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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4074
Experience:  FCCA FCMA CGMA ACIS
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Sam, Can you advise on company car tax, and what is the

Customer Question

Hi Sam, Can you advise on company car tax, and what is the charge for this service? Many thanks David and Joanna
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
My wife and I are directors of a small business where she works one or two days a week on a contract basis in addition to her 4 day/week job where she is an employee.The profit from the business will be less than £20000 pa. My wife needs a new car, and we were thinking about the Nissan Leaf Tekna which we would have to purchase outright using private funds.Can I put the car purchase through the business? If so, with BIK at 5% after 1/4/16, Corporation Tax being 20%, and profit assumed to be £13000 in the first year, the breakdown might look like ...Car Purchase Price £33000.00 aprox- Corps Tax on £13000 profit = £2600.00Net Car Cost = £33000 - £2600.00 = £30,400NB. I realise that £1650 will be subtracted from our tax allowance for BIK of 5% (Electric Car)Now if Corporation Tax can be reduced by 100% of the car cost in the first year, but we do not earn enough to subtract so much, then we would save £2600 Corporation Tax in year Tax Year 16/17, but could we avoid paying Corp Tax yearly until the Capital was cost was reached by rolling the car cost over until 12.69 years was up? Are there any other benefits in putting the car through the business? As our private mileage would far exceed the business miles, should we just just buy the car ourselves and be satisfied with recording the 45p/mile AMAP allowance as a tax deductible expense. There is no way our business miles would ever hit the 10,000 pa AMAP rate reduction mileage.Would there be any benefit in leasing the car over, say, two years rather than purchasing it as Electric Car depreciation runs at some 33% pa apparently, and it would therefore constitute a highly depreciating asset if purchased?
Expert:  bigduckontax replied 1 year ago.
Hello, Daniel, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Before I go into some of the complexities of company cars, have your wife considered acquiring the car herself and claiming motor mileage at 45p per mile [up to 10000 miles, 25p thereafter]? It is by far the easiest way of recompensing oneself which is why it is the preferred method for most people. If the company buys the car there will be capital allowances available, but only limited, accordingly to ACCA as follows: 'From that date, the capital allowances rates are dependent on the carbon dioxide emissions of the cars. A car will either be eligible for 100% first-year allowance or will go either into the general or reduced rate plant and machinery pools, as follows:100% allowance for cars with carbon dioxide emissions of 110g/km or lessGeneral pool allowance for cars with carbon dioxide emissions of between 111g/km and 160g/kmSpecial rate pool for cars with carbon dioxide emissions of 161g/km or more.The general pool rate is currently 20% and will reduce to 18% from April 2012. The special rate pool currently stands at 10% and will reduce to 8% from April 2012.The previous £3,000 restriction will continue to apply to expensive cars acquired before 1 April 2008 (6 April 2008 for unincorporated entities) during the transitional period.' I see you are suggesting the acquisition of an electric car in which case the entire purchase price will be available against tax as a capital allowance in the tax year of purchase. If this puts the company into a loss situation the loss is merely carried forward to future years. Private use of a company car must be reported as follows [source: Gov UK web site] as a benefit in kind: 'If your employee earns at a rate of more than £8,500 a year or if they’re a director, you’ll need to report this to HMRC separately.At the end of the tax year, you’ll also need to:report on form P11Dpay Class 1A National Insurance on the value of the car benefit'I am personally in favour of leasing the vehicle; indeed my own car is leased although I have no business mileage. All in all though, my recommendation would be to stick to the motor mileage system. It may be a rough and ready twist of the spoon to stop the treacle running off so to speak, but it is so simple to operate and furthermore is designed to cover both running and capital outlays. You don't have to worry about the complexities of the P11D either. I do hope that my reply has shed some light on the situation for you.
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Customer: replied 1 year ago.
Hi, Many thanks for your reply. If the car was purchased with private funds (which it would have to be really), can this still be charged against tax even though the funding comes from outside the business income?
David
Expert:  bigduckontax replied 1 year ago.
Yes David, particularly if you go down the motor mileage claim route. It is by far the easiest way of doing it and precludes any book keeping transactions of loans by directors to buy the cat, fixed asset posting and finally capital allowances.
Customer: replied 1 year ago.
Sorry ...btw ... if we leased the car, is this tax deductible?
Expert:  bigduckontax replied 1 year ago.
The lease rental is most certainly tax deductible if the business buys the vehicle, but not if you are using the motor mileage method to reimburse your expenditure. The two methods are mutually exclusive.
Thank you for your support.