company car Vs mileage claim

[Barryh]

Help needed to understand this!

I have just set up a limited company.My accountant says i should claim mileage.
I do 25K P.A mileage.So 40 p at 10K =£4000.25p at 15K = £3750.Total = £7750.
Now when you consider my fuel will be about £3000,Insurance £600,Lease Inc Maintenance £9500 = 13100. Cost to me then £5350.

Now take a BMW 530 Touring (Using this as an example as I could use their on line tax calculator).Cost (p11D) =£45000.

Company pays Lease and servicing.Cost to me £185 per month approx assuming a personal i/p of £1000 and £1000 for personal fuel.This is then £2220 p/a.
Am I missing something?

 

[Rovinghawk]

Help needed to understand this!

Am I missing something?

Errr.................if the company is paying money in & you own the company, then surely it's all coming from the same wallet eventually (minus tax relief)?

RH

 

[amwebby]

Only that the £7,750 is only an allowance against tax and company car tax for which you are liable.

 

[Dryce]

Am I missing something?

How do you get your earnings from the company?

At the end of the day if the company is paying for the car you've got less to pay yourself. So one way or another *you* are paying whether it be on the personal or the company side of the divide. The question is where does the taxman take his cut.

If I was starting up and had a reasonable car already I'd go with the mileage allowance. Unless my business had a very assured medium to long term prospects I wouldn't want to load it early on with extra expense unless it was a specific type of vehicle needed to undertake its business such as a van or a pickup.

 

[Barryh]

Thanks Guys,But you are all missing the point.

The Tax implications are my concern.The health of the company is very strong.

I need to know what computes to me personally.I am basically now an employee,so what is the most tax efficient way to run a vehicle assuming the figures given?

 

[Rory]

Surely your accountant can work this out for you?

We're in a similar position and take the 40p/25p and pay ourselves £600 (which is of course taxable) monthly car allowance. Taking the mileage allowance at least allows you to take some money from the company tax-free.

Is the BIK tax on a £45K car really only £185/mth, even with the contributions you make? Are you assuming 20% tax??
Whatever it is, it's effectively your money (from the company) which is paying the lease, and then your personal money (which of course was generated by the company) which is paying the tax. Maybe it's as broad as it is long??



If your company is new will you be able to get a lease deal in the company name?

 

[Barryh]

Surely your accountant can work this out for you?

We're in a similar position and take the 40p/25p and pay ourselves £600 (which is of course taxable) monthly car allowance. Taking the mileage allowance at least allows you to take some money from the company tax-free.

Is the BIK tax on a £45K car really only £185/mth, even with the contributions you make? Are you assuming 20% tax??
Whatever it is, it's effectively your money (from the company) which is paying the lease, and then your personal money (which of course was generated by the company) which is paying the tax. Maybe it's as broad as it is long??




Basically ,I have been a sole trader for 22 years and just moved the business for tax reasons.The accountant explains things,but I just need the maths and to get my head around the whole tax thing.
The lease would have to be paid one way or other as it is now.
I am assuming 20% Tax.Again as it seems the most tax efficient way i.e to take less income.

 

[Rory]

I am assuming 20% Tax.Again as it seems the most tax efficient way i.e to take less income.

Well that probably makes a big difference - it's generally considered (at least for "normal" employees, not sure how much different your situation would be) to be a no-brainer to take a company car if you're a 20% tax payer.


None of my business of course, but are you really only going to draw total income, including dividends, that is low enough to keep you at 20%? Plus, remember the BIK value of the car is added to your income, so if you're really looking at a car at the level you mentioned then that limits your scope quite a lot.

 

[Mudster]

Well that probably makes a big difference - it's generally considered (at least for "normal" employees, not sure how much different your situation would be) to be a no-brainer to take a company car if you're a 20% tax payer.


None of my business of course, but are you really only going to draw total income, including dividends, that is low enough to keep you at 20%? Plus, remember the BIK value of the car is added to your income, so if you're really looking at a car at the level you mentioned then that limits your scope quite a lot.

It's very surprising how much money you can extract from your own company when being paid in dividends and base salary and company vehicles whilst still staying below the 40% tax threshold.

If you were comparing this to being a PAYE employee it can be comfortably equivalent to over £60K all quite legally (as a director of a ltd company).

I refuse to pay myself anything that would incur a 40% tax charge, I see it as a complete waste of money. I guess that's what comes from owning the business, you see both sides of the coin at once.

Then again, my mortgage is tiny, so I actually don't need a huge income to live as most of it is disposable anyway.......

 

[ckember]

I used to have a company car and opted out, the reason being less tax to pay, I get to drive the car I want and I get an allowance for the car, plus they pay the buisness mileage.

My company pays 16p mile for diesel,25p for petrol, and then I claim the difference back, plus the allowance.

if you dont have the allowance you can claim the full 40p as you stated above.

I do about 18K buisness miles and get back about £800 in tax rebates plus the allowance pays for the car in the first place. of course it all depends on the tax bracket you are in so could get more from the rebate. so in total I get about £5K per year plus the buisness mileage paid Working out at £2880 for fuel so a total of £8k which is about the same
at my rate of taxas your calculations

A colleagure worked out that to break even you need to be doing at least 35mpg.

Using the calculations above I am about £20 a year in profit after servicing and tyre costs


Now under the company car rules of course the £value of the car * rate for co2, is then added to your base salary, which could take you into the 40% bracket and you will also then need to add in the fuel costs if the company will pay any of your personal fuel. other wise you would then claim back just the buisness fuel and not pay the tax.

Its a personal choice. If you can have the same car under either scheme it may pay to take the compnay car over the allowance.

Also take into account if you work from the office or from home. If you work from home then your trips to the office are buisness trips, if you work from an office the n you have to pay the fuel or tax on the fuel to get to the office.

I work from home so the fuel is paid by the company as it is not my usual place of work.

 

[Stratman]

Aren't accountants supposed to be able to answer these questions?

 

[Rory]

Aren't accountants supposed to be able to answer these questions?

It's hard to get a straight answer though - they take the easy/safe route.

Interesting to see Mudster's comments - our finance guy (ex-senior bloke from a big corporate) is dead against paying using dividends. He thinks it's a can of worms and could bring unwanted attention from HMRC.

It's also a little complicated in our case as a couple of the director/shareholders live abroad and don't have the same tax benefits with dividends so they weren't interested. We also have UK director/shareholders who couldn't go without money until a dividend was declared (there are way around that, but again, it's another complication).

We looked at leasing for the cars too - certainly one of the guys was very keen to get back to a proper "company car" but the consensus was that he'd have to personally guarantee it and, of course, he didn't want to do that.

 

[Dryce]

It's hard to get a straight answer though - they take the easy/safe route.

Interesting to see Mudster's comments - our finance guy (ex-senior bloke from a big corporate) is dead against paying using dividends. He thinks it's a can of worms and could bring unwanted attention from HMRC.

IR35 kind of shook things up on this. It was invented to stop people escaping NI (both employer and employee). It's still available to HMRC if they want to try and enforce and just means hassle.

 

[Rory]

I refuse to pay myself anything that would incur a 40% tax charge, I see it as a complete waste of money. I guess that's what comes from owning the business, you see both sides of the coin at once.

Perhaps you keep your income down by various means, but if you pay yourself a decent amount in salary and benefits then you could soon hit the higher tax rate and be effectively paying 42.5% tax on dividends.

Of course you do save employers NI and some employee NI.