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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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If an owner of a ltd company leases a car, but does not earn

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If an owner of a ltd company leases a car, but does not earn enough to pay back the tax benefit through his PAYE coding, what will be the implication. He is trying to decide whether he will be better having a car allowance or car benefit:
Car benefit - without fuel £5421 tax liability @20% £1084.20
Salary £9630pa
Normal Tax code 1000L
Thanks
J
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Assuming the company owner is the director, they should be registered for self-assessment in any event, completing annual tax returns and paying the tax on the car benefit regardless of whether the earnings are too low to absorb the tax on the car through PAYE. It may also require the director to make payments on account of any tax liabilities on 31 January and 31 July during and after the end of the tax year. The company will also have a liability to Class 1A NIC at 13.8% of any benefits such as a company car provided to an employee or director.

Whether it will be better to have a company car or claim a mileage allowance depends on factors such as the car that the director would have as a company car, its cost and CO2 emissions and how much business mileage is done in a tax year. There is a car and fuel benefit calculator here. Details of CO2 emissions can be found here and the percentages of the car cost charged as a benefit can be found here.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

I assumed that to recover the tax free pay would be reduced to 4579(10000-5421). giving a PAYE tax calc of £1010, are you saying that an additional tax payment of £74 would have to be made to HMRC because the benefit is £1084?

Expert:  TonyTax replied 2 years ago.
Your tax code figures did not appear in the question as I saw it before answering.

The tax code would be 457L and the tax deduction would be £1,084.20. The £1,084.20 is tax, not the benefit itself, the £5,421 is the taxable benefit. As there would be a shortfall of £74, that could be collected through the tax coding for the next tax year but one or via the self-assessment system.
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