Company Purchase of M3

[Rooster6655]

The company could use the money to buy Tesla shares. Then by the time you sold it and the capitol charge came due you'd be rich/screwed (delete as applicable).

Let's say you save paying 10K in tax, you could invest that in a lower risk fund and get an average of 6% a year over 5 years, over 5 years thats about 3.3k and about 8k over 10 years, this cost would be of course vs the cost of BIK and lower mileage rates and then paying CT on any gains, this also assumes you won't need to use the money for anything else.

Sole Directors who keep their earnings below the higher tax bracket to be tax efficient and keep their money in their company will probably be the ones to benefit the most as its a way to spend your company money without having a large personal tax liability (BIK).

I also heard from an accountant that the director can set the levels of depreciation for assets such as cars.

 

[WannabeOwner]

I also heard from an accountant that the director can set the levels of depreciation for assets such as cars

I like that sort of "What would you like me to make it" accountant ... provided they aren't behind bars!

 

[drivingmrte5la]

I have ordered my M3 as a company car.

I've been approved for a business loan for the total amount of the car (less 5k).

Spoke to my accountants, confirmed it was the most cost-efficient way to get one - I just can't drop my daughter off at school on my way to work as it's classed as personal use!

I'm VAT registered too so that has it's own benefits.

 

[jimbaret]

I have ordered my M3 as a company car.

I've been approved for a business loan for the total amount of the car (less 5k).

Spoke to my accountants, confirmed it was the most cost-efficient way to get one - I just can't drop my daughter off at school on my way to work as it's classed as personal use!

I'm VAT registered too so that has it's own benefits.

By saying you are VAT registered, do you mean that you are going to reclaim the VAT element of the purchase? If so, I think you are limited to business use only - ie it cant be commuting to work. Examples would be if you left the car locked at the business overnight, preventing anyone at all from using it for personal use! Or am I missing something?

 

[WannabeOwner]

am I missing something?

Nope. Must be no private use and no obvious possibility of private use ("My employee works from home, but only uses the car for company work" would be hard to enforce)

 

[Yev000]

I don't really understand how its more efficient to buy through company...

Lets say I have a Ltd with a 100k/year turnover. So I'm paying 19k corporation tax

Then I buy a 40k car and write it off as expenses. £7600 less corporation tax

Then, as director I use it and pay BIK of 16% for the first year, which is around 7k (SR+) and 2% each following year in perpetuity (1k)

So after 2 years I have paid exactly the same tax (7k +1k) as I would have buying it personally (20% income tax bracket / 7% dividend tax) . Am I missing something? then if you keep it for 6 years it turns out much worse...

Can't write off VAT unless you are not on a flat rate scheme.

If you, as director, pay yourself a ton of dividends above the higher rate of tax (40%) then it looks more attractive, but still not as efficient as a personal purchase, where you can sell the car to get some of the equity back.

If you go HP route the interest is 3k over 5 years. BIK for the same is 7k + 1k *5 = 12k of Tax - 7.6k you saved on corporation tax = 4k and you own the car potentially worth 15-20k after 5 years.

I get that its easier to "afford" the car purchase, but over all its financially worse IMO... Unless I'm missing something.

 

[WannabeOwner]

BIK of 16% for the first year,

That's an anomaly for this year - it was cheaper in prior-years, and it is going back down next year) so perhaps distorts your calcs (this year specifically).

Company Car also means that all servicing, insurance, etc. will be paid by company, and not you.

I also have a second (ICE) car as a company car. Insurance for that includes Youngster who is learning to drive ...

Wouldn't be cost effective as a Company Car but for the "running costs".

 

[Yev000]

That's an anomaly for this year - it was cheaper in prior-years, and it is going back down next year) so perhaps distorts your calcs (this year specifically).

Company Car also means that all servicing, insurance, etc. will be paid by company, and not you.

Ok, so basically it would make sense next financial year. Good point on insurance and maintenance.

How does the insurance work? Is it like private insurance, just paid by the company, or do you have to pay some kind of business use insurance without transferring no claims bonuses etc?

 

[Rooster6655]

So after 2 years I have paid exactly the same tax (7k +1k) as I would have buying it personally (20% income tax bracket / 7% dividend tax) . Am I missing something? then if you keep it for 6 years it turns out much worse...

I am not an expert but from my understanding your tax liability will be 7k on a 40k car so you would pay potentially £1,400 in tax the first year and the second year it would be £200 on £1k for example at 20% income tax.

Roughly speaking its going to be in the range of:
2 years say £1400+£180 = £1580
5 years £1400 + (£180*4) = £2120

If you just got the car next tax year 2020 the first 5 years BIK would be based on 2% (£800) so thats around £160*5 = £800 in tax over 5 years.

For example if say you have £40k in the company then you could just pay yourself the money and buy the car as you have nothing in excess which you would want in your pocket. If you have £200k and already paid yourself upto the higher rate for this year, then buying a company car is an option to spend the money.

 

[Filenotfound]

I don't really understand how its more efficient to buy through company...

Lets say I have a Ltd with a 100k/year turnover. So I'm paying 19k corporation tax

Then I buy a 40k car and write it off as expenses. £7600 less corporation tax

Then, as director I use it and pay BIK of 16% for the first year, which is around 7k (SR+) and 2% each following year in perpetuity (1k)

So after 2 years I have paid exactly the same tax (7k +1k) as I would have buying it personally (20% income tax bracket / 7% dividend tax) . Am I missing something? then if you keep it for 6 years it turns out much worse...

Can't write off VAT unless you are not on a flat rate scheme.

If you, as director, pay yourself a ton of dividends above the higher rate of tax (40%) then it looks more attractive, but still not as efficient as a personal purchase, where you can sell the car to get some of the equity back.

If you go HP route the interest is 3k over 5 years. BIK for the same is 7k + 1k *5 = 12k of Tax - 7.6k you saved on corporation tax = 4k and you own the car potentially worth 15-20k after 5 years.

I get that its easier to "afford" the car purchase, but over all its financially worse IMO... Unless I'm missing something.

I might be wrong here but isnt BIK charged per month? and if so we are well into 2019/2020 tax year - Also BIK has two rates 20% earning up to 50k and 40% earnings above 50k I admit I am not 100% sure if BIK is pro-rata but even if it isnt it isnt 16% of the cars Value you pay its 16% of your Taxable rate. Google BIK car calulator and you will see the actual cost you pay in tax -
Car Value £42400 gives a BIK rate at £6775 but the tax you pay will be £1335 per year at 20% tax bracket and £2710 @40% bracket which equals either £112.92 per month at 20% and £225.85 at 40% and considering we are 4 months into the year you will either have to pay 8 months of it totallying £903.36 or £1806.80 if you are in the higher tax bracket.
The following year at 2% the tax you will pay will be £169.38 PER YEAR or £508.14 if on higher tax bracket.
.
Also the cars Value is the list price as the gov grant is not counted. so £42400.00 (SR+) and 19% of that is £8056 that you can "write off"

If you put over 3 years the cost in tax you pay will be
@ 20% tax rate earnings 2019/20 £903.36 2020/2021 £169.38 2021/2022 £169.38 = £1242.12
@ 40% tax rate earnings 2019/20 £1806.80 2020/2021 £508.14 2021/2022 £508.14 = £2823.08

You can write off VAT but it is not worth it as you have to prove it is for business use ONLY and the car needs to stay at the place of work not a home AND you need more than one director/sernior management

I do agree with the resale issue, these sums only really work if you have the car 3 years + and its really the longer the better as the depreation value will take off a lot of the money you have to pay back when the car is sold.
But there are also many other benifits to having a company car like tyres / insurance / parking / charging at SC or 3rd party rapid chargers . If you factor in those costs the saving is massive over personal purchase as thoes items are NET.

You will lose the milage expense though for using a personal car but you will have to work out how many miles you actually do and if its very very high then personal purchase may even beat company purchase. I cant imagine how many miles you would need to do but its a crazy amount.

I just put a model S through my company and I will bear the 16% this year and it will cost me about £2000 but then on its only £405 per year tax on a £100k P100D. I also saved £19k in my tax bill . no brainer

 

[Rooster6655]

Also BIK has two rates 20% earning up to 50k and 40% earnings above 50k I admit I am not 100% sure if BIK is pro-rata but even if it isnt it isnt 16% of the cars Value you pay its 16% of your Taxable rate.

Yes its based on your tax rate so easy to classify it as taxable income to work out how much you would pay, it will be based pro rata afaik

 

[Yev000]

I do agree with the resale issue, these sums only really work if you have the car 3 years + and its really the longer the better as the depreation value will take off a lot of the money you have to pay back when the car is sold.

Don't understand this statement.

You pay BIK forever AFAIK. So the longer you own the more tax you pay

I'm also not clear how the car value plays into this, does the BIK paying go down as the car value goes down or is it set on the value at purchase?

With private purchase, even if the car is 10 years old you can sell it and get something. With company, that sale is turnover and is taxed.

So I suppose from the stand point of an older car selling for less and therefore taxed less?

It seems to only make sense if you have money lying in the company and you don't want to pay yourself into the higher tax bracket but still want to spend the money.

16% this year and it will cost me about £2000

According to this BIK calculator the 16% year on 101k car will cost you £16,207 then £2,026 each year after that. That 19k you saved will be payed in year 3. Not seeing where you get the 2000 in year 19/20 then 400 per year from.

Company Car Tax Calculation

The maintenance angle is interesting, but less so on an EV...

 

[MrMajic]

Another obvious advantage of buying the car through a limited company (versus personal purchase) is that you’ve not paid income tax on the money that you use to make the purchase. Also motoring expenses can all be through the company so saving VAT and tax on tyres, service, valet and the like.

 

[MrMajic]

Don't understand this statement.

You pay BIK forever AFAIK. So the longer you own the more tax you pay

I'm also not clear how the car value plays into this, does the BIK paying go down as the car value goes down or is it set on the value at purchase?

With private purchase, even if the car is 10 years old you can sell it and get something. With company, that sale is turnover and is taxed.

So I suppose from the stand point of an older car selling for less and therefore taxed less?

It seems to only make sense if you have money lying in the company and you don't want to pay yourself into the higher tax bracket but still want to spend the money.



According to this BIK calculator the 16% year on 101k car will cost you £16,207 then £2,026 each year after that. That 19k you saved will be payed in year 3. Not seeing where you get the 2000 in year 19/20 then 400 per year from.

Company Car Tax Calculation

The maintenance angle is interesting, but less so on an EV...

It won’t cost £16k, it’s tax at the applicable rate on £16k (so

Don't understand this statement.

You pay BIK forever AFAIK. So the longer you own the more tax you pay

I'm also not clear how the car value plays into this, does the BIK paying go down as the car value goes down or is it set on the value at purchase?

With private purchase, even if the car is 10 years old you can sell it and get something. With company, that sale is turnover and is taxed.

So I suppose from the stand point of an older car selling for less and therefore taxed less?

It seems to only make sense if you have money lying in the company and you don't want to pay yourself into the higher tax bracket but still want to spend the money.



According to this BIK calculator the 16% year on 101k car will cost you £16,207 then £2,026 each year after that. That 19k you saved will be payed in year 3. Not seeing where you get the 2000 in year 19/20 then 400 per year from.

Company Car Tax Calculation

The maintenance angle is interesting, but less so on an EV...

It won’t cost £16k, it’s tax at the applicable rate on £16k (so £3,200 or £6,400 at current rates). Much better after April.

 

[Yev000]

It won’t cost £16k, it’s tax at the applicable rate on £16k

This is what I couldn't understand... Ok thanks that makes more sense now

19/20 £3,241
20/21 £405
21/22 £405

Yeah that looks much better.

Kind of wish I was still a contractor. The other issue if you decide to leave the company (going staff at another company) you lose the car.

 

[WannabeOwner]

The other issue if you decide to leave the company (going staff at another company) you lose the car

Your boss will be thrilled if you enter into an agreement in the event that you leave. Otherwise the company gets lumbered with the Lease, if you leave, and has to find someone who wants a 2nd car ... or has to pay the, usually extortionate, early-termination fee of the lease.

 

[Mark Johnson]

This is what I couldn't understand... Ok thanks that makes more sense now

19/20 £3,241
20/21 £405
21/22 £405

Yeah that looks much better.

Kind of wish I was still a contractor. The other issue if you decide to leave the company (going staff at another company) you lose the car.

My thoughts on this, is that I either keep the company open just for the purposes of the car, and pay money into the company to keep the car going. Or I sell the car to myself.

 

[Peteski]

Ok, so basically it would make sense next financial year.

I think that's right. My wife is a Chartered Accountant and she basically says the same thing. FWIW we bought our MX in 2018 personally when BIK was higher. It would have been more expensive through the company at that time and yes she did crunch those figures to prove it. Note the car was not being used for any significant business mileage, more or less 100% personal use. But we are planning to buy an M3 through my company, ideally holding off for the lower BIK.

 

[sho12345678]

Out of interest, is the First Year Allowance calculated based on the total cost of the vehicle excluding, or including the £3,500 Plug in Grant?
Many thanks in advance.

 

[Rooster6655]

Out of interest, is the First Year Allowance calculated based on the total cost of the vehicle excluding, or including the £3,500 Plug in Grant?
Many thanks in advance.

Excluding I believe