If your company buys or leases a car, which you then use for both business and personal journeys, there are tax implications for both you and your company. As contractor accountant specialists, have a read of Genie Accountancy's advice below;
Implications for your company
If your vehicle is a company purchased car, the company become the registered owner and keeper of the car. The car will need to be insured in the name of the company, with you as a named driver. Your company will meet all costs of insurance, road tax and maintenance – all of which are tax deductible and will reduce Corporation Tax Liabilities.
When purchasing a new car, VAT is not reclaimable. If you purchase a second hand car then VAT is not normally charged, however if it is then the VAT is reclaimable.
If a car is obtained under a lease contract, then VAT is normally chargeable on the monthly cost. If you are on the Flat Rate VAT scheme then none of this can be reclaimed. If you are on the standard VAT scheme then only 50% of the VAT can be claimed.
Corporation Tax relief is available when a car is provided to an employee although the rate of relief differs depending whether the car is purchased or leased.
Fuel can also be provided at the Company’s expense but a further benefit in kind for the employee is then created.
The company will have to pay 13.8% Employers National Insurance on any benefit in kind value.
Implications for you, the Director/Employee
The use of the car for personal journeys is deemed to be a benefit by way of your office and employment and hence a benefit in kind charge is incurred. In effect the benefit is treated as additional salary and taxed as such. The benefit in kind would be reported on a form P11d.
The benefit in kind will use up part of your basic rate tax band and will effect the level of dividends that can be taken, effectively tax free.
.
Calculating the Benefit in Kind
The Benefit in Kind is calculated by reference to the Original List Price of the Car and its CO2 Emissions and fuel type.
For example:
| Original List Price | CO2 Emission | HMRC Benefit in Kind % |
|---|
| £ 30,000 | 120mg | 18% (diesel rate) |
The benefit in kind charge would be£30,000 x 18% = £5,400. This would be added to your Taxable Income for each year that you have use of the car.
Tax payable on the benefit would be as follows:
| Basic Rate Tax Liability | Higher Rate Tax Liability |
|---|
| £ 1,080.00 | £ 2,160.00 |
In addition the company can pay for all fuel. A further benefit arises based on the official % and a fixed value of £21,100. Based on the above example the provision of fuel would add a further benefit of £21,100 x 18% = £3,798
Tax Payable would be:
| Basic Rate Tax Liability | Higher Rate Tax Liability |
|---|
| £ 759.60 | £ 1,519.20 |
If fuel is not paid for by the company you can reclaim fuel costs at the applicable advisory rate for all business mileage.
