Leasing or financing a car through a Ltd company

ChrisD.

ChrisD.

ChrisD.

Man of Honour
Joined
20 Sep 2006
Posts
36,254
So, as per my sig I have two cars, the car I use as a daily to get to work and back (Accord), long trips etc, and my S2000 which is used at weekends and sometimes I'll take it to work to give it a run out.

I'm a contractor and I work through a Ltd company, I have often thought about getting a new car through my business, but I've always been massively confused whenever I look into it. Also, a lot of people who I have spoken to say I am better off getting a personal car and then claiming fuel (I'm almost at 25k for this FY).

This is what my accountant sent me after I enquired about a car, I can't remember what it was sorry!

The Benefit In Kind all depends on the CO2 emission, the type of the car and the value.


E.g
Co2: 108 g/km
List price: £27,780
Diesel

1. Leasing a car:

As a company director, you need to be aware that company leasing a car will give rise a P11D Benefit In Kind (BIK) for the director.

This means you will need to calculate the corporation tax saved on the lease costs against your personal tax bill and employers national insurance on the P11D.

A lease on the car with a CO2 emission of 108 g/km would be taxed at 17% (2014-2015 tax year) = £27,780 value *17% = £4722.60, this is the cash equivalent value of the car.

On this £4722.60 cash equivalent value your Ltd will have to pay 13.8% Class 1A NIC on Ltd's P11D = £651.72.

The taxable car fuel benefit, for 2014/15, is calculated by multiplying £21700 * CO2 emission (17% for a car with CO2 of 108 g/km) = £3,689 is the cash equivalent value, for the P11D at 13.8% is £509.08 per year on P11D owed. (only if the company pays for the fuel)

Total tax on P11D = £651.72 + £509.08 = £1,160.80 (assuming ltd is paying for all fuel including private)

On your self assessment you would have to pay 20% of £4,722.60 = £944.52 income tax payable per year.

Above benefit in kinds will count as income so your available tax free dividends will reduce by the £4,722.60 (cash equivalent value of the car) + £3,689 (cash equivalent value of the fuel benefit) = £8,411.60.

If the Ltd pays for all fuel including private journey, on your self assessment you would have to pay 20% of (£4,722.60 + £3,689), giving £1,682.32 income tax payable per year. (40% if you are a higher rate tax payer)

Ltd will get the corporation relief on the lease costs and MOT and road tax can be put through as company expenses, Ltd will be able to claim 100% of the lease costs as the car is below 130 g/km.

If you are planning to use the car for your private use you can only claim 50% of the VAT back on the lease.

2. Buying it on your personal name.

There wont be P11D benefits if the car is on your personal name. You wont be able to claim for petrol and maintenance cost, however you will be able to claim mileage.

The mileage is 0.45 p per mile for the first 10,000 miles and 0.25 p per mile thereafter and this covers the wear and tear of the car.

Hope this helps.

Regards
Click to expand...

I guess my question is, if I were to want a new car, or nearly new car, is there something blindingly obvious that I could lease/buy that would see me in a decent (read BMW, a marque I've wanted for ages) car to work, which using my business will save me a fair bit of money compared to running a car out of my own pocket?

I don't really want to discuss finances in detail, but FWIW there's plenty in my company to finance a car.

Edited.

My mileage should decrease significantly come April.
 
Last edited:
As you are a contractor I assume you are registered on the flat rate scheme for VAT? If so, you will not be able to reclaim the VAT on the monthly lease costs.
 
Yeah I thought as much, it's only an online accountancy (does fine for my needs) so it's likely a copy/paste with the car details worked out.
 
[TW]Fox;27518866 said:
You'd still expect him to know you are on flat rate VAT though?
Click to expand...

Like I said, it's an online accountancy, so it was probably a template and they didn't look at that aspect of my company before replying.

Not really the point of my thread.
 
You have several options.

The best bet is to declare the car as a "business car". This is a car that can strictly only be used for business purposes, but if you have a fun car too, you can usually live with that restriction. You can claim 12-25p per mile depending on the engine type and size for fuel only. There is no BIK tax on a business car. All running costs can be paid by the company.

The next best thing is to declare it a "pool car" but you need multiple employees for a pool car and it can really only be kept at the registered business address overnight. You can reclaim the cost of fuel, servicing and consumables only with a receipt. Again, no BIK tax on a pool car.

The next best thing is to cover the cost of the car to the company at which point you can do what you like to it with the car and pay no tax at all on it. Leasing a car as a business customer should automatically make a new or VAT-relief eligible used car 20% cheaper because you're not financing the VAT portion of the car price. You can pay yourself the full 45p for the first 10,000 miles and 25p thereafter. This is what I do. There is no BIK because you are paying the full cost of the car. You are also responsible for all running costs.

Assuming you are a company shareholder paying yourself dividends you will almost certainly pay the BIK on a car at 40% which is crazy. If you choose a car brand that likes business customers (Audi, Mercedes, VW) then you can get fantastic business-only lease deals. VW/Audi through VW Finance is very good because if you run up the mileage and give the car back early you only make 50% of the remaining payments. Mercedes charge you the full outstanding rentals.
 
Last edited:
Thank you, it would be 99% business use anyway so that's not an issue.

Are BMW not as friendly as the others then in the way you mention?
 
If you take a BMW on lease then when you return it they screw you royally on repairing any damage. Audi let you hand the car back with 6" long scratches that won't polish out, 2" defects on the wheels etc. Mercedes are a lot tighter, but still you can have scratches and wheel damage up to 1" on each wheel. BMW let you away with almost nothing. And their lease rates aren't especially attractive either.
 
You only pay BIK on something thats a benefit - a car owned by the business and only ever used for business purposes is of no personal benefit to you and therefore does not attract BIK.

In exactly the same way a companies delivery lorry would not attract BIK.
 
Pudney said:
You may be asked to prove it's only used for business. Just a warning.
Click to expand...

You would have to keep a log of miles run, but as you claim the fuel back on a p/mile basis that's pretty much a requirement to cover your expenses anyway.

The OP did state from the outset that he wanted a cheap car to put business miles on. That's a business car.
 
You must log in or register to reply here.
Back
Top Bottom