Big Cars, Big Tax
There was a time when most company owners and directors ran large and expensive cars through the company in preference to owning them personally. I am asked quite regularly whether this is still a good idea, and usually the answer is "no" because of the government's longstanding policy of imposing high tax rates on most cars. Small or very fuel efficient cars do not get a bad deal tax wise but, nine times out of ten, I find the car that owners and directors want is one with kudos, status and an engine that puts the carbon dioxide emissions off the scale...
To show the level of tax liabilities that arise for such a company car, here is a seasonal example of how much it may cost:
For Santa:
Income tax due on car benefit £22,120
Income tax due on fuel benefit £9,464
For Presents Un-Ltd:
National Insurance due on car and fuel benefits £10,109
Total £41,693
Santa has been thinking about putting Rudolf and his friends into retirement for some time and upgrading to a less green but more comfortable and much warmer form of transport. He has had his eye on a BMW 540I with a list price of £39,500 and emissions of 239g CO2/km and is wondering whether he should own this personally or through his company. If he buys the car through his company (Presents Un-Ltd), the tax and National Insurance over the next four years would be as follows (Santa is, of course, a higher rate taxpayer):
The total taxes over the four years are greater than the actual list price of the vehicle to begin with. To be precise is takes just 3 years and 288 days to double the cost of the car by adding on the same again in taxes!
It would be much more tax effective to simply own a car like this personally and claim an allowance for business mileage. One exception to this is if the car has a high initial rate of depreciation. By purchasing the car in the company and then extracting it, say, the following year at a fair (but much reduced) value, the company bears the initial depreciation hit rather than the individual paying for it out of his taxed income.
Of course, it can still be reasonably tax efficient to own "green" cars and commercial vehicles (including double cab pickups) through a company and these should always be considered as well. However, high value/high emission cars should usually be owned personally.
If you have any questions about this article please contact Charles Green on 020 7022 0050.
If you have any questions about this article please contact Charles Green
on 020 7022 0050.
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