Personal taxation on company cars has been increasing for years particularly on private fuel benefit. Whether there is a financial benefit from having a car and fuel financed through the company really needs to be looked at carefully on an individual basis. My reckoning says unless you want an expensive zero emission vehicle and will be doing little business mileage there is little point going down the limited company ownership route to supply you with a car. WHY……….
Cars
If you are a director of a company, even if you do not take a salary, you will be taxed on the benefit the HMRC says is afforded to you by your company car. Tax is calculated on the CO2 emissions of the car, you get a lower charge for lower CO2 emissions. Let’s take a car in the second lowest CO2 band – 76 to 94 g/km which will mean the list price of the car will be multiplied by a 14% levy and the HMRC fixed fuel benefit figure of £ 21,700 will be multiplied by the same 14% levy to work out your taxable benefit. And let’s say you will be covering 16,000 miles per year of which 12,000 miles will be business miles.
This seems like a nice vehicle – VW Golf 1.6TDI Blue Motion List Price £ 21,215 and CO2 88g/km
So the HMRC say the benefit to you as a director for using this car will be 1) Car Benefit £ 2,970, of which at the lower tax band, tax is payable of £ 594 and 2) Fuel Benefit £ 3,038, of which at the lower tax band, tax is payable of £ 607. In addition the company will have to pay a 13.8% Class 1 A National Insurance tax of £ 829 less corporation tax adjustment of £ 165 = £ 664. Although the company will be able to claim all the running expenses from the vehicle resulting in a corporation tax adjustment of £ 500, a total loss of income to you as a director/shareholder will be £ 1,365 (2015 figures)
Note the government continues to raise the levy on the bands each year.
Of course the company will be able to claim capital allowances and depending on how you fund the vehicle potentially the interest charges of the capital cost. The resulting £891 reduction in tax liability in the first year will bring your tax deficit to £500.
Here’s a better idea then. Fund the vehicle personally and claim Mileage Allowance Payments for the business mileage. You will receive a £ 5000 tax and NI free payment from the company which the company can claim against profits creating a £ 1000 tax advantage for both you and the company. Much better idea!!!!
Sole Traders – Pretty much works the same – Go for MAPs.
Company cars work if you can get a low enough g/km so that the car and fuel benefits are low. The government have set the bar for 0-50 g/km at 7% and a 3% diesel supplement for 2016 so unless you can find one of these at less than £10K MAPs are going to be pretty hard to better on tax advantages.
Vans
Vans are different. The benefit derived from the van itself is taxed at a set rate, the set rate has remained the same since 2008. The benefit derived from the fuel is also charged at a set rate, unlike cars, and this tends to increase each year. For 2014 onwards the taxable benefit charge for private use of a van with private fuel is £ 3671 which at the basic rate of tax is a cost of £ 734 to you the director and £ 507 (less Corporation Tax – £101) in Class 1A NI to the company, a total of £1140 from your total income.
If you can prove by means of a very detailed mileage log that the use of the van for private use is ‘insignificant’ for example a couple of trips to the dump , an odd drop off at school with the kids no taxable benefit is due. Going to the supermarket every week is not deemed as ‘insignificant use’
Capital Allowances
In both the examples you will be able to allocate the full purchase price against tax in the year you purchase the car/van or over a number of years. For cars allocating the purchase price in full relates to cars below 95 g/km until March 2015.
So let’s see if we can make it clearer with some examples that have been through the calculator.
Purchase of the vehicle £ 21,215 – 88g/km – 2014 rates
16,000 miles Business Mileage
4,000 miles Private Mileage
Director – Ltd Company – Personally owned vehicle claiming MAP – £2,000 tax benefit
Sole Trader – Personally owned vehicle claiming MAP – £1,450 tax benefit
Director – Ltd Company – Company Car £ -474 tax benefit
Sole Trader – Company Car £ 1,211 tax benefit
4,000 miles Business Mileage
12,000 miles Private Mileage
Director – Ltd Company – Personally owned vehicle claiming MAP – £ 720 tax benefit
Sole Trader – Personally owned vehicle claiming MAP – £ 522 tax benefit
Director – Ltd Company – Company Car £ -474 tax benefit
Sole Trader – Company Car £ 414 tax benefit
What is the right choice for you? It’s all a bit complicated really – best have a chat with me!
