Director Salary Advice- Ltd Company

[lipswelp]

Hello all
newbie here on the site so please be gentle if I miss-post - just getting used to site etiquette!

Situation is as follows:
Ltd company formed last summer (director x1)
approx £9k has been drawn out as 'salary' since then
Previous employment up until going it alone will have covered NIC & personal allowance for current tax year
any business expenses paid out of personal pocket have been reimbursed

so there's £9k sat there which I would like to treat as dividend ( enough profit has benn made to account for it)

I also want to reduce the amount of this £9k by claiming for business mileage at .40 per mile

At present nothing is registed with HMRC re empyment details ( so no employer NIC / PAYE has been made)

Q#!
Can I process these business mileage even though there is no payroll set up for director?

Q#2
Is there anything blindingly obvious I've overlooked ref the most tax efficient way of treating this?

All & any help - much appreciated!

Thank you

[Maslins]

Q1 - yes, at 40p/mile for the first 10k business miles/year, 25p for any miles in excess of that.

Q2 - difficult to tell without further info, but you haven't said anything too stupid if that's a comfort?! ;)

[KM-Tiger]

Tempting though it is to just post £4K as mileage (10,000 x 40p), you will need to be a position to justify with some sort of log. I do mine retrospectively using the AA website to get the mileages and tying up the entries with my diary. Something so that should you be inspected you can fully justify the expenditure.

Have you got an accountant lined up for your year end? They would be the best person to discuss the dividend issue with.

But tread carefully as my experience, both here and in real life, is that accountants vary in their attitude as to how what amounts to a retrospective dividend should be dealt with. Strictly speaking one cannot take "drawings" from a Ltd Co as you can as a Sole Trader or Partnership.

That said, many people do do that and sort out later the mix of salary, dividend, and DLA drawdown. Important if you do take that route to understand the risk that the cash you have withdrawn could, if the proverbial hits the fan, have to be paid back.

[RAL]

Situation is as follows:
Ltd company formed last summer (director x1)
approx £9k has been drawn out as 'salary' since then
Previous employment up until going it alone will have covered NIC & personal allowance for current tax year
any business expenses paid out of personal pocket have been reimbursed



There is no requirement to report mileage payment as long as the rate is within authorise rates i.e. 40p for first 10000 miles. therearter 25p per
mile.

You drew salary of £9,000. If the salary is over the earning threshold then you have an obligation to file payroll year end forms. This may not the case as you may have drawn the salary over two years.

You also mentioned previous employement, so need further information to determine whether you should operarate paye or not.

As for the expenses, you may have an obligation to report onto P11D. I would not think you would have dispensation in place. (No paye set up)

HTH

[Searcher]

Please can I clarify the mileage point. My company has just turned Ltd and I was going to keep the car as mine, not the company's and then charge 40p/mile. Do I need to keep proper records or not ?

Also, I had planned to put all mileage/costs through the business account even though the car is mine. I thought this was all straight forward but this thread is giving me doubts now.

[KM-Tiger]

Yes you do need to keep records, and remember it's 40p/mile for the first 10,000 miles, thereafter 25p/mile. Those records will probably never be seen, but in the event of an investigation you will need to produce them.

No problem with the company paying you the mileage, but that's all they can pay. Fuel, tax, insurance etc must be paid by you, but will be more than covered by those rates.

[ehup]

Yes you do need to keep records, and remember it's 40p/mile for the first 10,000 miles, thereafter 25p/mile. Those records will probably never be seen, but in the event of an investigation you will need to produce them.

No problem with the company paying you the mileage, but that's all they can pay. Fuel, tax, insurance etc must be paid by you, but will be more than covered by those rates.

Can the company re claim the VAT element on the mileage?

[Jenni384]

Can the company re claim the VAT element on the mileage?
If it's VAT registered yes. See the Advisory Fuel Rates tables on the HMRC website.

[ehup]

If it's VAT registered yes. See the Advisory Fuel Rates tables on the HMRC website.

Thanks Jenni, I checked those and unless i haven't looked properly it seems they are for Company car use. To clarify, If a Company Director uses his own car on company business, uses his company credit card to purchase fuel and claims the HMRC mileage rate can the VAT on the fuel be recovered by the VAT registered Company?

[IT Associates]

Hi ehup,

The mileage rate is payable where a private car is used and funded by the individual. If the company is paying for the fuel then that is not the case and mileage CANNOT be claimed. You cannot have your cake and eat it!

The mileage rate of 40p (first 10K miles) is extremely generous and is to cover the cost of fuel as well as other general running costs.

Going back to your original question regarding VAT, mileage is an expense reclaimed by an individual and would generally not be made by a VAT registered entity. Therefore no VAT would apply. If it were charged by a VAT registered entity then they would have to issue a VAT invoice, which would be treated in exactly the same way as any other VAT invoice and be reclaimable.

Therefore, the answer in short should be definitely NO, VAT cannot be reclaimed by a business paying mileage allowance to employee's.

[Williams lester]

Therefore, the answer in short should be definitely NO, VAT cannot be reclaimed by a business paying mileage allowance to employee's.

Sorry, that is incorrect, the answer given by Jenni above is correct and the advisory fuel rates should be used to calculate the VAT element of the fuel.

[Jenni384]

Thanks Dave.

ehup, the way you reclaim VAT on mileage is as follows:
Take as an example an advisory fuel rate of 13p for the employee's car:

Claim of 40p per mile:
13p can have VAT reclaimed on, therefore 7/47 of 13p, i.e. 1.936p VAT, can be reclaimed
The balancing 27p is paid with no VAT deducted.

So for a mileage claim of 500 miles:

500 * 27p = £135 no VAT reclaimable
500* 13p = £65 gross, which is £55.32 Net and £9.68 VAT

Total paid out to employee £200.
Total VAT reclaimed £9.68.

You need to have VAT fuel receipts to the value of the VAT being reclaimed kept in your records.

If a mileage rate is being paid, the amount of actual fuel bought doesn't come into it, you use the 40p/25p a mile, and the advisory fuel rates in force for the date of the claim and for your size/ type of vehicle.

[elainec100@cheapaccounting]

The mileage rate of 40p (first 10K miles) is extremely generous and is to cover the cost of fuel as well as other general running costs.



The AA tables disagree with this as well:

http://www.theaa.com/allaboutcars/advice/advice_rcosts_petrol_table.jsp

[ehup]

Hmmmmm, many many thanks all, maybe I've missed something here. Director uses own car for business, purchases fuel on company card, the purchase goes down to Directors loan account, director claims HMRC mileage allowance, director repays loan account. Can the VAT element be reclaimed by the Company? Any advice on how best to deal with this situation, alternative methods for claiming?

[Jenni384]

Hmmmmm, many many thanks all, maybe I've missed something here. Director uses own car for business, purchases fuel on company card, the purchase goes down to Directors loan account, director claims HMRC mileage allowance, director repays loan account. Can the VAT element be reclaimed by the Company? Any advice on how best to deal with this situation, alternative methods for claiming?

Purchase of fuel to DLA is fine (and indeed correct, posting it to motor expenses would not be).
Claiming mileage allowance is fine. You can claim the VAT element as detailed above if the company is VAT registered.

[IT Associates]

Many apologies to you all regarding my misinterpretation of VAT on mileage. And thank you for this information. It is not something that I am able to find anywhere in print, or on the Revenue website can anybody point me to it please?

I also accept that the 'generous' allowance of 40p is no longer as true as it used to be since fuel costs have increased so much and is a little bit like Company-v-Sole Trader, where it does depend upon individual circumstances. It may not cover costs on high end vehicles but I still feel it can be generous in some circumstances.

Anyway, sorry if I have upset anyone.

[elainec100@cheapaccounting]

Here is a link for vat on mileage:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000090&propertyType=document#P178_18760

[Williams lester]

I also accept that the 'generous' allowance of 40p is no longer as true as it used to be since fuel costs have increased so much and is a little bit like Company-v-Sole Trader, where it does depend upon individual circumstances. It may not cover costs on high end vehicles but I still feel it can be generous in some circumstances.


I fail to see, in any circumstances, that the 40p per mile could be construed as 'generous', aside from the fuel element of this is the general running cost of the vehicle (repairs, wear & tear etc) and the depreciation on the value of the vehicle given the extra mileage being done. As the 40p per mile has been in place for many years whilst fuel and other motoring costs have risen significantly, where in that equation is the generosity!