- If you are a small
business owner, contractor, or freelancer operating
through a limited company, then this video will help you
understand how you can get a company car through your limited company and how to do it tax efficiently. This video covers, should you lease or buy a car through your limited company? The limited company tax
implications of a company car, the personal benefit in
kind tax implications of a company car and finding
it useful company car benefit in kind tax calculator. I'm Tony Dhanjal of the
Accounting and Tax Academy. Make sure you subscribe
for real quality advice from real qualified accountants. This video applies to
you, company directors and employees who are
thinking about getting a car through your limited company. It does not cover
commercial vehicles, taxis, or hire vehicles, which we
will cover in a future video. And to keep things simple and shorter, we are not explaining the
future benefits charge, although they should always be considered in a company cost scenario. For many years, when the only
two car options were petrol or diesel, the perks of a company car through your limited
company were long gone and quite literally taxing. However, since the advent of hybrid plug-in electric
vehicles and fully electric cars, the UK government is now
encouraging motorists to get one of these
through generous tax breaks and even grants yes grants. You can get a grant of up
to a maximum of 3000 pounds for a plugging low emission vehicle. So follow the link in
the description below for more details on this. (upbeat music) - The first thing to consider
here is your cashflow. Let's say, for example,
you're looking to acquire a Tesla Model S, which retails at around about 80,000 pounds from new. Your company will need
80,000 pounds in liquid cash, or you will need to arrange your finance payment
plan for installments. And the latter is subject
to a finance company lending to your limited company, which depends on a lot of various factors. From an accounting and tax
perspective your limited company will be the legal owner of the car and it will become an
asset of the company. A lease plan is quite different. In accounting terms, it will be known as what's called an operating lease. So in other words, you have
use of the car under the terms of the lease for a period of
time, quite often, three years. And at the end of the term,
you simply hand the car back and the lease expires. The car is not an asset of your company. And it is what's known as
an off-balance sheet item. (upbeat music) - If your limited company
buys the car outright, then it becomes an asset of the company. The limited company will
get corporation tax relief through what is known
as capital allowances. In tax terms, this is the
equivalent of depreciation. Although capital allowance
rates often differ from depreciation calculations. And as usual, the lower
the CO2 emissions, the more favorable the capital
allowances rates are gonna be. If you're a limited company enters into an operating lease agreement, then the monthly lease payments
are an allowable expense and get corporation
tax relief as incurred. One word of warning with a lease vehicle, from April, 2021, if the CO2 emissions are greater than 50 grams per kilometer, then the company tax relief
becomes restricted to 85% of the monthly lease amount. (upbeat music) - Now, this is where it
gets very interesting. For any expenditure to be allowable through your limited company
for corporation tax relief, it needs to be wholly and exclusively for the purpose of your business. For example, a laptop can
quite easily meet this criteria even if you do use it
incidentally for personal use. A car is no different, the
intent has to be that it is used for the purpose of your business. And with company cars,
if there is an element of personal use, even just one mile, which in the majority of cases
that there is, then a benefit in kind tax charge is applied
to the user personally. This tax charge is based
on what is known as the P11D list price of the car, multiplied by the CO2
emissions benefit in kind rate, multiplied by your personal tax rate. Now, this sounds very
complicated, but don't worry. We prepared an example calculation to show you how this works. (upbeat music) - Now, there is a HMRC
company contacts calculator you can use, although I do warn you, it's not the most
user-friendly and a bit clunky. But it is the most complete calculator and it's straight from
the horses mouth HMRC, and produces exactly the right results. So let's run through an
example so you can get an idea. Let's take a Mitsubishi Outlander PHEV, which stands for plug-in
hybrid electric vehicle. 2.4 design four wheel
drive also as our example. The list price of the
vehicle is 36,825 pounds. It's CO2 emissions is
46 grams per kilometer, and the electric battery range
on a full charge is 28 miles. So let's put these details
into the calculator. First of all, you need to
select the relevant tax year. Now, this is important as
rates differ from one tax year to the next and in addition,
if you only have access to the company car ed
partway through a tax share, then the car benefit in kind
charge is actually reduced. Now the optional remuneration
applies to employees who have been given the
offer of a company car or cash equivalent allowance. We'll click no for the
purpose of this calculation as we're not really covering this point in this particular video. The number of days the car
is unavailable pertains to periods when the car is
perhaps in for servicing or maintenance or genuinely unavailable for justifiable reasons, this again, reduces the call benefit in kind charge. Now as an employee or
even a director employee of your company, you can
make capital contributions if you buy the car through your company. So, of the 36,825 pounds,
you can make a maximum of 5,000 pounds in a
capital contribution or less and that will actually again reduce the car benefit in kind charge. Likewise, the ongoing
contribution to private use. If in the year you say, for
example, contribute 500 pounds to the ongoing private use, that again will reduce the
car benefit in kind charge. Now enter the date first registered. So we're gonna select
the 6th of April, 2020 onwards for this example,
and then the field type. And in this example, because it's a PHEV, it falls under category A, all other cars. The engine capacity we
know is 1401 CC to 2000 CC. The next thing you want to do is put in the approved CO2 emissions figure. And we know in this instance,
it's 46 grams per kilometer. And by putting that in a new box appears and you can see it's called
zero emission mileage. Now this appears because
any sort of CO2 emissions between 1 and 50, then the next
question that will be asked is how much can the car
do in terms of mileage on a single charge? And that's why that box appears. And what you'll find out is if I put, let's say a figure of 52 in
the CO2 emissions figure box, that zero emission mileage
box will actually disappear. Now, the next question
is car does not have a CO2 emissions figure. Well, in 99% of cases, most
cars or certainly new cars will certainly have that figure
so you should be able to get that and put it into the relevant box. In this instance, we're
gonna say that your employer does not pay for private fuel
and there's no fuel provided for an optional remuneration arrangement. So no in both of those boxes. Once done, you click on next. And here are the results. You can see the car
benefit charge at the top of 2020, 21 is 4,176 pounds. Now that's not the amount of tax you pay. That's just the car benefit charge. That tax is based on whether
you're a basic rate taxpayer, a higher rate taxpayer and you
can see in these boxes here, if you're a basic rate taxpayer,
the actual company benefit in kind tax so you per say
becomes 835 pounds and 20 Pence. And if you're a higher rate payer is 1,670 pounds and 40 Pence. And there's a few more
details just summarizes the whole calculation here. What I've also done is
put the same calculations into the comcar.co.uk
company car tax calculator. And you can see clearly here it's the Mitsubishi Outlander
PHEV 2.4 and the results are coming out pretty similar
to the tax calculator. The difference is in the original
tax calculator from HMRC, we actually denoted that 20 days of the car is not available. And in this particular
calculator, unfortunately, you cannot do that. But the good thing about
this tax calculator is if you scroll down, it
gives you a few more details. Well, actually quite a few more details than the HMRC calculator. It summarizes certain tax components. It tells you what the
electric battery ranges and some vehicle details. And the most important one
here is the corporation tax. You can clearly see here it says 100% FYA. And if you recall earlier on in the video, I mentioned capital allowances. And if you do decide to buy the car as opposed to leasing the car, then that is exactly what
your company would get. And 100% FYA denotes a
first year allowance. So that's the most favorable type of capital allowance that you can get. (upbeat music) - Now, this is a good question. You can claim that 100%
of the VAT on a new car providing it is being used
100% for business use only. No personal use at all. So for example, pool cars, we try explain in the next section. If there is any personal use,
again, even just one mile, then you will not be able to
claim back the VAT at all. If you are leasing the car,
then again, you can claim back 100% of the VAT if
there is no personal use. The good news here is that
if there is personal use, then you can still claim
back 50% of the VAT. (upbeat music) - There are two options for you here. Number one is to buy what
is known as a pool car. Now this is a normal car
and it's made available to all employees, parked at
your business's premises, are not available for
personal use for anybody. And this can be any type of car, a diesel, petrol hybrid, PHEV or electric. Estate agents are a good example of businesses that use pool cars. If you're a small one or two
person limited company business and work from home, then to be honest, this could be quite
difficult to prove to HMRC, but not completely impossible. Number two is to buy or lease
a fully electric or hybrid car with a mileage range of 130
plus on a single charge. Now I am no expert in
cars, but I do know some of the big marquees, such as
Volvo Ford, BMW, Mitsubishi and Audi sell both electric
and long range PHEV vehicles. In the 20 to 21 tax year,
there is a no benefit in kind charged to you
personally, and it rises to 1% in 21, 22 and 2% in 22, 23. Now these are low figures and
in my professional opinion, these kinds of tax
rates will not be around for too many years. (upbeat music) - If you're not looking to get
a 100% electric or a hybrid with a mileage range in
excess of 130 and need a car for some business use, then
using a personal vehicle and claiming a mileage allowance through your business is quite favorable. We have done a separate video on this so click on the card above. (upbeat music) - Purely approaching this
question from a tax perspective. I can only really come up
with two valid reasons. Number one, if you are
genuinely going to use a car for business purposes only. So a pool car is the best example here where it is made available
to employees and stays on the business's premises with
no personal use by anybody. Or number two, if it is a 100%
electric car or hybrid car with 130 mile range on a single charge.
