I have been asked to investigate the most tax efficient way to purchase a company vehicle (either small van or estate car). My head is starting to hurt a little from all the information I keep trying to gleam off the hmrc website, so I thought I would throw the idea out to you lovely people !
Basically its a Ltd company that need to purchase a vehicle for travel and small deliveries, however it will also be used for personal use by one of the directors.
The question is, well 3 really :
1) HP, Lease or Bank Loan through the business, am I correct in saying you can only claim capital allowance on the HP or Bank Loan as you technically own the asset, does this then come of the company tax return/calc ?
2) Does the director then have to allow for 'Benefit in kind' on his personal tax return ?
3) Is it a better option for the director to purchase the vehicle ? What would be the tax implications doing it this way ?
1) Capital Allowances are allowed on the cost of the asset. HP Interest can be claimed in the P&L Account as can loan interest. 2) If it is used privately then yes - note that if it is a van there are differences. 3)Not necessarily van versus car does come into it.
Another option is to make it a pool car; however, if it is only used by one director this could be a problem.
Are they going to 'brand' the vehicle at all?
What does the business do? That will have an impact on the amount of deliveries needed.
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Unfortunately they haven't decided on van or car at the moment, they do want to brand it, will this make a difference tax wise ?
They market and sell corporate golf items, most of the time it is taking various samples to corporate clients, but they are looking to expand to retail on the web, so initially want to be able to keep delivery costs minimal before relying on the big boys ! Plus they want to use it for travelling to new clients.
It will be used by both directors in a business capacity but only one in a personal capacity !
Thanks for your advice Phil, I've only been in the bookkkeeping game a short while but always seem to get asked the tax questions !!! But I'm grateful to be learning on the job !
I think the first thing you want to do is establish if its a van or a car that will be purchased.
A van should be much more favorable in terms of tax relief etc.
With a van you would be entitled to claim AIA's which, dependent on level of other capital purchases, should let you claim the whole cost of the van as a tax deductible capital allowance.
A car will attract capital allowance but at a slower rate. The rate of capital allowances on the car will also be dependent on the CO2 emissions, see HMRC for rates 100%160. So emissions should be considered when purchasing if you are querying tax efficiency.
If there is personal use there will be a p11d benefit on the car and also on the Van. The van will generally attract a lower level of benefit.
Your queried the method of purchasing. Obviously the interest rate and finance charges will be a consideration but you will be able to claim capital allowances or AIA's if purchasing through HP/bank finance. The HP interest / bank interest will also be tax deductible. If purchased through an operating lease the asset will not attract capital allowances as it will not hit your balance sheet but the lease payments will be tax deductible.
If Vat registered you will also be able to claim the VAT on the purchase of the Van even if on HP/bank finance. This should be considered. You will not be able to claim Vat on the car.
You mention the director purchasing in his own name. If a Van you will be unable to claim the Vat if you go down this route. If the director owns purchases / owns the vehicle the company will not be able to claim capital allowance. The director would probably be able to claim a tax free payment for milage from the company and there would be no benefit attributable to the vehicle.
If only usable by director then unlikely a pool car is an option especially if he takes it home at night etc.
not sure branding is much of an issue but maybe hendy could expand on a point ive not thought of.
You mention the benefit in kind would go on his tax return which is correct, but you would also need to prepare P11d's each year and pay / declare the Class 1A national insurance.
If i were you I would send an email to the accountant and get them to advise of the ins and outs.
Sorry if the above is badly typed, Just trying to to a quick response and not proof reading. Hope the above is of some use.
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Forgive the typo's I generally do not proof read. Just lazy I guess!
Thanks for your reply, what is the difference between an operating lease and a finance lease ? are all vehicles operating leases ?
I was under the impress that a operating lease was short term and did not hit the balance sheet, but the payments were on the P & L. Then the finance lease was long term, which I consider a car/van to be, and dealt with in the same way as HP, ie. tax relief on interest and depreciation ?
I will pass the buck slightly to the accountant as it is such a minefield !
an operating lease is more like a rental with the asset not being capitalised and the lease charges going through the P&L. A finance lease is more like a HP with the asset being capitalised and only the interest element hitting the P&L.
Do a search on here or on Google, and you will find an in depth explanation.
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Forgive the typo's I generally do not proof read. Just lazy I guess!
ok, whats the structure of the company? is it family owed or does it have unconnected directors?
Does the Director in question have an outstanding Directors Loan Account?
Does the Director in question own another vehicle for private use?
Does the Company have space to park or store the vehicle overnight?
Possible scenarios
The Director could buy the vehicle himself and he could claim business mileage from the company. The company treats the whole cost as taxable and can also claim VAT back on part of that cost if VAT registered. Director takes the mileage payments tax free but has to cover the running costs.
The company buys the vehicle, the Director takes it home at night, but uses another vehicle for private use and only uses the company vehicle for business use. Its possible to fight a benefit in kind for the vehicle if the director signs a statement to this affect that the vehicle is for business use only. Its been done before and the Inland Revenue agreed to it!!
Its so difficult to give exact answer without knowing the full facts, but above is a few points to consider.
Also just keep in mind that the Inland Revenue have been known to park up in a Supermarkets car park and take down vehicle registration number and business names of branded vehicles in order to check their P11d records in order to catch us tax payers out.
