In recent years HMRC have continued to punish the company car driver with year-on-year increased taxes. Due to this extremely few contractors run company vehicles through their company.
Your company would need to pay for the car directly and have receipts for the company accounts. All insurance, vehicle registration document etc should be in the company’s name, of course and the company pays for road tax, fuel, car servicing etc.
Half the VAT element is re-claimable on most contract hire schemes (if you operate on the normal vat scheme; not if you operate the Flat Rate Scheme). If your company purchases the car or has an option to purchase, no VAT is reclaimable.
Remember, if you start using the vehicle at all for private use then your company will be hit with Class 1A National Insurance (@ 12.8% of the benefit) and you will pay tax as a benefit in kind on the use of car and fuel. The benefit in kind is calculated on the list price of the vehicle when ‘new’ and not the actual price you paid for the vehicle), so therefore makes running a company car extremely unattractive.
Example
| Tax year: | 2010/2011 |
| Car availability during relevant tax year: | From: 06/04/2010 |
| To: 05/04/2011 | |
| Number of days unavailable during the period above: | 0 |
| List price (including VAT and accessories): | £16000 |
| Employee capital contribution: | £ |
| Employee payments made towards private use: | £ |
| Date first registered: | during or after 2006 |
| Fuel type: | Petrol (P) |
| Engine capacity: | 1401cc to 2000cc |
| Approved CO2 emissions figure: | 189 |
| Does your employer pay for private fuel? | Yes |
| Car benefit charge (2010/2011) | £4,160.00 | ||
| Car fuel benefit charge (2010/2011) | £4,680.00 | ||
| Tax Liability indicator at: |
20% |
40% |
|
| Company Car Tax (2010/2011) | £832.00 | £1,664.00 | |
| Company Car Fuel Tax (2010/2011) | £936.00 | £1,872.00 | |
Please note this is not an exact calculation of the tax liability on the car and car fuel benefit. The actual tax liability depends on your individual circumstances.
Remember also that there is a corporation tax consideration when purchasing a company vehicle. A maximum of only 21% of £12,000 (i.e. £2400) can be claimed on vehicles costing £12,000 or over.
The company can claim 100% first year allowance on cars emitting no more than 120g/km. Tax payable increases with cars emitting more than 165 g/km.
This is a complicated area! Your accountant will make the necessary claims and calculations as part of the year end process.
You can find vehicle CO2 emissions figures as maintained by the Vehicle Certification Agency at www.vcacarfueldata.org.uk/index.asp
You can find a Company Car and Car Fuel Benefit Calculator at the HMRC website http://cccfcalculator.hmrc.gov.uk/CCF0.aspx
If you have any questions, please contact us.