i have a question on how to treat a company car allowance issue.
A director/owner receives a monthly car allowance. He purchased a car on personal finance and now he has a balloon payment to make and he would like the company to bear this cost (somehow!)
A company car allowance is compensation for not taking a company car and is taxable in it's own right as a benefit. The car that the director buys with it is however their own car and at the end of their finance term they may have the option to either pay the bubble payment or return the car for a replacement.
The car is however private and nothing at all to do with the company. It is not down the company to pay the directors bubble payment.
However.... Surely the continuing company car allowance could be used by the director in order for them to take out a loan to pay off THEIR (can't emphasise that word strongly enough) bubble payment?
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Shaun
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normally the allowance is taxed through paye as it is effectively a regular monthly payment in additon to the normal salary. although there are other ways round it.
The allowance is used by the Director to buy his own private car. Any costs involved with the purchase and running of the vehicle fall directly on the Directors shoulders. the company is not liable to any of the vehicles beyond the car allowance payments.
It may be best for the director to look at taking a company loan via a directors loan account and then attributing the car allowance payment against the loan instead of being paid to the director. this loan if over £5000 i think will be liable for tax under the benefit in kind system though and you will need advice from the accountant about the most tax efficient way to do it.
Is the director the sole director? is he the only share holder or are there other? If he is the only one or its a husband/wife company then it should be easy, but if other directors involved it will be tricky.
Thank you for your replies they are very helpful. I think i may suggest the Loan to be taken by way of Directors loan account. He may not be too impressed but that seems the easiest way without him having to take out a personal loan which i am sure he wants to avoid.