Hi Mark

I am by no means a tax guru and happy to be corrected but I cant see any benefit in the director loaning the company £10k to buy a car for him to use...

Why not buy it personally and claim the 45p for each business mileage?

If he is using it himself then it is a P11d benefit, if the company is also paying the fuel then and even bigger benefit, if he is paying fuel privately he can claim the mileage rate also but at a reduced rate depending in the fuel and engine size.

I would ask him to check with his accountants as to the reasons behind their advice? Did they know he was loaning the business the money to buy it....??

Anyone else??

Hope that Helps

I would guess the accountants will calculate the best way to deal with it ie either a company car or personal. If company, P11d etc wil apply. If personal, the costs can be debited back to DLA account, and mileage claim credited to DLA for him to draw against

Hi Chris & Michelle

Thanks for your comments

Surely if the car is purchased through the limited company it has to be treated as a company vehicle or is this not correct

Thanks

 

Mark

 

Hi Mark,

fuel is a bit of a bad one with company cars in that regardless of the level of business mileage unless all personal mileage is reinbursed the BIK is £18,800.

Imagine a scenario. Director buys company car, does 1000 miles privately the 10,000 for business. Fuel used privately circa £180. Director reimburses £150 (part reimbursement), Fuel benefit charged is still £18,800 (then use CO2 emmissions to calculate in the same way that you did the car benefit).

Right, so far buying privately and charging 45p/25p seems good.

Now you say that the car cost £10k so I assume that its not a new car.

Is it a car like a Merc / BMW / Porsche that may be reasonable to buy but expensive to maintain?

Does the director expect the car to have quite high maintenance costs comparative to the amount of mileage that they could claim? If so then funding the car through the company and suffering the BIK on the car but not the fuel would make sense.

Other factors to consider.

What if the director is site based and the contract is to last more than two years so they would not be able to put the business mileage off against the business.

I would say that across the board mileage is generally a better option to use mileage with the addendum that people need to be doing sufficient business miles to cover the maintenance expenditure.

As mentioned above, each scenario really needs to be judged on its own merit taking all relevant details into account such as age of vehicle, CO2 emmisssions, business miles travelled, service costs, etc.

Thankfully mine are all on mileage but just thought that I needed to throw some alternate arguments out there.

kind regards,

Shaun.

Morning Shaun. As a matter of course I revert to the 'claim mileage' default however in the past there have certainly been tax benefits to have the company car if certain criteria were met but the problem is that rules are always changing. There was the 100% FYA for cars with CO2 emissions of less than 110 gm/km but that has now been reduced to 95gm/km. Not sure how many cars are available with such low emissions but you can be certain as soon as some are the government's green credentials will changed and they will be needing cars with 75gm/km. I guess they could claim they are driving down the emissions. I wouldn't be buying an electric car too soon either based on tax breaks as you know the goal posts will be changed.

I went on a CPD course a couple of years ago and the lecturer did say it was possible for sole director companies based at home to potentially classify the car as a pool car. I can't recall the full details as I had only just awoken from a deep slumber when I heard this (come on admit it, you all sleep through cpd!) but I suppose it can be argued that the car is available to all employees and if the home address is the registered address perhaps it gets over the rule about not taking the car home. I wouldn't personally advise this without getting it tied up by someone smarter than myself though!

I agree with Chris.. if the cost of the car, and its running costs are all put to DLA, and only mileage is brought into the accounts, then there is no benefit.

The client put the £10k into the business, and then used it to buy a £10k car - the effect on DLA is NIL

The mileage credit to DLA will go some way to reducing the car cost debit, and then dividends will clear the rest.

I mean, ok, there are variables on whether the loan account can be cleared.. but the general gist is that the car doesn't have to be shown an asset,and running cost can go to DLA, offset by mileage.

Whilst the invoice may be in the company name, the company could say it sold the car to the client for £10k on the same day they bought it. I don't think HMRC would have an issue, so long as the car wasn't shown as an asset, there was no capital allowances, and only mileage was going through the profit and loss. There is nothing they could achieve from it, at the end of the day

-- Edited by FoxAccountancyServices on Friday 13th of September 2013 09:35:54 PM

Hi Chris,

Sorry, I disagree with you in relation to the mortgage.

If the mortgage payments were taken to the DLA, i.e. a loan from the company which the director would repay within 9 months and one day of the period end (or incur a benefit in kind for the outstanding balance) then the asset was the directors, not the companies.

If they do not repay it (by use of something like a dividend) then there is no saving.

My take on the debate over the car was not so much over affording the car in the first place but rather how it would be run, either through the company or via mileage with running through the company (currently) winning out for cases where the director has low business miles that they are able to put through the company for a high maintenance car.

I say currently above as the simplification rules being bandied around by HMRC suggest (amongst other things) doing away with the option of running a car through the business and enforcing mileage as the only option for small businesses which makes sense as (even from this short discussion) its quite obvious that utilising this approach is open to abuse.

i.e. classic car used only on Sundays during the summer needs a new engine. Run it through business and get tax relief / VAT on the repair.

Changing to mileage based would stop that sort of abuse of the tax system.

Back to your suggestion though, if they wanted to buy the car via company funds then as you say, DLA is an option although one always needs to keep in mind that nine months and a day before the DLA's a BIK.

kind regards,

Shaun.

The mortgage example was where a sole trader had been trading for 20 years or so, and converted to a ltd company and introduced goodwill, and then was able to draw on this.

In any case, can HMRC force you to make your vehicle a company car? If a dividend had been declared, and you had say £20,000.00 you could draw on, what is the difference between paying the dealership from company funds to be classed as your dividend, or transferring the money to your personal account and buying from there?

In many cases, claiming mileage is better than the company owning the vehicle from a tax point of view. However the next problem is fraudulent mileage claims from owner-directors......

Hi Rob

Im going to a beer fest tomorrow so Im saving myself!

Yeah, if wda had been claimed, it would be a company car and P11d/Pool car scenario.

Although I got the impression that the accounts hadnt been filed, so all options were open. Its the same as pre RTI really, money was drawn, and then the payroll/dividend calculation was taken from there. Of course, this is "real life", not text book/neccesarily the legit way to do things!

LOLOL.. yes, Saddo's all round last night!!

I think if the client was questioned by HMRC about why the vehicle invoice was in the company name, and he explained he had done this on the advice from his accountant, and he then could show that the car hadn't been brought into the company accounts/tax return in any way, and, that only mileage was claimed, - they would accept that it as fair enough.

This is all assuming that the car in question ISN'T electric, which (do correct me if I am wrong,as I have never really had to deal with one) wouldn't create a BIK?

Its true that, vans can be held in personal name but be brought into the company, and it would fly with HMRC that the van was acceptable to be deemed a company vehicle. I think its all down to how its treated in the accounts and tax return. To be honest, I have never had an inspector ask to see an invoice for a vehicle that wasn't shown in the accounts.

Its possible though, that if say, the car in question was purchased a special trade price, HMRC might complain that the director received a benefit, quantified as being the difference by market value and trade value... but its probable that the car was purchase in a normal scenario.

In fact, if the director wanted to get really cute, he could say the company sold him the car a week later at a lower price (we all know the value falls the minute it leaves the forecourt), and hence the company made a loss in it - that would be a situation I doubt would fly with HMRC!

Enjoy beer fest, Chris, you jammy sod!

-- Edited by FoxAccountancyServices on Saturday 14th of September 2013 02:17:23 PM

RobH wrote:

---

I went on a CPD course a couple of years ago and the lecturer did say it was possible for sole director companies based at home to potentially classify the car as a pool car. I can't recall the full details as I had only just awoken from a deep slumber when I heard this (come on admit it, you all sleep through cpd!) but I suppose it can be argued that the car is available to all employees and if the home address is the registered address perhaps it gets over the rule about not taking the car home. I wouldn't personally advise this without getting it tied up by someone smarter than myself though!

---

Sorry to sort of hijack this thread but I have a situation with one of my clients who has just bought a car in order to use it mostly in the business but also privately. He used to use one of the Company vans to drive to and from the registered office and then out and about in the London area, but now he will be using the car (easier to park!)  He has purchased this through the Company on the advice of his Accountants who have suggested that he use it as a pool car.  Now correct me if I'm wrong, but isn't a pool car supposed to be available to all employees and shouldn't be allocated to one particular employee and is not supposed to be taken home at night (unless it's to facilitate an early start in the morning!).  Also it's not supposed to be used for private journeys is it?

I obviously bow to the superior knowledge of the accountants here, but should I be voicing my concerns?  I don't know exactly how he intends to drive it at the moment, will find out more tomorrow, but really wanted to know if I should let him know this may prompt an HMRC investigation.  (How would HMRC know anyway?)

Many thanks in advance for any opinions/advice  

Lol......this is very true.

Stardoe wrote:

---

I obviously bow to the superior knowledge of the accountants here,

---

Dangerous assumption that the accountants know more than you do.

Firstly it seems that any Tom, Dick or Harry can set up as an accountant.

Secondly even the better accountants are not always right. If they were then why do we see technichal debates between accountants over on Aweb.

I would not give the advice that this accountant has even if it can be argued that such is technically legal.

The client would have probably been better off with a smaller van than a car so that they were still able to claim home to work as business... One wonders if the accountant concerned even considered that or just went straight for a stock answer without properly considering the specific requirements of the client.

Shamus wrote:

---

Stardoe wrote:

---

I obviously bow to the superior knowledge of the accountants here,

---

Dangerous assumption that the accountants know more than you do.

Firstly it seems that any Tom, Dick or Harry can set up as an accountant

 

Ah, but can't any Tom, Dick or Harry set up as a bookkeeper as well?    (No reference to anyone on this site...or me I hasten to add...I am qualified!) But I will make sure that my client is aware of the pitfalls of this.  He did say that he was happy to treat it as a Company car and for the accountants to complete a P11D in relation to it, but they suggested it could be done this way.  

Thanks for the case link Rob, just read some of it (hefty reading) and realised that the Company in question was in Essex which is where I am  

Lol Rob.....whereabouts in Essex?  I'm Chelmsford.  Why are you stranded, can't you find your way home?  

I've been to Loughton a few times   You support Spurs then....I suppport Man City and Swansea, so perhaps I'd better move to Wales...lol  (Actually parents are from Wales anyway).