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bigduckontax
bigduckontax, Accountant
Category: Tax
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,I run a company LTD and make a profit every year. I

Customer Question

Hi, I run a company LTD and make a profit every year. I am looking on purchasing a Classic Car. Price above £250K. What will be the more efficient way of doing it?

I can pay up to £100k deposit from Business, and then get a Finance or a Loan. I am on a High Rate at moment.

Regards, John

Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello John, I'm Keith and happy to help you with your question.

Here is the good news from the Finance Act, 2014:

'Here's the paragraph from the budget statement [data from Marwilmil]:

VED: classic vehicle exemption – The Government will extend the cut off date from which classic vehicles are exempt from VED by one year. From 1 April 2014 a vehicle manufactured before 1 January 1974 will be exempt from paying VED. (Finance Bill 2014)

gov.uk/government/upload...3_complete.pdf'

So if the vehicle is old enough there will be no road fund tax. Now buying through a company poses but one problem; do the Company's Articles of Association allow such an activity? Most off the shelf companies have Articles which are very broad, providing it is legal the company can do it! However, older companies might have restrictions, so check it out. You might have to amend the Articles, a simple process, but takes a bit of effort.

The interest on the loan, if the Articles permit the purchase, would be allowable against the Company's Corporation Tax (CT) computation. It is probably the most tax efficient way of proceeding.

As it stands the car would be a Fixed Asset. However, if it is proposed to trade the vehicle then it could be brought on to the books as a cost of sale. Conversely, it would be income in the event of sale, but that would be the case on the gain on a fixed asset on disposal, but it might ease the CT position for a year or so and assist the cash flow.

I do hope I have been able to help you with your inquiry.

Customer: replied 2 years ago.

Hi Keith,

Thanks for answer.

First the car is not that old, so lets ignore the Classic "old" car benefit.

Can I ask please, If I am to buy a car at £250K and can up to £100K now, rest take a finance.

Now, the company will pay for the finance and after 5 years my company will own the car outright.

Then of course the plan is to sell the car to myself at a small profit for the business.

Its that cost efficient? Keeping in mind that the price of the car will just rinse in value. (we hope that)

I am the only director of the company.

Thank you ,

Regards,

Expert:  bigduckontax replied 2 years ago.
Well, I think I covered that. The car is clearly going to be a trade item so on purchase the cost would be charged to the profit and loss account. On sale the price would be credited to sales, but in between the CT liability would have been reduced, a cash flow advantage.
Customer: replied 2 years ago.

Keith,

Is the company or myself are gone pay any extra tax, for those 5 years ?

We can lock the car and just not used at all to avoid paying any personal tax on it.

Does it work?

Regards,

John

Expert:  bigduckontax replied 2 years ago.
No, John, no extra tax would accrue whilst it is within the company.
If you own it personally there would be no Capital Gains Tax (CGT) on sale, motor vehicles being outside the CGT regime parameters. From that viewpoint it might be better to own it personally, but I appreciate that financing considerations may preclude this approach.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.