Accounting for 'Private Use' contributions on Company Car

Accounting for 'Private Use' contributions on...

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Hi all, 

One I can't easily see an answer to, but perhaps I'm just being blind in the pre-Christmas busy period. Director/shareholder is looking to take a contract hire car through his VAT registered company as the deals are better, and half the VAT is therefore recoverable. But, to avoid the BIK charge which wipes out the benefit, will pay the company a private use contribution.

The car the director is looking at has a net cost (including the irrecoverable VAT) of, say, £2,500. However, the BIK benefit at 14% x list price of £23,000 is £3,220. Therefore, the private use contributions of £3,220 actually exceed the cost to the company of renting the car.

How do we account for the private use contributions? If we debit bank and credit the cost of rentals, we'll have a negative cost of rentals and it'll increase the Corporation Tax liability, which doesn't seem sensible. On the other hand if the Cr doesn't go against the P&L expense, where does it go? Cr to DLA doesn't sit right either, because it's then available for the director to draw again in the future, nullifying the contribution.

Thoughts gratefully appreciated.

Replies (6)

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By johngroganjga
03rd Dec 2013 08:18

Yes you have to credit a P& L

Yes you have to credit a P& L account - say vehicle rentals or motor expenses.  And yes the credit is subject to corporation tax, which is of course perfectly logical.  Why should the company get CT relief on 100% of the costs of providing the car when it does not bear all those costs? 

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By MJShone
03rd Dec 2013 08:59

The company is getting more back than it spends...

...so why is CT illogical? In effect the company is "subletting" the car for more than it costs it to rent.

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By david5541
03rd Dec 2013 11:56

fixed profit car scheme rates;

you could give the director details of the pence per mile under fixed profit car scheme rates for his engine size and tell him to keep a record of all private and business mileage and then for him to reimburse the company for his private mileage using these rates!- A TAXMANS HEAVEN! a clients nightmare...but would ensure he doesnt get landed with befefit in kind charges- since he is reimbursing the company for private mileage.

 

any payments for private use get credited to the expense account.

 

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By david5541
03rd Dec 2013 11:59

car worth 2500?

there arn't many pcp cars worth 2500

 

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Replying to DJKL:
By johngroganjga
03rd Dec 2013 12:19

Per annum

david5541 wrote:

there arn't many pcp cars worth 2500

I think OP means leasing cost per annum.

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By DMGbus
03rd Dec 2013 13:36

VAT

I would check that any proposed arrangements do not create a VAT output tax charge which at 20% could eat into or eliminate other tax savings.

 

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