Self Employed - Best Route for buying or leasing a car

[Paul Sherlock]

Hi All,

I wanted to pick some brains on the best route on purchasing or leasing a car for my usage as I'm self employed but lack knowledge on the tax implications with regards to a car / van.

Having done some research I keep going round in circles so hopefully someone here can give me a helpful hand.

I'm registered as self employed (sole trader) in construction and at source I get 20% taken from my wage which is varied week from week although I would expect an average take home after tax to be around £2000 to £2500 per month.

I'm looking to get a car to use for business and personal usage. This will be a split of 80/20 (Business/Personal).

For this current financial year I will have a lot of tax to utilise so I would think that it would be better that I purchase a Nissan Nirvano on a PCP at £450 per month, although I could utilise a car for what I do as well.

1) If I do this will I be able to recognise the entire value of £20k + off of tax if I use capital expenditure and AIA?
2) How does tax look at the final balloon payment?
3) Do I just look at all bills and use the 80% off of my tax?

If I didn't go down the route of the van and purchased an A5 valued at £28,000 and again went down the route of the actual costs on the 80/20 split what would be the sums? Do I look at 80% of entire PCP price or because of co2 emmissions do I need to do sojme further sums?

I don't think I want to do the milage route as I would get greater savings on the actual cost.

Sorry for my naievity and I will get some tax advice from an accountant but if I could ask for some initial assistance from the forum it would be appreciated.

Thanks,


Paul

 

[Mitch3473]

In a nutshell you're new to self employment and looking at spending a guarranteed 25% of your non guaranteed income on a big car you dont really need. What's wrong with a decent second hand Transit type van for a 1/3 of that.

 

[Paul Sherlock]

Nothing wrong with that at all and I will put it under consideration, do you have an answer to the question as I'd like to get some more knowledge on that initially?

 

[Talay]

Go see an accountant. If leasing, you likely won't be able to use any capital allowances but will be able to offset rentals.

If new to business, your credit might not be good enough.

 

[marklew]

If the car is for your sole use, I believe you will have additional tax implications (benefit in kind) on a large engine cars you mention its not cheap! as above speak to an accountant to get the best result for you. Can be ~20% of the P11D value... not what you paid for the car but the P11d of the new car. This is how it works under PAYE and assume similar will apply, unless someone advises otherwise

 

[vibrantcolour]

As a sole trader, you say you get 20% taken off at source.

Are you in an umbrella company? Or just registered self employed.

If self-employed BIK and P11D is not an issue.

 

[Talay]

If the car is for your sole use, I believe you will have additional tax implications (benefit in kind) on a large engine cars you mention its not cheap! as above speak to an accountant to get the best result for you. Can be ~20% of the P11D value... not what you paid for the car but the P11d of the new car. This is how it works under PAYE and assume similar will apply, unless someone advises otherwise

If you have a bog standard low rent version with no extras then it can be a decent option on lease but if you have all options, the bigger engine, the top of the range etc. then you are going to get hit with a mega bill.

We went through this on a couple of £60k / £100k cars and there is no sensible option but to buy it and claim mileage for what that is worth.

 

[MyAccountantOnline]

Hi All,

I wanted to pick some brains on the best route on purchasing or leasing a car for my usage as I'm self employed but lack knowledge on the tax implications with regards to a car / van.

Having done some research I keep going round in circles so hopefully someone here can give me a helpful hand.

I'm registered as self employed (sole trader) in construction and at source I get 20% taken from my wage which is varied week from week although I would expect an average take home after tax to be around £2000 to £2500 per month.

I'm looking to get a car to use for business and personal usage. This will be a split of 80/20 (Business/Personal).

For this current financial year I will have a lot of tax to utilise so I would think that it would be better that I purchase a Nissan Nirvano on a PCP at £450 per month, although I could utilise a car for what I do as well.

1) If I do this will I be able to recognise the entire value of £20k + off of tax if I use capital expenditure and AIA?
2) How does tax look at the final balloon payment?
3) Do I just look at all bills and use the 80% off of my tax?

If I didn't go down the route of the van and purchased an A5 valued at £28,000 and again went down the route of the actual costs on the 80/20 split what would be the sums? Do I look at 80% of entire PCP price or because of co2 emmissions do I need to do sojme further sums?

I don't think I want to do the milage route as I would get greater savings on the actual cost.

Sorry for my naievity and I will get some tax advice from an accountant but if I could ask for some initial assistance from the forum it would be appreciated.

Thanks,


Paul

My advice is to look at the actual total costs of each option first, and then once you've done that consider the tax implications. Its no advantage to save tax if the actual outlay is more.

 

[Clare@ClarityTaxation]

Totally agree with Nicola, don't let the (tax) tail wag the dog. Go through the options and see what you prefer for business, what each will cost first, then consider the tax implications, then weigh them up. A few things that might help though:

If you're not a limited company then don't worry about P11D benefits in kind, they don't apply to you.

If for any reason you're VAT registered then you can claim the VAT on a van (check the definition of a van though as some don't qualify, for example it has to have a payload of over 1t).

If you're thinking about a car or a van, a van will get you better deductions with capital allowances (they qualify for AIA, a car does not).

You could buy the car/van personally and then claim mileage (this ties into the simplified expenses option). At 45p per mile for the first 10,000 and then 25p thereafter it sometimes works out at a better option as it's more tax-free cash in your pocket plus it reduces your profit, although you cannot then claim AIA too.

 

[Paul Sherlock]

I'm self employed but as I'm in construction I'm on the CIS scheme which means 20% gets removed from the contractor.

BIK will not come into play as it will be my car as far as I'm concerned.

My real confusion is that if I buy a VAN on PCP worth 20k I believe I can claim 20k off my tax bill in year one via the route of AIA.

If I get a car worth 20k which for example is £400 per month what sum would I do to work out on the capital expenditure scheme? I can't believe I can claim back the full £400???

 

[Paul Sherlock]

@MyAccountantOnline thanks for your message.

I did get some numbers from my Nissan and Audi dealers.

The Nissan Nirvana was a 3 year deal with a payment of £450 per month with a balloon payment at the end. Total value was 25,000.

The Audi A5 Coupe was a 4 year deal with a payment of £372 per month with a balloon payment at the end. Total value was 28,000.

Insurance on both is very similar £50 to £60 per month.

 

[Bob]

Whichever route you follow you will not get £20K off your tax bill if you make a purchase for £20K. The very most you would get would be tax relief on the purchase cost. If you paid tax at 20%, the maximum saving would be £20K at 20% i.e. £4K. That would be subject to the cost being tax deductible

 

[Paul Sherlock]

@Bob I'm confused by this as AIA gives 100% doesn't it?

 

[Bob]

AIA is only a tax relief. Your profits are reduced by the AIA.

Therefore you receive a reduction in your taxable profits equal to the AIA i.e. £20K at 20% = £4K

 

[MyAccountantOnline]

@MyAccountantOnline thanks for your message.

I did get some numbers from my Nissan and Audi dealers.

The Nissan Nirvana was a 3 year deal with a payment of £450 per month with a balloon payment at the end. Total value was 25,000.

The Audi A5 Coupe was a 4 year deal with a payment of £372 per month with a balloon payment at the end. Total value was 28,000.

Insurance on both is very similar £50 to £60 per month.

Next step is to work out the costs of actually running the vehicles bringing into account fuel, servicing etc.

By the way I have no link whatsoever to them apart from being a very happy customer but if you are considering leasing check out Lease World they are generally a lot cheaper than dealers if you are looking at a lease.

 

[vanleasing]

I am not so impartial about this as you can tell but from personal standpoint its really simple, people just make it far more complex than it is.

It is always better to buy a vehicle outright, no question about it. If you have the cash then your best deal is to buy a van rather than lease. In most cases, self employed van leasing individuals then leasing is the better option for cash flow.

Its always the same CASH is KING