Company cars and Accountancy

If you are in a position to negotiate your own package or you run your business then you need to consider the tax implications when you arrange your company cars.

If you plan to use your car for both business and personal use, to go to meetings and pick up the kids from school, then you have the option of having the company buy the car, then you have to pay a higher tax rate because the government sees personal use as a benefit or part of the salary… which is taxable. Or you can buy it yourself and have the business compensate you for business use.

Traditionally, the business car was a common perk of middle and upper management but since the taxman has decided to get his dirty little hands on it, then it’s not been so black and white. Generally speaking, accountancy is never black and white so why would these kind of expendables be anything different?

There is a third option, something that a lot of accountants love to promote to their clients. Car leasing. If a business leases are car for you, regardless of whether you use it for business or personal use then the company gets to claim 85-100% of the value against profits.

Accountants love avoiding the taxman as everyone does, so this is the reason why they love this structure. There are some merits for a business purchasing an asset like a car as long as it is completely for company use, just like any plant equipment purchase it can be offset against the company’s profits, but as soon as it’s used for personal use, an exact account of business and personal milage needs to be kept with the proportion of milage used for personal use taxable for the user.

Then it gets muddled again when we start to talk about petrol usage. The UK government have made accountancy more complex. Very similar to the purchasing concept any petrol for mileage that is clarified as personal use must be paid for by the user or alternatively it would be offset against the employment tax the use pays.

So, it’s a dizzy business, and this article just touches the surface of the complexity or detail need to really come to terms with your options, but it’s something your accountant will be well versed in and you should follow their guidance to get through this tricky minefield.

God forbid you pay more tax than you should.

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