Wednesday, 18th October 2017

Company cars: Planning

Many family companies are carrying out a tax planning exercise whereby Directors get their company to provide a suitable company car to their teenage children.

How does this work?                                

The company will acquire a brand new low emissions car to loan to the Directors child. The child does not have to be working for the company, they may be at university for example, that’s fine! All the petrol must be paid for by the child to avoid the very heavy employment tax on fuel.

Who benefits and how?

The Company

  • Provided the car has CO2 emissions of 95g/km or less the company will get 100% FYA for capital allowances purposes
  • The company will pay the insurance, road tax and servicing on the car. The company will get ‘trading tax relief’ for these items by way of a corporation tax deduction.
  • Also recovery of VAT at 20% can be made on the input tax paid on the car’s repairs, servicing etc.

The Director

  • Say the car list price was £7,000 with CO2 emissions of 90g/km, and assuming that the director is a higher rate taxpayer. The tax charge on this car for 2014/15 would be a total of £308. (£7,000 @ 11% = £770 @ 40% = £308.)   A very very low taxable benefit compared to if the director were to buy the car outright himself.
  • The company will also pay for all running costs such as insurance, tax, MOT etc which the director would otherwise have to pay for himself out of his tax income.

Please note that this tax planning exercise is not limited to just the directors children, it can also be extended to other associates of the director such as his wife, parents, grandparents etc.

 


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