Leasing Car From Own Company

Didn't find your answer?

Hello everyone, I have a question that may well be very straightforward.

Currently I am provided a company car by my employer. It's an EV, which the company contracts via a subscription. Subscription provider has recently gone bust, and I suspect car will need to be returned soon.

I'd like to replace it with another EV, but short term subscription options are limited and company does not have sufficient status for a standard 2 or 3 year lease.

As an alternative, I am considering purchasing a car outright via a second company, then entering into a subscription agreement between that new company and my current employer (of which I am Director but not a shareholder and do not exert control). The car would then be provided to me as a BIK in exactly the same way as at present. As far as I can tell, from my employer's perspective this arrangement is no different to the current one (aside from VAT mentioned below). The arrangement would be at the market rate, costing the same overall. The benefit to me is that I can effectively accrue the "profit" inherent in the subscription arrangement rather than paying it to a third party. I also get to choose the car I want.

Is this a completely stupid idea? Is the fact that I'm a Director of both companies (and control one) an issue? And then I'm sure there's a whole load of other issues I haven't considered. The purchasing company isn't VAT registered and the plan is to buy a used non VAT qualifying vehicle, so the amount charged to employer (assuming identical vehicle) would be the current net figure plus the non-recoverable 10% VAT. I suppose I could also consider VAT qualifying cars, but I don't particularly want to bother with VAT registration (purchasing company is currently dormant and turnover from subscription would be <£20k p.a.)

Replies (14)

Please login or register to join the discussion.

avatar
By David Ex
26th Jan 2024 17:57

JVX210 wrote:

Is this a completely stupid idea?

On the face of it, looks like that. What’s your accountant think?

Thanks (2)
Replying to David Ex:
By Ruddles
26th Jan 2024 18:09

+1

Thanks (0)
Replying to Ruddles:
avatar
By JVX210
26th Jan 2024 18:14

I don't suppose there's any chance you could elaborate as to why you think it's dumb? The reason for posting and not just doing this is because I feel like there *should* be a reason it doesn't work, but I can't see it.

It would be nice to understand what I'm missing...

Thanks (0)
Replying to JVX210:
avatar
By David Ex
26th Jan 2024 18:26

JVX210 wrote:

I don't suppose there's any chance you could elaborate as to why you think it's dumb? The reason for posting and not just doing this is because I feel like there *should* be a reason it doesn't work, but I can't see it.

It would be nice to understand what I'm missing...

You’re missing tailored tax advice from someone who knows you and your various business interests. The site isn’t a substitute for that even if people were minded to give you free professional advice during the busiest week of the year for practitioners.

Thanks (1)
Replying to David Ex:
avatar
By JVX210
26th Jan 2024 19:20

Fair enough, it seems I've misunderstood the point of this forum. To be clear, I'm not expecting someone to give detailed advice to a random off the internet, nor would I expect such advice for free.

If I were to do this, I'd need to engage an accountant for the dormant co, who would obviously make sure it worked in detail. I guess I'm just trying to avoid completely wasting a whole bunch of time appointing someone to do something which is in fact impossible.

But if no one is able to articulate why it's such an awful idea, I guess I'm left with no choice.

Best of luck with the returns!

Thanks (0)
Replying to JVX210:
By Ruddles
26th Jan 2024 19:39

No-one is saying that it is impossible. But without knowing the detail, particularly the exact numbers involved, no-one can tell you whether it makes commercial and/or fiscal sense. My experience of similar suggestions in the past would indicate that it wouldn’t. But only someone with all the facts to hand could confirm or otherwise.

Thanks (0)
Replying to JVX210:
avatar
By Mr_awol
27th Jan 2024 12:41

One thing is that you want to accrue the 'profit' that would go to current subscription provider in your company but in fact this is quite a competitive sector so there might not be the margin you expect, if you dont have the large purchasing power your current provider probably does. Having said that, you do say you'll also look at used, where the prices are currently quite low for EVs.

Overall I'd suggest if this is a salary sacrifice EV and you have access to sufficient records to check the payments are being made you might be better off just entering into a normal lease through your employer and and they cant pass the credit checks see if you can put a personal guarantee on it. But then again ive not really thought about it too much and it does leave you a little exposed if you leave and the car cant go back.

Thanks (0)
avatar
By the_drookit_dug
27th Jan 2024 09:06

Leasing the vehicle may require a Consumer Credit Licence.

Also, why the elaborate leasing arrangement at all? Why not just have the original company buy it outright and provide it as a BIK? (That is, after taking professional advice).

Thanks (3)
Replying to the_drookit_dug:
avatar
By Mr_awol
27th Jan 2024 12:35

I've no idea whether a licence might be required but if the newco is leasing to employer then it will presumably be a BCH arrangement so 'consumer' credit may not be applicable.

As for the employer buying the car - to be fair, (s)he is a non-shareholding director so might not have the authority to get the employer to spend £x on a car. Plus, (s)he says the employer hasn't got "sufficient status" to get a normal lease, which would be a much more sensible solution than this ridiculous 'set up my own leasing company' idea. That suggests to me that the employer probably has neither the cash reserves nor the credit rating for a lease which means outright purchase and/or HP might be equally challenging.

Thanks (0)
Avatar
By I'msorryIhaven'taclue
27th Jan 2024 13:17

Would a consumer credit agreement permit Newco Ltd to effectively "sub-let" (or "hire and reward", if you prefer") the vehicle? I somehow doubt it.

If the end-user company has lowly financial status, why not underwrite the agreement with a director's personal guarantee?

Thanks (0)
Replying to I'msorryIhaven'taclue:
Avatar
By I'msorryIhaven'taclue
27th Jan 2024 15:47

Ahha, "hire for reward" is not applicable... your contemplating an outright purchase.

Thanks (0)
avatar
By JVX210
27th Jan 2024 13:37

Thanks for all the replies. To answer a few questions:

1) I'm confident of the commercial viability of the arrangement (i.e. I can cover my costs), plus there is significant appeal to me of actually owning the car, which is harder to put a value on.

2) No cash in employing co. to purchase vehicle outright, credit too poor to get a lease.

3) I don't see the value in giving a personal guarantee on a lease via employing co., since if I were just buying the car myself I wouldn't consider a lease, I'd just buy it outright. There's also other directors in the business and I think (although may be misremembering) that the personal guarantee would apply to all of us, something they're highly unlikely to agree to!

4) Risk - obviously higher, but it seems to me like the bonfire of used EV prices can work to my advantage, although I'd still be taking the chance of them tanking further.

Thank you for all your input.

Thanks (0)
Replying to JVX210:
avatar
By DKB-Sheffield
27th Jan 2024 16:58

Just a few quick pointers (partly based on experience of motor trade)...

1. Insurance... assume you've considered the need for insurance in the leasing company? Current MT insurance is sky high, and you certainly wouldn't want to hope your leasing company's car would be covered in all eventualities by the lessee's insurance - regardless who is driving it!

2. VAT... don't ignore it. Buying ex-lease cars may have a full output VAT charge. As a leasing company, you may be able to claim input VAT (subject to conditions). You may get a cheaper motor if you can claim the input VAT!

3. Legal... regardless of who the lessee is, you need a formal agreement that holds water in court and/ or with HMRC! Probably even more relevant given your position (lessee company) and the use (by you). Such agreements are not cheap (certainly not for a one-off!).

4. Ownership... contrary to point (1) in your above post... you will not own the vehicle. It will be owned by the company. If you wish to own it in future, you'll need to buy it at MV either using taxed income, or it will be taxable!

If you're considering setting up a leasing company - by all means go for it (with suitable professional advice). If, however, it's just a single purpose action, it sounds overly convoluted, with potentially minimal (or no) gain - when done properly.

Thanks (0)
Replying to DKB-Sheffield:
avatar
By JVX210
31st Jan 2024 09:57

Thanks, this is very interesting. I definitely hadn't considered the insurance angle, in terms of needing to cover it twice. My initial plan was to mimic the existing contract entirely, so insurance would be provided by the leasing co, along with all maintenance and even charging (i.e. the company is buying a fully fuelled, maintained and insured vehicle etc, ready to drive). But on second thoughts this will therefore require a non-standard insurance contract, so that needs some more exploring.

The reason for doing all this is because of the lack of any comparable subscription options on the market at the moment, so if the agreement is terminated, as seems likely, I simply won't be able to replace it. I could of course just convert the current subscription payment into a car allowance for myself, but my effective marginal tax rate will be 60%. As a result, I won't be able to afford anything like the kind of car I'm currently in. Therefore, even if this structure leads to negligible "profit", I still can't think of a better alternative.

Thanks (0)