Car lease - mistake

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cava83

Free Member
Sep 27, 2012
23
3
  • #1
    Hi All,

    Thank you in advanced for reading this, I hope it makes sense and many thanks in advanced if you do reply.

    Just a question regarding company car tax and potential tax implications.

    First and foremost, actual advice has been requested from some "experts" but wanted to know your thoughts as some of you are!!

    We were adviced differently by different accountants and in the end, I think we might have chosen the wrong decision.

    Scenario.

    Business partner and I are full time in our "main jobs". We are directors of a limited company.

    We decided that it would be of benefit for my business partner to get a different car. Due to the mileage he was doing and how much his personal car was costing him to maintain.

    Having looked at different options, a leased car was chosen on a 3 year deal.

    The lease was not taken under the company name, but under the business partner trading as "company xyz". Reason for this was due to the business being rather new, could not get the right credit for it.

    6 month deposit was paid upfront.

    The car is costing the company including VAT say £350.

    Because it's not a pool car and the lease has been coming out the company bank account as well as claiming VAT )the vehicle is seen as a benefit in kind and thus, tax is due.

    The tax bill is quite a bit of money and going forward, it's going to cost my business partner quite a lot of money. Thus not being viable.

    Had the money been coming out of his personal account, there would be no tax liabilities as it would be a personal lease.

    The issue

    Yes, I know it's a mess. However, it needs resolving.

    Can we simply just say to the HMRC that the lease is a personal one, however the business has been paying for it, it is now not financially viable for the business, we made a mistake, can we remove the lease from the "company" and just get the business partner to pay for it out of his earned income?

    Really don't want another 24 months of un-required cost.

    Any thoughts appreciated, again, we do realise that this was a mistake and probably a rushed decision. But we all learn from these scenarios.....

    Many thanks,

    Kind regards,

    G.
     
    B

    businessfunding

  • #3
    You need to take into account the VAT benefit you have gained (hopefully only half the VAT on the car element?)

    And the other allowable expenses on maintenance, insurance etc.

    You really need specific advice to get this right.
     
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    David Griffiths

    Free Member
    • Jun 21, 2008
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  • #4
    On the facts given, the vehicle never has been a company car and the figures should be amended to reflect that

    That would include reversing any VAT claims. You'd have to look at the other payments - presumably they should be charged to the directors loan account and dealt with from there. Alternatively they are remuneration subject to PAYE and full Class 1 NIC

    There should be no company car benefit. Tell HMRC that the lease never was in the name of the company. Don't mention that it's no longer financially viable - that has no relevance at all
     
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    andygambles

    andygambles

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    Jun 17, 2009
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    Scarborough
  • #5
    As mentioned reverse all the payments to the Directors Loan account or going forward just switch to making the payments Directors Loan. Even change the DDB to personal account.

    I lease but claim back mileage. Sometimes the mileage claims can cover the entire months lease. No BIK or tax issues.
     
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    David Griffiths

    Free Member
    • Jun 21, 2008
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  • #7
    OldWelshGuy said:
    Also the direcrtor should be claiming the mileage which if he is doing a lot of miles should more than cover any costs and then some, so it should be a case of moving everything into the right columns and adjusting (happy to be corrected on this by the accountants)
    Click to expand...

    The problem there is likely to be that there is no mileage record. Given the higher than average chance of this being looked at by HMRC, that could prove to be an issue.
     
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    NicholasTaylor

  • #8
    Hello OP

    I've got a room full of vehicle leasing experts and fleet consultants...all are fully trained in legalisation, taxation and so on - so please do consider this an 'expert opinion'

    Just bounced your question to them and here's the response:

    From what I understand the finance should only be via the 'trading as' company. If it was via the partner t/as he would be paying for the car via his sole trader status and thus would not have a benefit in kind liability.

    The VAT could only be reclaimed if this t/as company was vat registered. By then claiming this vehicle via the ltd co to the HMRC you are providing the car as a benefit and thus the individual would be taxed as such.

    I can only see that ongoing the car is paid for via the t/as company to avoid this. The other option could be for the driver to reimburse/contribute toward the car back to the ltd and this could negate the personal tax.

    Hope that helps a bit
     
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    cava83

    Free Member
    Sep 27, 2012
    23
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  • #9
    Thank you very much for the replies.

    This is proving very costly.

    I am wondering how difficult it is to correct this, additionally, we love our accountant but it might be time to move and change to someone different.

    I think the lease should be moved to the director as a personal lease, will work out more economical throughout.

    Need to figure out how to go about this really.

    I don't mind the tax man making some money but when you are working very hard and getting taxed left right and center, I don't think this is worthwhile, might as well relax but we need to do this, in order to move forward.

    Catch 22 as they say.
     
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    NicholasTaylor

  • #10
    cava83 said:
    Thank you very much for the replies.

    This is proving very costly.

    I am wondering how difficult it is to correct this, additionally, we love our accountant but it might be time to move and change to someone different.

    I think the lease should be moved to the director as a personal lease, will work out more economical throughout.

    Need to figure out how to go about this really.

    I don't mind the tax man making some money but when you are working very hard and getting taxed left right and center, I don't think this is worthwhile, might as well relax but we need to do this, in order to move forward.

    Catch 22 as they say.
    Click to expand...

    Sadly, we hear about this sort of thing from a lot of our new clients.

    Many are simply sold the end rental, which is the figure you pay per month without taking into consideration whole life costs of the vehicle.

    I hope you manage to sort it out!
     
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    cava83

    Free Member
    Sep 27, 2012
    23
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  • #12
    andygambles said:
    It is pretty easy to sort out as the lease is in the directors name. Just change it from today and pay the lease from a personal account. Simples.
    Click to expand...

    Thank you for the reply.

    What about the P11D? His tax code has already been adjusted for this year, is it a matter of just getting it changed again?

    The accountant is pretty much set that this is the best way in regards to tax efficiency, but overall, paying more from my point of view.

    Thanks very much,

    G
     
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