Tax on classic company cars

As mentioned in our mileage versus company car blog, if you purchase a car through your Limited Company and it is available for private use, (for example you park it at your home) then you have a taxable benefit. As a recap this is calculated from taking the price of the car if it was brand new, known as the list price, and multiplying it by a percentage based on the CO2 emissions of the car.

However, if you have car that was registered before the 1^st January 1998, then there would be no CO2 data, making it impossible to calculate the taxable benefit. Cars that fall into this category are known as “Classic Cars”. HM Revenue & Customs have an alternative way of calculating the percentage based on the engine size -15% for engines up to 1400cc, 25% for 1401cc to 2000cc and 35% for any engine larger or if it has a rotary engine. Just like with the CO2 percentages, you add 3% if the car is a diesel.

But that’s not all, if the current market value, i.e. how much the car is currently worth, is at least £15,000 and also higher than the list price of the car (which is possible depending on how old the car is) then you would use the cars current value instead of the list price.

Fuel benefit is the same as regular cars, with the figure for 2013/14 being £21,100 which is multiplied by the above percentage.

If you have a company car that falls into the requirements to be a classic car, and you would like help calculating any benefit that may be due, please get in touch.

Mark

Saving money by working at home

Normally tax for self-employment is worked out by taking a percentage from the profits that the business makes, which is the money earned by the business with expenses subtracted. Expenses are usually costs that are “wholly and exclusively” for the purposes of trade.

If some business is carried out from home, then some tax relief may be available. HMRC agree that a deduction for household expenses is acceptable, provided that part of the home is solely being used for business purposes.

This does not mean that the business part of the costs must be billed separately or that part of the home must be permanently used for business purposes. However it does mean that when part of the home is being used for business, that’s all you use it for.

Apportioning costs

HMRC will accept that costs can be apportioned and if the amount is small they will usually not be interested in it. For example you can claim £3 per week for use of home, that’s £156 per year with no questions asked.

Although if you plan on claiming any more then there are some things to consider such as:

The proportion in terms of area of the home used for business services, how much is consumed where there is a metered or measurable supply like electricity and how long you use that part of the home for business purposes.

Generally HMRC will accept a reasonable proportion of costs such as council tax, mortgage interest, water rates, rent and general repairs. Additionally allowable costs may include business telephone calls, a proportion of line rental and internet connection if it is used for business purposes.

Any equipment at home, such as a laptop or desk, can have a costs proportioned under capital allowances claims based on the estimated business usage.

Travel from home

Another consequence of working from home will be the impact on your travel costs. The cost of travel from home to work is generally disallowed, as it represents the personal choice of where you live. This will not be affected by doing some work at home, however, if there are no other business premises, then travel costs to visit clients should be allowable. So it really depends on where the business is run from.

Selling the home

Normally when you sell your home, any profit made is exempt from tax if it is your primary place of living. However, when part of the home is used exclusively for business, then that portion of the house will not be exempt. Occasional and minor business will be ignored for this purpose.

To summarise, it is possible to claim some extra 'home' expenses to reduce your tax, but you need to be clear about the rules, keep good records and be reasonable about how much you claim.

If you need more information about this subject then feel free to call me on 01761 436 436.

Mark.

Company car or mileage allowance?

One question we come across in the field of taxation fairly often, is what is the best way to reduce tax using a car when you own a limited company?

The problem is that there is a substantial number of things to consider that makes the question a lot more complicated. So we will look into each option and show which situations would make each option the most suitable.

Summary

After many calculations, we believe that mileage allowance would be the better option in most cases partly because its simple to work out and tax deductible. However if you must have a company car (because you don't want to pay the expenses out of your own bank account, for example) then you better make sure you buy a 'brand new' car, that is cheap to buy, with low emissions (so its going to be small and without any optional extras!) and you don't use it privately at all (not even a penny of fuel for private travel).

Conversely if you buy an expensive used car for less than its original list price (say two or three years old), with a big diesel engine, with only small private use (and you cant be bothered to repay the private miles to your company) and if you normally earn enough to pay tax at 40% - you are generally going to pay a lot more personal tax on the car even if there is some tax relief claimed by the company.

Company car

The main advantage of having a company car is that you can put the running costs through your company and therefore reduce the amount of corporation tax you are due. Unless your car happens to be less than 110g/km carbon emissions or an electric car, you will not be able to claim back the whole amount in the first year as with other assets. You may only claim back 18% of the cost per year, (on a reducing balance basis) or if your emissions are more than 160g/km only 8%. This means the tax relief you can gain on your car will come through at a slow rate over a long period of time.

Private taxation of a company car

If your car is put through your company and is made 'available' to you for private use (whether or not you actually use it privately) triggers the 'Car benefit' rules. If you you do use it for private trips you will find yourself hit with a taxable 'fuel' benefit.

The Car benefit is calculated by taking the list price of your car (how much it would cost brand new) and then multiplying it by a percentage determined by the emissions of your car (with an  additional 3% added for diesel cars) to a maximum of 35%. This means that if you buy a second hand car, you will still be charged as if you bought it brand new, this can quickly outweigh the capital allowances claimed by your company as these are determined by how much the company paid for the car.

In addition to the Car benefit,  you will be hit with a Fuel benefit determined by a basic price of £20,200 multiplied by the same percentage as used for Car benefits. This means that on a 35% car you would need to have private fuel costs of more than £7,000 to have a net gain in your favour. You can repay any private miles to your company and in so doing there is no Fuel charge - but you have to work out your private miles each month and reimburse the company - you cannot do this retrospectively after the end of the tax year!

You can reduce the Car benefit by paying some of your personal money towards buying the car, this will reduce the list price by the same amount, and annual contributions will reduce the benefit calculated by the amount you spend. 

So to make the most of your company car, you will want to either avoid using it for private purposes, or buy a brand new petrol/electric car, with low emissions and list price, and reimburse any fuel you use. If you need some actual figures to help you in your decision, you can click on this link to view a car benefit calculator provided by comcar.co.uk, you can also find a list of percentages for different emissions by clicking here.

Mileage allowance

The other mentioned method was to own the Car privately and claim a mileage allowance. This means you do not put any of the costs through the company, but instead charge an expense depending on the number of business miles you do - and the company will get tax relief as an expense for the mileage claim.

The rate begins at 45p per mile for the first 10,000 miles, and 25p per mile afterwards. You must make sure you don’t charge any more than this, otherwise you will have to pay tax on the excess amount.

The disadvantage of a mileage allowance if that if you have a lot of running costs then you will not be able to claim them against your profits to reduce tax, same goes for the cost of buying the car, you will not be able to claim this either, even if you have bought a car with zero emissions.

So to make the most of a mileage allowance you will need to do a lot of business travel, and have low running costs for the year that can be exceeded by your mileage claim.

The discipline of record keeping

Whichever method you choose, you will be required to keep track of expenses, either costs and personal contributions relating to your company car, or the number of business miles you make, both of which can take up valuable time.

If you feel you still need a bit of advice on the matter, or have any questions about this article, then feel free to call me to shed some light on the subject.

Mark