a heavy discount (i.e. below market value) which makes it a bit of a scam that surely HMRC would see right through...

[THEPUMA]

What you might want to do if buying a new car is the old buy it through the company then three months down the line sell it to yourself at market value shimmy. That way the company gets corporation tax relief on the depreciation when you drive it off the forecourt and you only pay the depreciated value out of taxed income.