# Company Car advice for an IT Contractor



## Andyman (May 6, 2002)

Hi,

I know thereâ€™s a few IT Contractors on here so I thought Iâ€™d see if anyone has any views on the benefits/drawbacks of purchasing a car through their ltd company. The warranty runs out on the TT in Sept so Iâ€™m starting to think about what to do next. I own the TT personally but Iâ€™m wondering if thereâ€™s any benefit in buying the next car through the company. I know that as a company car Iâ€™d have to pay some considerable tax for the benefit I receive from it but the few sums Iâ€™ve done suggest its less than the tax Iâ€™d pay to get the money from the company into my personal savings so that I could buy a car personally(i.e. the PAYE and NIC).

It goes like this:

Given a company car Iâ€™d be taxed on 35% of its list value each year. Thatâ€™s 40% tax paid on 35% of the value of a car. Lets say itâ€™s a Â£30k car, Iâ€™d pay Â£4200 in tax on it every year. Now because you have to pay PAYE and NIC to get money from a ltd company to an employee it would cost Â£50k to get Â£30k to myself as an employee so I could buy the car personally. Thatâ€™s Â£20k wasted. So lets say I was to have the car for 3 years and pay Â£4200 every year for the benefit, am I Â£7600 better off?

Has anyone looked into this or have a better idea what theyâ€™re talking about than me?

Cheers,
Andy.


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## hutters (Jul 16, 2002)

Andy

To throw a few more bits into the pot:

The taxable benefit of a car is now based on the CO2 emissions, not a straight % (i.e. your 35%) of the list price. The CO2 emissions determine the % and this changes each year.

The benefit for a 225 TT for the tax year 2004/05 is 31% of the list price. You then pay 40% tax on that amount.

From the Company's perspective it would have to pay 12.8% as Employer's National Insurance on that benefit, BUT, if the Company actually purchased the car you would be able to claim 25% of the cost as a deduction against tax. If the Company contract hire's the car a proportion of the rental cost can be deducted against tax.

See the Inland Revenue's guide for full details: IR172 - Company Cars


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## Chip_iTT (Nov 14, 2003)

I need to look into this too... I am thinking of keeping my TT in a years time and getting my ltd company to buy it for me.... does it being 3y old have any bearing?


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## Andyman (May 6, 2002)

I think it probably does. You pay a percentage of the list price as benefit so even after 3 years you'll still be paying the percentage of the original otr price and not its current value. I think this means you're paying through the nose for an old car that wonâ€™t give you that much in return when you eventually sell it.

Thanks for the advice. It sounds like its a very close thing as to whether there's an advantage. Most significantly it raises the risk because there's no guarantee the rules won't change next year and you'll get taxed even more. I'll do some more sums but I'm thinking its not worth the hassle and risk.

Cheers,
Andy.


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## ag (Sep 12, 2002)

Looks like you've got to put a little spreadsheet together because:

1. The rate of tax payable based on CO2 emissions rises by 2% each financial year.
2. You need to take into account the cost of insurance. This will probably be greater for a company car, but will be tax deductible and of course you will not pay PAYE or NI on it and nor will your company.
3. Buying outright, Hire purchase, Leasing and long term rental all have differing tax implications.
4. The cost of maintenance, including tyres etc, will be borne by the co.
5. If you buy the car yourself then you can claim back some business mileage.
6. Petrol...
7. Buy outright based on taking out a dividend at 35% tax.

I know nothing about tax except that 10 minutes in the company of a good accountant can save a fortune. Example, with the tax self assessment form I worked out that I owed the IR about Â£800. I ended up getting a cheque from them for Â£152. Sorted..


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## scavenger (Jun 25, 2002)

I am doing exactly the opposite of this and buying my car off my company due to a ridiculous tax code. According to the tax office, I will be charged thus in 2004/2005:

Car benefit Â£9135
Car fuel benefit Â£4464

Minus my personal allowance of Â£4745

Giving a tax code of K920.

Fortunately I am completely stupid when it comes to tax, but even to a dullard like me that seems like a mighty nasty tax code to me. If I buy the car off myself, my tax code reverts to Â£4745 which I can earn before paying any tax.


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## r1 (Oct 31, 2002)

I looked into this and it simply doesn't work out. The tax is a close run thing but there are a couple of other issues you haven't considered. If you buy the car new - you can't claim the Vat back. If it's hire purchase you get to claim about 25% of the vat back iirc.

But the big set back is insurance. Your co. will need to insure the car and therefore it has no ncb. You may be able to get them to take yours into account but even so I suspect you're looking at a hefty bill.

Just take Â£30k in dividends and pay the Â£6k tax next year and bear it - it's not too bad. :wink:


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## jonhaff (May 20, 2002)

I too looked at this and its just not worth the effort , accounting cost of doing it, etc...

There is no benefit these days in having a copmany car unless the company you are an employee of is big enough to cover it all, but for small companies i didnt think it works out ....


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## Rambaud (Aug 1, 2002)

r1 said:


> I looked into this and it simply doesn't work out. The tax is a close run thing but there are a couple of other issues you haven't considered. If you buy the car new - you can't claim the Vat back. If it's hire purchase you get to claim about 25% of the vat back iirc.
> 
> But the big set back is insurance. Your co. will need to insure the car and therefore it has no ncb. You may be able to get them to take yours into account but even so I suspect you're looking at a hefty bill.
> 
> Just take Â£30k in dividends and pay the Â£6k tax next year and bear it - it's not too bad. :wink:


r1, I think you are confusing the 25% Writing Down Allowance (which is restricted to Â£3000 max) with VAT. You can only claim back VAT (restricted to 50%) if the vehicle is leased/contract hired etc - *not* HP or outright purchase.

Very few of my clients who own their companies have company cars. It is usually beneficial to charge a mileage allowance, which is tax-free within the IR limits.

Unless you do high mileage (preferably with a disel car), a company car is not a good option.


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## donna_kebab (May 8, 2002)

Andy

IMHO I dont think it would work out for you at all, see your accountant, or see AN accountant ! *First one always free!" But I did the sums for my TT and Jons A4 TDi and it works out much better for average mileage to own it myself and pay a dividend to cover the costs. Might change if your mileage was excessive, especially if you buy a new car and the warranty runs out after 60000, so then you got to take the risk of something major popping or pay for extended warranty? ! ?

Decisions decisions, and thats even before youve chosen the next car isnt it?! :?


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## justinp (May 7, 2002)

Hi

Remember you can claim 40p / mile for the first 10K miles then 25p there after from your company as expenses, if its you own car to be used for travelling to and from work.

Cheers

JustinP


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## Rambaud (Aug 1, 2002)

justinp said:


> Hi
> 
> Remember you can claim 40p / mile for the first 10K miles then 25p there after from your company as expenses, if its you own car to be used for travelling to and from work.


Also, if the company's rate is less than the above, you can claim the difference from the Inland Revenue via your Tax Return.


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