It gets more complex and complicated when looking to buy the car using the company and when the car is available for private use.
In terms of cash flow, you may not have to find money to pay for the car, if the company has sufficient cash. Additionally, you need to consider how the car is going to be purchased:
- Cash purchase
- Hire purchase or other finance
- Leased (more like renting the car)
Regardless of how the car is bought, there are extra costs to you if the company owns the car and these are derived from what HMRC deems as taxable benefits.
Below are some of the tax considerations and implications when the car is available for private use:
Car benefit charge
There will be a car benefit charge (taxable value) based on the manufacturer’s list price (this is unlikely to be the price paid for a new car as the dealer’s price is typically reduced by discounts or special offers).
In addition, the taxable value is derived based on other factors such as the fuel type, engine capacity, Co2 emissions, capital contributions, amount of time the car is available for use privately, etc.
Based on 2019/2020 tax rates, below is a basic comparison:
If the table is not displayed, please go to https://tinyurl.com/tac-company-taxablevalue to view the comparison.
Typically, a car with a list price of £25,000, petrol engine greater than 2001CC and CO2 emissions greater than 100g/km will have a taxable value of £6,500.
As an employee earning below the 20% tax bracket, you can expect to pay additional income tax of £1,300. With earnings above the 40% tax bracket, you can expect to pay additional income tax of £2,600.
Car fuel benefit
In addition to the car benefit charge above, there will be a car fuel benefit charge where the employee has benefited from fuel provided by the employer – that is used fuel privately.
In order to avoid the car fuel benefit charge, a director (or employee) should consider:
- Paying for fuel privately, or
- Reimbursing the employer the cost of private use of fuel (on or before 5 April).
Additional National Insurance Contributions (NIC)
The employer is liable to making additional NIC contributions by way of reporting the benefit on a P11d at the end of the payroll year.
Value Added Tax (VAT)
As the vehicle is available for private use, the VAT paid on purchase cannot be reclaimed.
Where it is an electric car or the Co2 emissions is less than 75g/km, the employer may claim the full cost of the vehicle as a tax-deductible expense (please see further advice).
Other vehicles that do not fall in the above category may qualify for what is called a write down allowance over a number of years.
Mileage can be claimed on qualifying business journeys at a reduced rate. HMRC publishes and revises these rates every six months.
It may be much more simpler buying the car privately and making a claim for mileage at the approved rates (45p per mile for the first 10,000 and 25p thereafter).
As you will see from the above, buying the car through the company can quickly become complex. However, there may be certain benefits accruing from buying the car through the company. These benefits will largely depend on individual and business circumstances.
Tobi Lab: 0330 311 2983, email@example.com