Is anyone aware of a ready-reckoner tool to decide if a Company Car is worthwhile for an owner Director? Generally I think the answer is no.
I would be hugely grateful if someone could be kind enough to check I am doing the number crunching about right. Thank you in advance if someone can help.
Example .Audi Car Retail Value 32,000; Taxable benefit in kind approx 6,600; 5,000 business miles a year; Director pays for all private fuel;1,650 actual business miles running costs (fuel, maintenance, insurance etc.). Business profit before Car costs 100,000. Director Salary 30,000. Using 10,000 personal tax allowance and 8,000 NI threshhold for simplicity.
If COMPANY buys car
Profit 100,000 less salary 30,000 less employer NI on salary 1,036 (assume takes 2,000 NI allowance) less NI on BinK 910 less car running costs 1,650 less Capital Allowance 2,560 leaves taxable profit of 63,844 less 20% tax leaves 51,076.
Director salary 30,000 plus BinK 6,600 less 10,000 annual allowance leaves 26,600 taxable less Inc Tax 5,320 less NI 3,432 leaves net income received after deductions (30,000 - 5,320 - 3,432) 21,248.
Total net left for Company and Director = 72,324 (51,076 + 21,248)
If DIRECTOR buys car
Profit 100,000 less salary 30,000 less employer NI 1,036 less motoring costs reimbursed 2,250 (5,000 miles x 45p) leaves taxable profit 66,714 less 20% tax leaves 53,371
Director salary 30,000 less 10,000 annual allowance so 20,000 taxable. Less income Tax of 4,000 less NI 2,640 less 1,650 car business miles running costs (as above) plus reimbursed motoring costs 2,250 leaves net income after deductions of 23,960.
Total net left for Company and Director = 77,331 (53,371 + 23,960).
So as expected best to own car privately.
Does this look OK.
Of course even more so if higher rate tax payer
Replies (6)
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Are you intending to buy the car outright
Your gut feel is probably correct - but don't forget capital allowances.
What about leasing the car - remembering to look at the effect of only allowing half the vat.
My MD bought a 2 year old Audi estate at a really good saving on new. The car still fits the role, and he saved about £15k.
Assumptions
The problem is always the accuracy of the assumptions.
The number crunching isn't all that difficult. Ten minutes with a calculator at the outside.
It does, however, need both back and front of the fag packet.
A caveat.
If the director buys the car he needs to get the funds out of the company to pay for the car, that of course has a cost, how does he get the £32,000? It is all very well looking at it as all pounds are equal, but given friction costs re extraction that is not really the case, a pound outwith a company tends to be worth more than a pound within to the owner.
Should you not model this differential?