Old Company Car and BIK

Old Company Car and BIK

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Client is a ltd co. The director currently owns an old car (H reg, 1990) personally. Despite knowing about the BIK's, they really want it in the business, so that the company pays the running costs.

For a car this old, is the BIK still assessed on the list price? The value is about £300. I think the list price (if one existed in 1990) is about £20k. They purchased it 3 years ago for £1k. I don't know yet what the emissions are.

It is essentially only used for home to work (barely making it every day!).

If they made a capital contribution for the same amount as the company pays for it, would that remove a benefit?

Any thoughts appreciated.

Graham.

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By skylarking
18th Sep 2008 14:27

High maintenance
Sounds like your client may be anticipating some very high and ongoing maintenance charges, the tax relief on which may go some way to narrowing the gap.

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By User deleted
18th Sep 2008 13:30

Thanks Ray
That's what I thought, and generally backs up my advice that I gave to this client. Given the age of the car, thought I'd better check it out.

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By raychidell
18th Sep 2008 09:09

Expensive benefit in kind for old car
Graham

The benefit is still based on the list price (on the day before the car was first registered) but the appropriate percentage will be determined by ITEPA 2003, s. 142 according to the engine size (eg 22 per cent if between 1401 and 2000cc). So, in that range, the benefit would be £4,400 for a car with a list price of £20,000. The CO2 emissions principle does not apply to cars registered before 1998.

If the director is paying tax at 40 per cent then in the example above it will cost him £1,760 per year in tax to drive a car worth £300 (not to mention the running costs for the company and the employer NIC). Unfortunately, the BiK rules do not take account of the fact that a car is ancient and nearly worthless! A capital contribution would reduce the list price by up to £5,000, but would not eliminate the benefit any further than that.

Altogether, this does look horribly expensive. Perhaps this is therefore the exception to the rule – an occasion on which the tax tail does need to wag the dog.

You say that the director wants the company to pay the running costs, but make sure that that does not include fuel for private journeys, which would add a further penal cost to an already very expensive benefit in kind. There are now almost no circumstances at all in which it makes sense to incur the fuel scale charge. The only real exception is if nobody is bothered about the tax cost and the director just wants the convenience of charging everything to the business.

Ray Chidell
www.claritax.co.uk

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