Occasionally I come across a tax subject that is actually interesting (honestly) as well as useful, not only to my clients but also the readers of this blog.
It is the time of year when after the Turkey has been eaten, Her Majesty has spoken and Trivial Pursuits are not trivial; that some of us will be browsing Autotrader on our new ipad / tablet that we opened only a few hours before…
Before you get too carried away and start arranging test drives in the week before Christmas and New Year you need to think about the tax implications. Practicing a little caution in this instance really can save you a fortune. If you own your company (and it is a company not a sole trader), you are in the enviable position of choosing whether or not to purchase a car personally or through your company.
Taking the personal route?
If you do choose the personal option you can charge the company mileage at a rate of up to 45p / mile for the first 10,000, and then 25p / mile thereafter. So for 15,000 business miles (an accurate log book must be kept) you can charge the company £5,750 a year (£480 a month). This includes the entire running cost of the car – such as servicing, fuel, repairs, finance payments etc. The company then gets tax relief on this amount, so the true cash cost to the company is £4,600.
Understand the rules.
One of my pet hates about company car rules is that the value of the car is taken with reference to its list price when first registered. In other words – a 10 year old, 5th hand car for £5,000 will be taxed as if it is a new car and the list price for the calculation could be £30,000 – obviously depending on the car – this simply feels unfair, especially if you like nice second hand cars like me!
Consider potential CO2 emissions…
If a 3 year old BMW 520d takes your fancy, then the list price is around £29,250. This figures is then multiplied by the appropriate percentage which depends on the cars CO2 emissions, these can be found either on the V5 log book, or from the following website www.gov.uk/get-vehicle-information-from-dvla.
For 2016 / 2017, there is a starting point of 16% for cars with CO2 emissions over 95g/km. The percentage increases by 1% for every 5g/km, up to a maximum of 37%.
In our example of a BMW with emissions of 109g/km, the relevant percentage for 2016 / 2017 is 18% of the original price of £29,250 = £5,265. This is the addition to your salary, so you will be taxed at your marginal rate of 20%, 40% or 45%. Bear in mind that the company still needs to purchase and maintain the car. Fuel is based on a set figure of (for 2016 / 2017) £22,200 which at 18% = £3,996. Therefore the cost of having this particular car “fully expensed” is £9,261.00 at your marginal rate. There will also be a further charge of National Insurance for the company of 13.8% (same rate as employers NI). As you can see, the tax permutations are endless. It depends on the age and type of car, the CO2 emissions, the list price, the number of business miles you can recharge and so on.
So should it be business or personal?
Generally unless you are going for a purely electric car that doesn’t emit CO2 or one that is extremely frugal like a Nissan Leaf, I would generally anticipate it being more tax advantageous to purchase the car personally.
Every situation is unique, so if we can tempt you to wait until the New Year then we would be happy to talk the details through with you. If you would like to speak to us before purchasing a company car – or any other accounting issues – contact the team on 01904 787973 to book a free first consultation.
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