Buying a Car in the UK With the Taxman’s Help

How would you like the tax man to pay for your next car? Well, if you have your own company that may be possible as the personal cost of buying a car can be mitigated against tax if you also own a company.

The costs of buying and running a car, have never been as expensive as today. Everything seems to be on the rise, petrol, road tax, VAT. So a method of reducing your motoring expenses and costs must be a welcome one.

Options When Purchasing Your New Car

When buying a new car the overall cost of purchase can vary significantly depending on your choice of purchase option. The purchase options available to you are numerous and include:

• lease purchase,
• hire purchase,
• contract hire or
• outright purchase.

With the government basing tax charges solely on vehicle CO2 emissions, a more eco-friendly car, especially an all electric car, will greatly reduce the overall costs of your purchase. If you own your own company, the savings and benefits obtained could be even greater.

Legitimately Using the Tax Rules to Your Advantage

If you are the owner of one of the hundreds of thousands of privately-owned companies in the UK you can use the current tax rules to your advantage perfectly legitimately. Several of these little known tax rules can ease the pain of your motoring, help the environment and get you that nice new car. All courtesy of the taxman.

Buy Via the Company

When you buy a car via the company, then in the normal course of events you will be taxed on what is called the benefit-in-kind that you are receiving. With a car this is related to the CO2 emissions of the vehicle, and as emissions rise, so does the value of the taxable benefit, on a scale set by the Revenue.

• No CO2 emissions – such as an electric car – accrues no benefit-in-kind tax charge at all.
• Cars with emissions of up to 75g per km gain an annual taxable benefit of 5% of the list price of the car when new.
• Cars with emissions between 76g and 120g per km gain an annual taxable benefit of 10% of the list price of the car when new
• Cars with emissions between 121g and 130g per km gain an annual taxable benefit of 15% of the list price of the car when new.
• For each 5g of CO2 above 130g per km you gain an additional 1% rise in annual taxable benefit.
• Additionally, you gain a further 3% rise if the car is diesel.

The Real Cash Cost, a Scenario

Lets take a simple scenario as an example. Let presume you are a company owner, you’re on the 40% tax band and you need to supply your family partner (wife for example) with a car as she does some work for the company and needs a company car. Lets presume the car cost £10K and has emissions of 125g per km.

• The true cost to you of supplying the car will be £600 (£10,000 x 15% x 40%) per annum.
• Remember, the car has been bought by the company. The amount you pay is the tax for receiving a benefit-in-kind.
• The true cost of supplying a car with zero emissions would be, nil.
• A car with emissions up to 75g per km would be, £200 per annum.
• A car with emissions between 121g and 130g per km would be, £400 per annum.

The true cost to you covers everything other than fuel. The cost of the vehicle and all expenses related to the vehicle are paid by the company. These expenses include driver motor insurance, maintenance and servicing, breakdown cover, etc. All paid by the company. As for your company, it will be able to claim full corporation tax relief for the car, making the deal even more beneficial.

Husbands and wives

If you are a sole trader business or partnership you also have options open to you. If you have family members helping out with the running of the business then providing them with a low-emission car on business expenses can prove very cost-effective.

Suppose you pay your wife a modest salary of £6,000, and decide to buy her a car. If the wife’s remuneration package, including the car benefit, is under the lower limit of £8,500 per year she remains outside the scope of benefit-in-kind taxation.

As you are a sole trader or partner, rather than a director or employee, you cannot be taxed either, making the wife’s car completely tax free.

Questions and Tips

Is this Tax avoidance? Certainly not. There’s nothing here that would fall foul of the tax credits anti-avoidance rules (Tax credits Income Regulations). You have not deliberately deprived yourself of income in order to secure or increase the amount of tax credits.

The Taxman can fund a car only if you are self-employed and entitled to a high level of working tax credit which is being abated.

If your income does dramatically drop, always notify the Taxman immediately in order to maximise your tax credit position. Don’t wait.

If you are self-employed use the 100% First Year Allowance for a car to reduce your profits for tax credit purposes. With the right timing you can effectively get the Taxman to fund the car via tax savings and an increased tax credit award.

Conclusion

Who said the tax man didn’t help the business man? It’s just a matter of discovering the rules.