Will ask him again to check - need to get it right for my expenses.
Limited Company purchase of motorcycle
- Thread starter Clive
- Start date
+
Clive,
1. Flat rate scheme. Yes - you can get VAT back on purchase (so long as new or has always been VAtable - typically ex demo or ex company bike)and pay on sale (you will therefore save approximately 15% (7/47) of the depreciaon).
2. Employee cost is 20% of costs each year. Let's say all private use and £2,000pa petrol, servicing, etc all paid by company. Total tax bill @ 20% = (8,500 (ie net of VAT) x 0.2 BIK +2,000 running cost)*.2 = £740 a year. (No employee NI on BIK I think).
So as a person you run a brand new bike for £740 pa (assuming you are not higher rate)
3. Company
Capital cost if you sell for £7,500 after 2 years is £2,120 net.
Running costs £2,000 pa
Tax costs: (assuming 20% corporate tax rate)
Employer NI = £450pa
Tax relief on asset (8500-6383)*.2 = (423) (actually £1700 relief year 1 and 1275 claw back year 2)
Tax relief on running costs = 2000*.2= £400pa
Company cost over 2 years:
Asset 2120
Running 4000
NI 900
Tax relief asset (423)
Tax relief running costs (800)
Tax relief NI (180)
Total cost = 5617
Average per year: £2,800
Total cost = 740+2800 = 3540 per year
If run privately, average cost is £3,250
Moving the running costs out to personal will reduce the overall costs a bit but with (obviously) more personal expenditure.
All the above does depend on the tax rates your company and you are subject to. Business use will also affect how it might be structured. (Self-employed is of course completely different again and, on the whole, more beneficial especially if there is a reasonable business use element).
All the above done rather hurriedly so E&OE (anybody out there who can confirm and check my workings?)
My (simplistic) sums don't take into account VAT - I'm on the lower fixed rate scheme and I'm sure that will complicate matters
Assume a £10,000 motorcycle, kept for 2 years, then sold for £7,500.
PAYE
11% NIC Employee
12% NIC Employers
20% Income Tax
Need to pay approx £17,550 therefore taxman gets £7,550
So overall the bike has "cost" you £7,550 in tax/NI + £2,500 in depreciation i.e. £10,050
Company
20% BIK is a "tax cost" of £1,280 over two years (20% of £10,000 * (20%+12%) * 2years)
50% company write off over two years means you can pay the £2,500 "profit" to yourself, which is taxed etc.
So overall the bike has "cost" you £1,280 BIK tax + £1,075 PAYE tax + £2,500 in depreciation i.e. £4,855
(This figure also assumes 100% private use)
Clive,
1. Flat rate scheme. Yes - you can get VAT back on purchase (so long as new or has always been VAtable - typically ex demo or ex company bike)and pay on sale (you will therefore save approximately 15% (7/47) of the depreciaon).
2. Employee cost is 20% of costs each year. Let's say all private use and £2,000pa petrol, servicing, etc all paid by company. Total tax bill @ 20% = (8,500 (ie net of VAT) x 0.2 BIK +2,000 running cost)*.2 = £740 a year. (No employee NI on BIK I think).
So as a person you run a brand new bike for £740 pa (assuming you are not higher rate)
3. Company
Capital cost if you sell for £7,500 after 2 years is £2,120 net.
Running costs £2,000 pa
Tax costs: (assuming 20% corporate tax rate)
Employer NI = £450pa
Tax relief on asset (8500-6383)*.2 = (423) (actually £1700 relief year 1 and 1275 claw back year 2)
Tax relief on running costs = 2000*.2= £400pa
Company cost over 2 years:
Asset 2120
Running 4000
NI 900
Tax relief asset (423)
Tax relief running costs (800)
Tax relief NI (180)
Total cost = 5617
Average per year: £2,800
Total cost = 740+2800 = 3540 per year
If run privately, average cost is £3,250
Moving the running costs out to personal will reduce the overall costs a bit but with (obviously) more personal expenditure.
All the above does depend on the tax rates your company and you are subject to. Business use will also affect how it might be structured. (Self-employed is of course completely different again and, on the whole, more beneficial especially if there is a reasonable business use element).
All the above done rather hurriedly so E&OE (anybody out there who can confirm and check my workings?)
Paul
The BIK is calculated on the market value of the bike when first made available and not the net cost to the company.
In a similar vein the running costs are incoporated at the vat inclusive and not the net cost to employer.
Clive has already indicated that he is a higher rate tax payer and I don't see that factored into your workings. Of course we don't know what the salary/dividend split is! And no one has mentioned IR35 yet....................
The tax relief to the company on the asset is not that straightforward and depends on;-
1. How much of the annual investment allowance has been used.
2. What other assets are likely to be purchased.
3. The company year end.
3. What is value of plant and machinery pool.
Clive
The mileage allowance is still 24p. (but no passenger rate which is unfair
)Nige
Hi Clive,
Could you not purchase on the Company and register as a Pool Vehicle ? Even if you are a one man band could you not say it’s more practical to use to visit clients/site in City areas? / Promotional vehicle (depending on nature of company).
Also if you have an “alternative” means of transport personally this may help. You would not be liable for any tax etc.
As long as a mileage log was kept.
I run a Ltd Company with several employees and we run two Pickup trucks, both of which are classed as pool vehicles, we keep millage logs and they are liveried, however, I guess there is nothing stopping personal use ( if your passing a clients office ??
).
Could you not purchase on the Company and register as a Pool Vehicle ? Even if you are a one man band could you not say it’s more practical to use to visit clients/site in City areas? / Promotional vehicle (depending on nature of company).
Also if you have an “alternative” means of transport personally this may help. You would not be liable for any tax etc.
As long as a mileage log was kept.
I run a Ltd Company with several employees and we run two Pickup trucks, both of which are classed as pool vehicles, we keep millage logs and they are liveried, however, I guess there is nothing stopping personal use ( if your passing a clients office ??
).
I'm not really looking to "avoid" tax, there are proper "rules" etc for this type of thing and I'm happy to follow them.
When I had bikes through my previous one-man-band Ltd company in the early 90s I followed the accountants advice, but eventually got hit for penalties and back tax at an inspection, because of (the accountant's) misinterpretation of the rules.
From the several different ways people have posted earlier in the thread about the way they do it, means they can't all be right
I still think there ought to be a way of "spreadsheeting" all the variables to see which way is better - that is bugging me more than anything (on a techie geek level), since people keep mentioning things like "tax relief clawback" and "capital cost" that I hadn't even known existed
I'm not really looking to "avoid" tax, there are proper "rules" etc for this type of thing and I'm happy to follow them.
When I had bikes through my previous one-man-band Ltd company in the early 90s I followed the accountants advice, but eventually got hit for penalties and back tax at an inspection, because of (the accountant's) misinterpretation of the rules.
From the several different ways people have posted earlier in the thread about the way they do it, means they can't all be right
I still think there ought to be a way of "spreadsheeting" all the variables to see which way is better - that is bugging me more than anything (on a techie geek level), since people keep mentioning things like "tax relief clawback" and "capital cost" that I hadn't even known existed
Clive
There probably is a way of spreadsheeting but the number of variables are horrendous and to an extent subjective. The hours that would need to be spent creating one are far outweighed by the two hours or so working out what is best in your circumstances. When all is said and done I have seen nothing to suggest that coy ownership is more tax efficient than private. £10000 on a bike, paid for by dividend, maximum additional tax to pay £2500!
And er other variables you would need to address in said spreadsheet would be couples who own the coy shares, what ratio split between them. Do they have children and qualify for tax credits, if so can they afford to be creative and time their income stream to maximise the credits?
With the new lower years needed to qualify for state pension can they take a year out of that minimum directors salary and save a bit of BIK tax?
Right off to watch some TV after re keying the panniers which arrived today
Nige
Clive,
Wasn't meant as a Tax Avoidance, more of an alternative.
Whichever way its a nightmere...
Good luck !
Wasn't meant as a Tax Avoidance, more of an alternative.
Whichever way its a nightmere...
Good luck !
I'm not really looking to "avoid" tax, there are proper "rules" etc for this type of thing and I'm happy to follow them.
When I had bikes through my previous one-man-band Ltd company in the early 90s I followed the accountants advice, but eventually got hit for penalties and back tax at an inspection, because of (the accountant's) misinterpretation of the rules.
From the several different ways people have posted earlier in the thread about the way they do it, means they can't all be right
I still think there ought to be a way of "spreadsheeting" all the variables to see which way is better - that is bugging me more than anything (on a techie geek level), since people keep mentioning things like "tax relief clawback" and "capital cost" that I hadn't even known existed
Paul
The BIK is calculated on the market value of the bike when first made available and not the net cost to the company.
In a similar vein the running costs are incoporated at the vat inclusive and not the net cost to employer.
Clive has already indicated that he is a higher rate tax payer and I don't see that factored into your workings. Of course we don't know what the salary/dividend split is! And no one has mentioned IR35 yet....................
The tax relief to the company on the asset is not that straightforward and depends on;-
1. How much of the annual investment allowance has been used.
2. What other assets are likely to be purchased.
3. The company year end.
3. What is value of plant and machinery pool.
Clive
The mileage allowance is still 24p. (but no passenger rate which is unfair
Nige
Nige,
Many thanks for that and for picking me up on the BIK being gross which I had completely forgotten. Just as well I don't do tax in real life!
I hadn't spotted that Clive had said higher rate though I did say my calcs were at 20%.
I agree there are a lot of variables on the capital allowances/AIA but took a view the chances were very high that there would be enough AIA around.
Yep lots of variables!
Anyway I think we agree that personal is probably just as good if not better than company (if it is your company). Much better for it to be company if it is somebody else's as long as it does not interfere too greatly with the basic pay.
It's probably a more interesting equation for self employed where there is a strong element of business use. And it is almost certainly worth buying the bike through the business for the VAT saving (especially on the Flat Rate Scheme where there is no private use to be accounted for) on even a very small business use.
Paul
Tax is all I do
I had a revelation about the cap allce prob whilst in the shower this morning ( which is very sad and things haven't been the same since Sarah Cox left the breakfast show and my waterproof radio broke
)Short-life asset pool! Which would bring situation back to what you projected.
Agreed in spades on personal ownership and even better if someone else paying!
The self employed aspect would be more interesting but I am not going there until a client asks me ..............
Nige
Am I missing something? I thought that the capital writedown allowances for small companies that used to be 50% in the first year and 25% in each year thereafter which changed to 100% in the first year for all assets up to the value of £50,000 would make company purchase pretty compelling from a tax saving point of view (for one man Ltd comapnies). Or does this not apply?
Paul
Tax is all I do
I had a revelation about the cap allce prob whilst in the shower this morning ( which is very sad and things haven't been the same since Sarah Cox left the breakfast show and my waterproof radio broke
Short-life asset pool! Which would bring situation back to what you projected.
Agreed in spades on personal ownership and even better if someone else paying!
The self employed aspect would be more interesting but I am not going there until a client asks me ..............
Nige
In a bid to save Nige some typing (except for the bits I get wrong ):
Never quite as simple as they like to make it appear. The £50k limit is for total investment in any one year (not per asset but overall). Not only that but we are in a transitional period from the old regime to the new one so there are time apportionments. And there are a whole load of other wrinkles as Nige has indicated.
You also have to look at the interaction of taxes (you get writedowns in the company but clobbered personally for benefits in kind and the company pays additional NI, etc). The advantage of the quick write down is partly negated by a bigger writeback on disposal but since it forms part of the pool that could go either way...... etc
): Never quite as simple as they like to make it appear. The £50k limit is for total investment in any one year (not per asset but overall). Not only that but we are in a transitional period from the old regime to the new one so there are time apportionments. And there are a whole load of other wrinkles as Nige has indicated.
You also have to look at the interaction of taxes (you get writedowns in the company but clobbered personally for benefits in kind and the company pays additional NI, etc). The advantage of the quick write down is partly negated by a bigger writeback on disposal but since it forms part of the pool that could go either way...... etc
But personal tax is minimal, even on a 10K value, works out about no more than £400/year on basic rate. The corp tax saving is well above that plus the thousands in VAT saving.
It's toooo complicated with lots of scenarios and differing advice, just gotta do what the accountant says I spose.
It's toooo complicated with lots of scenarios and differing advice, just gotta do what the accountant says I spose.
In a bid to save Nige some typing (except for the bits I get wrong
Never quite as simple as they like to make it appear. The £50k limit is for total investment in any one year (not per asset but overall). Not only that but we are in a transitional period from the old regime to the new one so there are time apportionments. And there are a whole load of other wrinkles as Nige has indicated.
You also have to look at the interaction of taxes (you get writedowns in the company but clobbered personally for benefits in kind and the company pays additional NI, etc). The advantage of the quick write down is partly negated by a bigger writeback on disposal but since it forms part of the pool that could go either way...... etc
Stonetown
If you are a basic rate taxpayer then it may be possible to get a £10000 bike to personal ownership without any additional personal tax being payable.
Does it not strike you as significant that the two people who openly admit they earn their crust from this kind of advice both agree that personal ownership is probably preferable?
Corp tax and VAT savings are front loaded and there is payback time on sale
and corp tax is on the increase!
In the final analysis you are free to decide which way you want to go. I have over the years spent a vast amount of time (and issued bills accordingly) digging people out of the "tax holes" they found themselves in because a man in the pub/newspaper article/blog said........
There is no subsititute for customised number crunching which reflects your particular circumstances.
Nige (soon to start
)
In a bid to save Nige some typing (except for the bits I get wrong
Never quite as simple as they like to make it appear. The £50k limit is for total investment in any one year (not per asset but overall). Not only that but we are in a transitional period from the old regime to the new one so there are time apportionments. And there are a whole load of other wrinkles as Nige has indicated.
You also have to look at the interaction of taxes (you get writedowns in the company but clobbered personally for benefits in kind and the company pays additional NI, etc). The advantage of the quick write down is partly negated by a bigger writeback on disposal but since it forms part of the pool that could go either way...... etc
Paul
ps second attempt as didn't work first!
Info from my accountant...
PERSONAL
Assuming personal income via dividend falling into the higher rate tax band:
You would be paying a total of 46% tax on the dividend taken (21% Corporation tax plus effectively 25% income tax).
This means you would need to take £18,518.52 to give you £10,000. The cost (in tax) is therefore £8,518.52.
Alternatively, if these dividends did remain within the basic rate band, then you would need to take £12,658.23 to give you £10,000 and the cost (in tax) would be £2,658.23.
COMPANY
If you were to purchase the bike through the company, given that you are assuming 100% private use, you would not be able to claim the VAT back.
You are looking at a 20% taxable BIK on which you will pay income tax and 12.8% Employers NI - over 2 years the taxable BIK would be 20% x £10,000 x 2 = £4,000.
Assuming a higher rate tax band, the income tax will be £1,600 and the Employer’s NI £512.
You would also benefit from Written Down Allowances over the 2 years saving the company £937.50 in Corporation tax.
Therefore the net cost via the company is £1,600 + £512 - £937.50 = £1174.50.
With basic rate tax, income tax will be £800. Therefore the net cost via the company is £800 + £512 - £937.50 = £374.50.
NB We have left the estimated £2,500 depreciation on the bike out of these comparisons as this occurs whether the bike is bought personally or via the company; it can be disregarded for the purpose of whether it is better to buy the bike personally or via the company.
In summary:
If you buy the bike through post-tax income it will probably cost approx. £8,500, compared with £1,200 if you buy it through the company (assuming higher rate tax).
Alternatively, if you are sure you would remain in the basic rate tax band, then you are comparing approx. £2,700 with £400.
Either way, it would be more tax efficient for you to buy the motorcycle through the company.
PERSONAL
Assuming personal income via dividend falling into the higher rate tax band:
You would be paying a total of 46% tax on the dividend taken (21% Corporation tax plus effectively 25% income tax).
This means you would need to take £18,518.52 to give you £10,000. The cost (in tax) is therefore £8,518.52.
Alternatively, if these dividends did remain within the basic rate band, then you would need to take £12,658.23 to give you £10,000 and the cost (in tax) would be £2,658.23.
COMPANY
If you were to purchase the bike through the company, given that you are assuming 100% private use, you would not be able to claim the VAT back.
You are looking at a 20% taxable BIK on which you will pay income tax and 12.8% Employers NI - over 2 years the taxable BIK would be 20% x £10,000 x 2 = £4,000.
Assuming a higher rate tax band, the income tax will be £1,600 and the Employer’s NI £512.
You would also benefit from Written Down Allowances over the 2 years saving the company £937.50 in Corporation tax.
Therefore the net cost via the company is £1,600 + £512 - £937.50 = £1174.50.
With basic rate tax, income tax will be £800. Therefore the net cost via the company is £800 + £512 - £937.50 = £374.50.
NB We have left the estimated £2,500 depreciation on the bike out of these comparisons as this occurs whether the bike is bought personally or via the company; it can be disregarded for the purpose of whether it is better to buy the bike personally or via the company.
In summary:
If you buy the bike through post-tax income it will probably cost approx. £8,500, compared with £1,200 if you buy it through the company (assuming higher rate tax).
Alternatively, if you are sure you would remain in the basic rate tax band, then you are comparing approx. £2,700 with £400.
Either way, it would be more tax efficient for you to buy the motorcycle through the company.
You mention that if the bike is for 100% personal use, which if it was bought privately would be the case. If it is bought through the company, personal use does not come into it (according to my accountant) and can be disregarded as it is not in the same class as a company car. For example, where you need to state personal use of a company car, you do not need to state this for a bike, as the tax class it is in does not require it (this last bit is my assumption).
Therefore the VAT will be fully reclaimable saving even more via the company route.
Therefore the VAT will be fully reclaimable saving even more via the company route.
When I started freelancing, many years ago, someone told me - You can fiddle your tax return, you can fiddle your expenses, you can fiddle a violin, but don't f*** with the VATman
If you reclaim VAT, you have to charge it on sale - I didn't consider the "saving" worthwhile.
I was assuming 100% personal as a worse case scenario - non-personal use will bring down the BIK charge.
There is a lot of information being banded about on this forum.
I have read that VAT man and Inland Revenue are using sophisticated techniques these days to search forums like this for people that talk about their expenses, spending, etc.
It is obvious from the various posts that various people are doing things differently and some are therefore not doing it correctly.
Be careful - be warned.
I have read that VAT man and Inland Revenue are using sophisticated techniques these days to search forums like this for people that talk about their expenses, spending, etc.
It is obvious from the various posts that various people are doing things differently and some are therefore not doing it correctly.
Be careful - be warned.
Clive
I am pleased that you took advice from your accountant as has Stonetown.
This is going to be my final post on this matter.
I have not seen your accountants letter so I am somewhat reserved about commenting further but there are two points I would make.
Firstly, corporation tax is charged on profits so it remains due whether or not you take dividends. It would only be a fair comparison if you were contemplating a salary route to pay for the bike.
Secondly, you appear to have overlooked the fact that if the bike is in personal ownership then you have an asset which when sold (as the coy appears to have done) will put £7500 in your pocket tax free.
Nige
I am pleased that you took advice from your accountant as has Stonetown.
This is going to be my final post on this matter.
I have not seen your accountants letter so I am somewhat reserved about commenting further but there are two points I would make.
Firstly, corporation tax is charged on profits so it remains due whether or not you take dividends. It would only be a fair comparison if you were contemplating a salary route to pay for the bike.
Secondly, you appear to have overlooked the fact that if the bike is in personal ownership then you have an asset which when sold (as the coy appears to have done) will put £7500 in your pocket tax free.
Nige
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