Buying a car for business use?

[Windmark]

Hi there,

I have a question I'd really appreciate some guidance on by those in the know on the forum.

I run a small (very modest profit making) computer supplies company and am also a sole trader consultant (very modest loss making), both businesses are vat registered.

I'm trying to purchase a car, entirely for business use, however am very unsure of the most cost effective way of doing this.

The vehicle in question is a petrol car with c02 of beyond 50g/km expected to cost about 80k, my salary for the last three years from the Ltd company has been around 74k.

What is the cheapest way to acquire the car?

I've been told purchasing outright via the Ltd company will attract astronomical BIK rates and mileage at 40% for the small 4k mileage we do annually wont be much?

Buying it within the sole trader consultancy, claiming vat if possible and annual writing down allowance (6%) may allow offset of income tax from the Ltd company, which could make it affordable, but I don't understand how this would work and what happens if the ltd company in future makes a loss?

I'd really appreciate some help if possible

 

[BubbaWY]

A £80k car for 4k miles a year? Get yourself a cheap runaround and pay yourself more.

 

[Paul Kelly ICHYB]

If it is entirely for business use, why would there be BIK? You wouldn't be using it personally!

 

[David Griffiths]

If it is entirely for business use, why would there be BIK? You wouldn't be using it personally!

The BIK applies if the car is available for private use, so you can have a tax bill even if you never use it! Of course you can structure things to ensure that there is no availability, but you'd need to think of that in advance.

 

[Paul Kelly ICHYB]

What about the old pool car approach?

 

[DWS]

What about the old pool car approach?

You would need a ‘pool’ of employees!

 

[Windmark]

A £80k car for 4k miles a year? Get yourself a cheap runaround and pay yourself more.

I wish I could, I'm wondering if we could use our income tax in the LTD to purchase the car as its the only way we can afford it

 

[bovine]

im sort of intrigued as well. If the car is only used for business and you're doing 4k, why is a 80k petrol car the best option? What is it and why is it your preferred option?

 

[DWS]

I wish I could, I'm wondering if we could use our income tax in the LTD to purchase the car as its the only way we can afford it

Companies pay Corporation Tax not Income Tax, and if you use this to buy the car how are you then going to pay the tax?

 

[Bobbo]

If it is entirely for business use, why would there be BIK? You wouldn't be using it personally!

I daresay that when OP means business use they are taking the two businesses together (i.e the computer supplies company and the consultant sole trade). Use in carrying out the sole trade activities would be private use as far as the company is concerned.

(and as noted by another poster the test is "available for private use" irrespective of actual use.)

 

[Windmark]

I daresay that when OP means business use they are taking the two businesses together (i.e the computer supplies company and the consultant sole trade). Use in carrying out the sole trade activities would be private use as far as the company is concerned.

(and as noted by another poster the test is "available for private use" irrespective of actual use.)

the car won't be connected (connected trade) ie used by both companies, it'll be used only for the sole trader and in theory not available for private use at all

 

[Windmark]

Companies pay Corporation Tax not Income Tax, and if you use this to buy the car how are you then going to pay the tax?

From what I've been told perhaps wrongly, you can "sideways offset" income tax on salary

 

[Windmark]

im sort of intrigued as well. If the car is only used for business and you're doing 4k, why is a 80k petrol car the best option? What is it and why is it your preferred option?

long answer we're developing a fuel cell that is designed for this specific engine, that can take the data from the ECU and other hardware in the car to provide an ideal catalyst for the compounds we're using.

 

[DWS]

So to get this straight
You want to buy a 80k car for your loss making sole trader business and only do 4k in miles annually, you then want to use this loss and offset it against the salary of your Ltd Company, is that your plan?

---

 

[Windmark]

So to get this straight
You want to buy a 80k car for your loss making sole trader business and only do 4k in miles annually, you then want to use this loss and offset it against the salary of your Ltd Company, is that your plan?

---

Well I'm asking for advice as I don't know what to do tbh

 

[DontAsk]

What does your accountant say?

Is there a way to buy the car as test equipment, rather than transport, given what you say you want to do with it?#

As you are buying it as a sole trader, you and the business are one and the same. Tax treatment will surely be different to a Ltd buying it. Talk to your accountant

 

[DWS]

Well I'm asking for advice as I don't know what to do tbh

Well then it is best to go to your accountant as they will know more about your circumstances, too many variables and wrong advice could be costly

 

[Bobbo]

long answer we're developing a fuel cell that is designed for this specific engine, that can take the data from the ECU and other hardware in the car to provide an ideal catalyst for the compounds we're using.

Who's we?

 

[David Griffiths]

From what I've been told perhaps wrongly, you can "sideways offset" income tax on salary

Not sure that there's any "perhaps" about it!

 

[bovine]

oh, so you're not actually using it for driving but for R&D. That seems to put a different spin on it. Would imagine it could be expensed as r&d, but how much and how would probably need some specialist accountant input.

 

[Windmark]

What does your accountant say?

Is there a way to buy the car as test equipment, rather than transport, given what you say you want to do with it?#

As you are buying it as a sole trader, you and the business are one and the same. Tax treatment will surely be different to a Ltd buying it. Talk to your accountant

I've been using the same accountant for as long as I can remember, his advice is you can claim for the materials within the fuel cell, but not the car or hardware (which is expensive) via the R&D scheme, using the ltd company, but it obviously wouldn't be anywhere near as useful as a sideways offset and he's unsure whether a sideways offset is possible

 

[MyAccountantOnline]

I've been using the same accountant for as long as I can remember, his advice is you can claim for the materials within the fuel cell, but not the car or hardware (which is expensive) via the R&D scheme, using the ltd company, but it obviously wouldn't be anywhere near as useful as a sideways offset and he's unsure whether a sideways offset is possible

Your accountant really should be the best person to advise you as they have all relevant information. If you doubt any advice you've been given do ask your accountant again.

 

[Windmark]

Not sure that there's any "perhaps" about it!

How does this work, if for arguments sake to keep the numbers understandable, we have a tax liability of 3k over three years in the LTD and then put a 3k loss in the consultancy, it offsets it?

I've been told we can also then apply for annual writing down allowances?

I don't understand how this is done, or if the 3k loss in the consultancy will affect all three years or just that year of salary tax in the ltd company or if there's a way to make it account for all three years to maximise the offset

 

[MyAccountantOnline]

How does this work, if for arguments sake to keep the numbers understandable, we have a tax liability of 3k over three years in the LTD and then put a 3k loss in the consultancy, it offsets it?

...

It doesn't the limited company is a separate legal person. It can't use your tax losses.

 

[Windmark]

It doesn't the limited company is a separate legal person. It can't use your tax losses.

By that I meant my salary within the ltd company, could/should we move this to PM MyOnAccountant?

 

[MyAccountantOnline]

By that I meant my salary within the ltd company, could/should we move this to PM MyOnAccountant?

You can (and should) pay a tax efficient salary from the company which takes into account your total personal income. This is something your accountant should be doing, ensuring you maximise tax savings.

 

[Windmark]

You can (and should) pay a tax efficient salary from the company which takes into account your total personal income. This is something your accountant should be doing, ensuring you maximise tax

I agree however, it doesn't seem to be happening and we're really struggling with affording costs that the government should have factored into the R&D scheme but haven't

 

[JEREMY HAWKE]

I would say that you have tried to dress this up as business like as possible but lets be honest you just want this car for yourself to pose up and down the sea front playing George Benson loudly with the sunroof open

Your question is
Is there a tax efficient way for me to enjoy some ice

 

[Windmark]

I would say that you have tried to dress this up as business like as possible but lets be honest you just want this car for yourself to pose up and down the sea front playing George Benson loudly with the sunroof open

Your question is
Is there a tax efficient way for me to enjoy some ice

or more interestingly (unfortunately) to realise the potential of the culmination of over 5 years cutting edge work (across three universities and two companies) in the hybridisation of fuel cell nanotechnology, as a UK world first...in all honesty that is

 

[JEREMY HAWKE]

or more interestingly (unfortunately) to realise the potential of the culmination of over 5 years cutting edge work (across three universities and two companies) in the hybridisation of fuel cell nanotechnology, as a UK world first...in all honesty that is

So I'm right you feel that you deserve this car as a reward for your efforts

 

[Newchodge]

I'm wondering if we could use our income tax in the LTD

Could you explain that a little, please, as it makes no sense to me.

 

[Newchodge]

If your limited company pays you a salary and you have to pay tax and Ni on that salary as PAYE, no the company cannot offset any of that money against anything.

Neither of your 2 businesses appears to be involved indeveloping a world beating fuel cell?

 

[Windmark]

Neither of your 2 businesses appears to be involved indeveloping a world beating fuel cell?

I'm afraid you're wrong, and that simply isn't true, I genuinely have a consultancy working on research for a highly innovative fuel cell

 

[Windmark]

If your limited company pays you a salary and you have to pay tax and Ni on that salary as PAYE, no the company cannot offset any of that money against anything.

I think you've misunderstood the question, which is sideways offset, but thankyou anyway

 

[Newchodge]

I'm afraid you're wrong, and that simply isn't true, I genuinely have a consultancy working on research for a highly innovative fuel cell

I am not suggesting that you have not. But is it being done through your limited company or through your self employed, loss making, consultancy?

 

[Newchodge]

I think you've misunderstood the question, which is sideways offset, but thankyou anyway

The PAYE and NI money does not belong to the company, it belongs to the employee so cannot be used to offset anything, sideways or otherwise.

 

[Windmark]

The PAYE and NI money does not belong to the company, it belongs to the employee so cannot be used to offset anything, sideways or otherwise.

I'm afraid you've misunderstood the question, its employee salary offset that I'm referring to and it can indeed be used in the way suggested, now confirmed by a tax specialist, but thankyou anyway

 

[Newchodge]

I'm afraid you've misunderstood the question, its employee salary offset that I'm referring to and it can indeed be used in the way suggested, now confirmed by a tax specialist, but thankyou anyway

Right. So absolutely nothing to do with offset of income tax:

Buying it within the sole trader consultancy, claiming vat if possible and annual writing down allowance (6%) may allow offset of income tax from the Ltd company, which could make it affordable, but I don't understand how this would work and what happens if the ltd company in future makes a loss?

from your original post.

You mean that the limited company lends you £80,000 to buy a car, and offsets their loan to you so that you work for nothing until the loan is paid off? Can happen if the ltd company has that money and if you are prepared either to pay market value interest or the tax charge for the BIK of the loan.

 

[Mattymoomoo]

I would say that you have tried to dress this up as business like as possible but lets be honest you just want this car for yourself to pose up and down the sea front playing George Benson loudly with the sunroof open

Your question is
Is there a tax efficient way for me to enjoy some ice

This is clearly the way i read it too. Which is fine. I would genuinely be surprised if the company needed a new £80k to test this technology or whether this would be the best use of the companies money (if not going to be used personal). Either way, it depends on the OP's risk tolerance with HMRC, who are too busy to check this stuff anyway. Im sure you will find an opportunistic accountant if this is what is wanted.

 

[UK Contractor Accountant]

hybridisation of fuel cell nanotechnology,

Hydrogen fuel cell?
Ammonia?