Personal Loan for Company Car

[Once]

Daer All,

Please can someone give me an expert advice on this issue. If I take out a personal loan to buy a company car for my company, is it possible to reclaim from my company, the interest I will be repaying on the loan? or do I just charge my company interest based on the value of the car?

Many thanks

MO

 

[Alpha]

Firstly note that the loan is yours personally so you are responsible for paying it.

Having obtained the loan personally you would then make a loan to the company which gets credited to the directors loan account. The capital paid will therefore come out of this account.

As far as the interest is concerned you can charge the company interest BUT the company has to make a deduction of 20% for any interest paid out and this is paid over to the inland revenue on a quarterly basis.

It is better to pay the interest yourself and make a claim on your self assessment form for the interest paid as a qualifying business loan.

 

[Once]

Thanks Alan, I'm very grateful for your advice.

MO

 

[gj]

A company car is almost always not tax efficient, so if you are fudning it yourself, it would be wise to get advice on whether you treat car as your own and charge the company mileage, or have the company buy the car with your loan and you have a taxable benefit.

I cannot remember the last time it worked out best for a car to be a company car, so I would bet money on you being better off over all if you treat the car as your own

Graham

 

[Once]

Hi Graham,

The car is going to be used mainly for business and for this reason I do feel it will be beneficial to have the business to buy the car so that all the cost of running the car will be charged to the business. I do not feel that charging 45 pence per mile will cover the cost of buying and that of running the car.

MO

 

[gj]

Ah but you have to take account of the tax you will pay on the company car - which is effectively an unfairly large amount of tax as the goverment is trying to discourage company cars.

We have a company car model which calculates the over all position - it basically works out the alternatives and assumes that anything the company saves by not paying for the car and its running costs is paid to you as additional dividend. You have this extra dividend, plus the mileage allowance, and the saving of tax on the company car to pay for the car and its running costs - don't forget that the car will have a value once it is paid for - so you have to take account of its depreciation only, not its actual purchase price.

If you would like me to run the calculations for you, let me know and I will send you a questionnaire of the info I would need

Regards


Graham

 

[Once]

Thanks Graham, I would like you to run the calculations for me. My emails address is: [email protected]

MO

 

[gj]

OK will email it from office on Tuesday - not in Monday

Graham

 

[Pilfo]

Hi MO,

Why not just get the vehicle under a Contract Hire scheme.

Simply transfer sufficient funds each month from your personal account into your company account to cover the regular monthly payments. These payments will also be treated as a directors loan to the company.

If you are VAT registered, you will be able to claim 100% on both the service and hire elements, if the vehicle is used solely for business use, or 100% on service and 50% on the hire element, if used partly for personal use.

Pilfo

 

[gj]

Pilfo is not strictly correct. To stop the car from being treated as a company car, the contract hire costs should be charged to the directors loan account, and the payment in merely cancels that out - so the payments are not really treated as a directors loan to the company.

Also on the VAT, the company is effectively recharging the cost to the director so has to charge VAT to the director. There is therefore a VAT recovery and a VAT charge of equal amounts.

Graham

 

[Pilfo]

I was under the impression that MO wanted to treat the car as a Company car.

"Please can someone give me an expert advice on this issue. If I take out a personal loan to buy a company car for my company, is it possible to reclaim from my company, the interest I will be repaying on the loan? or do I just charge my company interest based on the value of the car?"

 

[gj]

Apologies to Pilfo - if the car is to be a company car, then the contract hire method may be appropriate - though MO may be considering a personal loan as he may have problems getting finance for the company.

My previous comment was based on the fact that I seriously question whether it should be a company car.

Graham

 

[steve22]

I read the post "Fully Paid-Up UK Business Forums Member..." it is very informative....