company car tax loophole?

[wemorgan]

Today I heard some vague details of a loophole to avoid paying company car tax. I thought I'd share to hear what people think of how plausible this is:

Employer gives a loan to the employee to buy car outright
Employee pays back loan to employer over agreed time and rate
Employer buys car off employee after this fixed time at pre-agreed price.

Any thoughts?

 

[Rory]

Google "employee car ownership" .

HMRC threatened to stamp these schemes out, as the employee bears no risk (ie your point - "Employer buys car off employee after this fixed time at pre-agreed price.") but they're currently "keeping them under review".

 

[stevesey]

Have used an interest free company loan to help buy a car before now and then got expenses for using the car for work.

The individual would have to pay all the tax/insurance/running costs for this to work would'nt they and the final sale price would have to be a market value (anything else would be classed as a Benefit In Kind). Which kind of defeats the object of having a company car.

 

[wemorgan]

So it may offer benefits within a car OEM, if they sell the car at cost to the employee, but of no benefit to general companies buying cars from dealerships?

 

[stevesey]

So it may offer benefits within a car OEM, if they sell the car at cost to the employee...

Isn't that what accounted for most of Rover's sales from the 1990's until closure?

 

[Rory]

The main issue is why would the employer do it? Companies want to get rid of the risk of owning cars so they tend to lease them, and wouldn't want to guarantee the price of a vehicle in an uncertain world.

You could buy a car on a PCP with a guaranteed final value so that issue is solveable. But if you borrowed money off your employer you still have to pay it back out of your taxed income. So if the repayment is £300/mth, and you pay tax at 40% and NI ay 11% (or whatever it is now) then it's going to cost you £600/mth from your gross salary.

 

[renault12ts]

NI at 1% if paying tax at 40%.

 

[Mudster]

I do something similar but contract hire.

I get a car on contract hire through my business, which used to open up better deals (but less so now). I pay myself an amount each month then pay this back to the company to cover the contract. I then claim back business mileage.

Seems like a right hassle, but it's tax effecient and my accountant just sorts it all out so it's legal and above board.

 

[HowardD]

Have used an interest free company loan to help buy a car before now and then got expenses for using the car for work.

Aren't interest free loans over £5k a taxable benefit?

HD

 

[HowardD]

NI at 1% if paying tax at 40%.

1% is true on the income above the Upper Earnings Limit. £844 per week.

11% on income between the PT & UEL.

That 1% is going to be 2% from April 2011.

HD

 

[HowardD]

Google "employee car ownership" .

HMRC threatened to stamp these schemes out, as the employee bears no risk (ie your point - "Employer buys car off employee after this fixed time at pre-agreed price.") but they're currently "keeping them under review".

Our firm operates a CO scheme this. Every CO scheme has to be individually HMRC approved.

The reason it's not a company car, is that the employee signs a credit sale agreement and the title of the car is in their name.

HMRC loses company car tax, but gains other tax input.

Employers can than offset AMAP rates against the tax liability. A CO plan is quite tax efficient if the drivers are doing high business mileage.

HD

 

[stevesey]

Aren't interest free loans over £5k a taxable benefit?

Maybe - but I've never paid more than 5K for a car.

 

[PXW]

Car ownership schemes are pretty common. Economically they are driven by the lack of benefit in kind tax on the employee, which is now in some cases so high that you can effectively buy the car for less, especially with fleet leverage. HMRC are fully aware of the schemes and are keeping them under review as has been stated above. However, as long as the scheme is properly constructed so that the captive leasing company makes a profit there are presently no legal grounds on which HMRC can attack it.

 

[Dryce]

NI at 1% if paying tax at 40%.

Company is also paying employers' NI at about 12%.

So if you're paying out of your own company then you're losing that off the top.

 

[scumbag]

Tax......oh yeah.....I remember.


it is probably better for them to set up an off shore fund to save tax. I guess the scheme above was more aimed at helping its own employees and that probably had a by product which could be used as a tax saving.

 

[Mudster]

Company is also paying employers' NI at about 12%.

So if you're paying out of your own company then you're losing that off the top.

Indeed, It's my business so I see both sides of the tax issue and choose to operate ion the way I've detailed above. It's also the reason I can't bring myself to pay myself a salary that exceeds the 40% tax threshold, it's such a huge waste of money IMO.

 

[wemorgan]

It's also the reason I can't bring myself to pay myself a salary that exceeds the 40% tax threshold, it's such a huge waste of money IMO.

Ditto. Much easier to live within modest means than throw the money away in taxation

Going OT but larger than average pension contributions also make sense to me. But each to their own.

 

[Piff]

Only if your pension company is investing your money wisely - mine seem to be doing the opposite

 

[Mudster]

Only if your pension company is investing your money wisely - mine seem to be doing the opposite

Yeah, I stopped additional payments into my pension this year as figured I may as well use up my £30K premium bond alotment instead. So I'm buying a few hundred of those every month, at least they don't lose the damn money!

 

[Jukka]

Today I heard some vague details of a loophole to avoid paying company car tax. I thought I'd share to hear what people think of how plausible this is:

Employer gives a loan to the employee to buy car outright
Employee pays back loan to employer over agreed time and rate
Employer buys car off employee after this fixed time at pre-agreed price.

Any thoughts?

I've come across this before about 15 years ago. Apparently BMW UK did this for their staff. Loan them (say) £40k, they buy a BMW from the company, claim all the running costs (tyres, insurance, etc.) through expenses and then sell back to the company. Taxable benefit was on the difference between the interest on the loan compared with 'market rate' interest I believe.

Worked a treat in those days - you had purchase ledger clerks driving £40k 7series!

I think it may be different now as (AFAIK) all 'tax saving' schemes need to be pre-registered / approved with HMRC who will assess the Tax situation and make a judgement even if they are techincally within the letter of the law.

A good accountant would be able to advise (of which I am not...)