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Purchasing a business vehicle via loan

A customer got a personal loan to buy business vehicle

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Hoping for a second opinion here as my brain is failing completely! I have a customer who took out a personal loan last year (£15k) to buy a business van (£14k). He bought the van outright (in his own name - not company) and has been using it exclusively for business use. He has started paying the loan back and wants to make monthly payments to himself (so he can pay back the personal loan) as purchase of a capital asset. Am I right in saying this isn't allowable as 1. the loan was more than the purchase of the vehicle, 2. He'd only be able to claim the interest?

I have said that if the business purchased the asset from him then this would be allowable but he says he doesn't want to do that (not sure why other than it being in the business name rather than his).

Replies (27)

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Danny Kent
By Viciuno
06th Apr 2022 19:09

1. No
2. No

Edit: To clarify, It's the reasoning I'm disputing, not that payments are not allowable.

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RLI
By lionofludesch
06th Apr 2022 19:30

I take it the business entity is the limited company. I'm guessing that the lender wouldn't lend to the company.

Despite the van being in his own name, he's clearly bought it on the company's behalf. I'd be comfortable claiming that, though I'd be looking hard at the insurance. Is everyone aware of the situation ? That's a bigger worry for me.

Interest - 14/15ths is allowable. Maybe the other fifteenth - what did he do with the other £1000 ?

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Replying to lionofludesch:
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By David Ex
06th Apr 2022 20:00

lionofludesch wrote:

I'm guessing that the lender wouldn't lend to the company.

And further guessing he misrepresented the reason why the loan was needed. That’s not likely to affect the tax or accounting treatment. Whether it’s any sort of potentially reportable matter, who knows? (Answer: David Winch)

Anyway, another discussed regularly topic:

https://www.google.co.uk/search?q=personal+loan+for+business+use+site:+a...

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Replying to David Ex:
RLI
By lionofludesch
06th Apr 2022 20:04

David Ex wrote:

And further guessing he misrepresented the reason why the loan was needed. That’s not likely to affect the tax or accounting treatment. Whether it’s any sort of potentially reportable matter, who knows? (Answer: David Winch)

Anyway, another discussed regularly topic:

https://www.google.co.uk/search?q=personal+loan+for+business+use+site:+a...

Nay - what's your basis for that guess ?

Far more likely that the bank said that they wouldn't lend to a limited liability entity but they would lend to one of the directors. Though a personal guarantee would be a better alternative.

Nevertheless, I'm sure the OP has all that in hand.

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Replying to lionofludesch:
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By David Ex
06th Apr 2022 20:40

lionofludesch wrote:

Nay - what's your basis for that guess ?

The number of people I come across who (a) have no regard for rules and/or (b) are too stupid/unaware to realise there are rules.

And (c) reading some of the questions on here.

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Replying to lionofludesch:
Danny Kent
By Viciuno
06th Apr 2022 20:27

Have to admit I read this post very differently. OP states a loan has been taken out and the fact that it is greater than the value of the asset sounds like it is not an HP so not secured on the asset. Don't see why he couldn't have borrowed the money, loaned it to the company and it bought the van.

Don't know how it's clearly bought on the companies behalf, its not - its in his name.

I'd be wanting to put through mileage. No interest relief.

Although you would be comfortable claiming it, would you be confident you could successfully defend it to an inspector?

If they "get away" with this bodge what else will they expect to get away with? Director's phones in personal names?

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Replying to Viciuno:
RLI
By lionofludesch
06th Apr 2022 20:43

Viciuno wrote:

Have to admit I read this post very differently. OP states a loan has been taken out and the fact that it is greater than the value of the asset sounds like it is not an HP so not secured on the asset. Don't see why he couldn't have borrowed the money, loaned it to the company and it bought the van.

Sure. But he didn't.

Quote:

Don't know how it's clearly bought on the company's behalf, its not - its in his name.

It's 100% used for the company's business. So we're told.

Quote:

I'd be wanting to put through mileage. No interest relief.

A lot of accountants seem to be frustrated policemen. Mileage could be better in the long run. I'd definitely consider it. But wouldn't you be concerned that the client was "getting away" with something? Or would you only claim mileage if it produced a bigger tax bill - to punish the client ?

Quote:

Although you would be comfortable claiming it, would you be confident you could successfully defend it to an inspector?

Yes. On the basis of substance over form.

Quote:

If they "get away" with this bodge what else will they expect to get away with? Director's phones in personal names?

There's the frustrated policeman again.

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Replying to lionofludesch:
Danny Kent
By Viciuno
07th Apr 2022 09:18

lionofludesch wrote:

Sure. But he didn't.

This is exactly my point.

As accountants our job when preparing the accounts is to report the facts, not make it up for the best outcome for the client.

If client wanted to produce the most tax efficient outcome they should have spoken to the OP before the fact.

If the company bought a car, client used it 100% for personal use and you didn't find out until your P11D review or co year end would you just say "doesn't matter, just stick all the costs to the DLA on the basis of that is what was obviously intended?". I hope not, because that isn't what happened. Regardless of the tax implications.

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Replying to Viciuno:
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By Gone Sailing
07th Apr 2022 11:13

Viciuno wrote:

lionofludesch wrote:

If client wanted to produce the most tax efficient outcome they should have spoken to the OP before the fact.


Now there's a nice idea !!
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Replying to Viciuno:
RLI
By lionofludesch
07th Apr 2022 16:10

Viciuno wrote:

lionofludesch wrote:

Sure. But he didn't.

This is exactly my point.

As accountants our job when preparing the accounts is to report the facts, not make it up for the best outcome for the client.

If client wanted to produce the most tax efficient outcome they should have spoken to the OP before the fact.

If the company bought a car, client used it 100% for personal use and you didn't find out until your P11D review or co year end would you just say "doesn't matter, just stick all the costs to the DLA on the basis of that is what was obviously intended?". I hope not, because that isn't what happened. Regardless of the tax implications.

You must do what you're comfortable with.

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Replying to lionofludesch:
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By Bobbo
07th Apr 2022 14:15

lionofludesch wrote:

It's 100% used for the company's business. So we're told.

That doesn't mean anything though.

I took out a loan a couple of years ago and bought a car. IF I used that car solely for visiting clients, i.e. 100% for the company's business, the car wouldn't suddenly belong to my employer.

I have an office chair here in the corner of my living room to sit at the table that I do my work from home days at. I used that chair solely for work and never outside of work time. So used 100% for the company's business. Doesn't make it belong to my employer.

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Replying to Bobbo:
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By justsotax
07th Apr 2022 16:40

"I have an office chair here in the corner of my living room to sit at the table that I do my work from home days at. I used that chair solely for work and never outside of work time. So used 100% for the company's business. Doesn't make it belong to my employer."

It does if you introduced it into the business at MV on the balance sheet....of course there may be a BIK on private use, or indeed a BC on removing it from company.....

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Replying to Bobbo:
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By jndavs
13th Apr 2022 19:08

Bobbo wrote:

lionofludesch wrote:

It's 100% used for the company's business. So we're told.

That doesn't mean anything though.

I took out a loan a couple of years ago and bought a car. IF I used that car solely for visiting clients, i.e. 100% for the company's business, the car wouldn't suddenly belong to my employer.

I have an office chair here in the corner of my living room to sit at the table that I do my work from home days at. I used that chair solely for work and never outside of work time. So used 100% for the company's business. Doesn't make it belong to my employer.

lionofludesch is correct.

You could show the chair on the company's balance sheet
- no this does not mean that the company will suddenly own your chair
- no you will not be subject to benefits in kind
Have you never heard Sir David Tweedie's famous remark about airlines and their aeroplanes?

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim31050

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Replying to jndavs:
RLI
By lionofludesch
13th Apr 2022 23:07

Thank you.

There are, of course, questions to be asked and conclusions to be drawn before deciding whether substance over form is appropriate in this case.

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Replying to jndavs:
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By Bobbo
13th Apr 2022 23:18

jndavs wrote:

Bobbo wrote:

lionofludesch wrote:

It's 100% used for the company's business. So we're told.

That doesn't mean anything though.

I took out a loan a couple of years ago and bought a car. IF I used that car solely for visiting clients, i.e. 100% for the company's business, the car wouldn't suddenly belong to my employer.

I have an office chair here in the corner of my living room to sit at the table that I do my work from home days at. I used that chair solely for work and never outside of work time. So used 100% for the company's business. Doesn't make it belong to my employer.

lionofludesch is correct.

You could show the chair on the company's balance sheet
- no this does not mean that the company will suddenly own your chair
- no you will not be subject to benefits in kind
Have you never heard Sir David Tweedie's famous remark about airlines and their aeroplanes?

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim31050

I hadn't heard of Sir David Tweedie nor his comments. Having googled his name and "airline" i have found a statement to a united states senate committee from 2002. I was 10 at this time so feel it is reasonable i am not aware of such comments.

I would note that his comments were in the context of an airline leasing airplanes under operating leases. So under IFRS 16 these days (if not yet FRS 102) operating leases as we know (knew?) them no longer exist for accounting - all leases bar those of small value should be on the balance sheet. All of those planes would be on the balance sheet.

Also, LEASE. Where in the original post is it said the individual has entered into a lease with the company for the van ???

Based on the OP, the company has absolutely no legal interest in the van. There surely needs to be a 'form' for their to be a substance that overrides it.

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Replying to Bobbo:
RLI
By lionofludesch
13th Apr 2022 23:34

In such circumstances, of course, it would be proper for you to admit to your client that you felt unable to argue his case.

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Replying to Bobbo:
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By jndavs
14th Apr 2022 09:14

It is a well-known comment, along with ‘explain it to your granny’.
Don’t get too hung up on the word ‘leased’, the salient point was that airlines rarely own any aeroplanes. You had an industry where most companies did not have any trace of their primary fixed assets on their respective balance sheets.

I was responding to your comment about the chair, not the OP.

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@enanen
By enanen
13th Apr 2022 09:40

Mirror the loan up to the purchase cost of the vehicle.

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By kestrepo
13th Apr 2022 09:49

Sounds like your client has got exactly the right result but just done it all in the wrong order! Perhaps he could hire the van to his company at cost and as another post implies above check they are insured correctly for business use.

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Replying to kestrepo:
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By tom123
13th Apr 2022 10:26

To 'hire' to the company would be a whole different insurance nightmare..

Policies usually state "not for hire & reward"

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Replying to kestrepo:
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By Dib
13th Apr 2022 13:22

Wouldn't that put him in the position of receiving taxable income as he couldn't offset the capital element of the loan against the rental income received from the company for use of the asset, he could only offset the interest?

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Morph
By kevinringer
13th Apr 2022 13:08

Is the van an asset of the company? Registered keeper is just that, it doesn't mean "owner". Need to look at other factors. If it was stolen, who would be making the insurance claim: the company or the individual? I suspect it would be the individual. The individual could sell it to the company. But there'd be no AIA. Who is paying for running costs? What about BiK?

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By tonyaustin
13th Apr 2022 13:53

It seems to me that the payments by the company to the director are taxable either under PAYE as remuneration (unless they themselves are a loan to the director) or taxable on the director under self-assessment as a payment for hire of the van (if that is what they are made to be). The payments will then be allowable for CT purposes against the company's profits.

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By mrme89
13th Apr 2022 14:14

18 comments of pure speculation at this point.

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Replying to mrme89:
RLI
By lionofludesch
13th Apr 2022 23:10

mrme89 wrote:

18 comments of pure speculation at this point.

[chuckle]

It's one of them, isn't it? OP asks a question then can't be bothered to provide the additional information requested.

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By amylady
13th Apr 2022 22:27

His monthly payments to pay off his personal loan, are drawings, unless they can be classed as loan payments in exchange for an asset.

Your client would have to sell the van to the company business, Db Fixed Assets and Cr Owner invested Equity, So the asset belongs to the company business which then owes a loan to the owner/director, which he can make regular payments to himself from the company.

However, as he doesn't want the van in the company name, then has the (asset) van been secured to the personal loan and he cannot sell the van until the loan is paid off? If this is the case he would need to business to buy the van outright in full for him to pay off the loan to be able to transfer to the business as an asset.

You also need to consider that owners of business' are required to act in the best interest of the business, as the asset is not worth the full value of the loan, the business (and any entity/person) would only want to buy the asset at it's fair market value.

Hope this helps.

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RLI
By lionofludesch
13th Apr 2022 23:04

It's interesting that folk seem less willing to press a robust case on their client's behalf now that oversight is virtually non-existant.

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