Company Car...Accountant says yes!

[Sockpuppet]

Not about to fire them as they've been excellent over the years but I've raised the points with them and see what they say.
I originally replied saying they've missed key points too, such as presumably theres a saving by getting the company to pay for insurance, servicing etc, and other losses such as the 40/25p expense.

My problem is that my car runs at 25p per mile in fuel and I do over 20k in business miles each year so its an expensive business just going to clients sites. I'm in the market for a new car and just wish the government would either raise the 40/25 limit to something sensible or allow company cars like a sole trader could have.

Get a car that does more than 22 to the gallon then!

You've also got to factor in VAT you can reclaim on the fuel you put into it.

Its not an easy calculation as company insurance is more than personal insurance.

[DrEvil]

<Drums fingers on desk and waits for a 'Can you recommend a new accountant' post to appear from OP>

Not about to fire them as they've been excellent over the years but I've raised the points with them and see what they say.
I originally replied saying they've missed key points too, such as presumably theres a saving by getting the company to pay for insurance, servicing etc, and other losses such as the 40/25p expense.

My problem is that my car runs at 25p per mile in fuel and I do over 20k in business miles each year so its an expensive business just going to clients sites. I'm in the market for a new car and just wish the government would either raise the 40/25 limit to something sensible or allow company cars like a sole trader could have.

[northernladuk]

<Drums fingers on desk and waits for a 'Can you recommend a new accountant' post to appear from OP>

[Darren@UptonAccountants]

Car

No mention of the lost mileage allowance, tax saved from mileage or any fuel benefit in kind within your figures? Need a better detailed breakdown.

Fuel efficient cars maybe an option but depends on individual circumstances, mileage, personal income levels, etc. It can work for some but not for all. A lot of contractors don't take out dividends into the higher rate as part of a bigger tax planning exercise.

[Iron Condor]

• benefit in kind taxed at 40%, payment by you the employee = £1,400

The company needs funds of 2500 quid to net a dividend of £1400 for payment of the BIK (43% assumed as in second option).

So they need to factor another 900 quid paid out to the tax man into the first (company) option!

Fire your accountant!

[DrEvil]

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