company car and corporation tax

[steve_gus]

Hi

Excuse me if im being a bit thick but i cant find an answer to this on the net.

I have a day job, and I have a small limited company business that in its first year will make in the region of £14-£16k.

I would like to buy a company car in the region of 14k. Im aware from having company cars in the past of the personal tax position, which with my car choice, would be 'OK' in terms of level of pain.

My choice is I think as follows :

1. I can elect to pay myself and my wife (who is a 50% director) dividends from the 16K profit, however these will be taxed at corporation tax of 21% and as im on a 40% band from my day job, my 50% of the remainder will get clobbered at a further 25%. My wife would attract no further tax. Then of course there is the issue that the money paid to my wife needs to be seen as elonging to my wife, so i cant really get my hands on that directly for a car. So, this way, its hard to get much left from my £16k capital.

2. I use the £16k in the company to buy the car. This is the bit im not clear about. If I buy the car at £14k, this goes on the company as an plant/asset - does this attract corporation tax as HMRC sees this as part of the profits, OR does the £14k go as plant/assets, and I pay corporation tax on the remaining £2k?


What im hoping is that I dont have to pay corporation tax on the full £16k or car + 2k remaining combination.

The 20% writing down allowance each year wont be much use to me BTW as only a small proportion of use would be business.


any comments?

[James Smith]

Its really based on the emissions of the vehicle and list price. If this is anything other than a new car the answer is unlikely to be anything other than "in your own name", if the vehicle is a brand new one, and has low emissions it *might* work out cheaper in the company but its a heck of a lot of paperwork and the benefit is likely to be marginal.

The main tax pain is employers national insurance of 12.8% which is whacked on the benefit of the company car.

The answer is unfortunately to ask your accountant to run the computations (you presumably must have one given you have a limited company) They are a bit fiddly to say the least as it covers so many different taxes, and the answer will be different in each tax year over the lifetime of the vehicle, so you have to run it over the life time of the vehicle and aggregate it back. Yuck.

So the short answer is don't bother. Slightly longer one is that it might just save you a small slice of tax if its low emissions, but this could be swallowed up by the extra paperwork.

[steve_gus]

Thanks very much for the useful answer James