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Company Car Tax Explained UK - April 2020 & Beyond - YouTube
Channel: Accounting and Tax Academy by Tony D
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if you are a small business owner
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contractor or freelancer operating
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through a limited company then this
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video will help you understand how you
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can get a company car through your
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limited company and how to do it tax
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efficiently this video covers
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should you lease or buy a car through
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your limited company the limited company
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tax implications of a company car
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the personal benefit in kind tax
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implications of a company car and
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finally a useful company car benefiting
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kind tax calculator
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i'm tony d'angel of the accounting
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attacks academy make sure you subscribe
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for real quality advice from real
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qualified accountants
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this video applies to you company
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directors and employees who are thinking
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about getting a car through your limited
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company
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it does not cover commercial vehicles
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taxis or hire vehicles which we will
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cover in a future video and to keep
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things simple and shorter we are not
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explaining the fuel benefit charge
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although this should always be
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considered in a company car scenario for
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many years when the only two car options
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were petrol or diesel
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the perks of a company car through your
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limited company were long gone and quite
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literally taxing however since the
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advent of hybrid plug-in electric
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vehicles and fully electric cars the uk
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government is now encouraging motorists
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to get one of these through generous tax
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breaks and even grants
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yes grants you can get a grant of up to
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a maximum of three thousand pounds for a
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plug-in low-emission vehicle so follow
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the link in the description below for
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more details on this
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[Music]
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the first thing to consider here is your
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cash flow let's say for example you're
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looking to acquire a tesla model s which
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retails at around about 80 000 pounds
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from new
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your company will need 80 000 pounds in
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liquid cash or you will need to arrange
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a finance payment plan for installments
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and the latter is subject to a finance
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company lending to your limited company
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which depends on a lot of various
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factors from an accounting and tax
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perspective your limited company will be
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the legal owner of the car and it will
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become an asset of the company
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a lease plan is quite different in
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accounting terms it will be known as
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what's called an operating lease so in
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other words you have use of the car
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under the terms of the lease for a
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period of time quite often three years
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and at the end of the term you simply
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hand the car back and the lease expires
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the car is not an asset of your company
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and it is what's known as an off-balance
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sheet item
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[Music]
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if your limited company buys the car
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outright then it becomes an asset of the
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company the limited company will get
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corporation tax relief through what is
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known as capital allowances in tax terms
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this is the equivalent of depreciation
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although capital allowance rates often
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differ from depreciation calculations
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and as usual the lower the co2 emissions
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the more favorable the capital
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allowances rates are going to be
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if your limited company enters into an
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operating lease agreement then the
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monthly lease payments are an allowable
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expense and get corporation tax relief
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as incurred
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one word of warning with a lease vehicle
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from april 2021 if the co2 emissions are
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greater than 50 grams per kilometer then
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the company tax relief becomes
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restricted to 85 of the monthly lease
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amount
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[Music]
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now this is where it gets very
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interesting for any expenditure to be
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allowable through your limited company
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for corporation tax relief it needs to
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be wholly and exclusively for the
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purpose of your business for example a
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laptop can quite easily meet this
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criteria even if you do use it
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incidentally for personal use
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a car is no different the intent has to
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be that it is used for the purpose of
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your business and with company cars if
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there is an element of personal use even
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just one mile which in the majority of
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cases there is then a benefit in kind
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tax charge is applied to the user
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personally
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this tax charge is based on what is
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known as the p11d list price of the car
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multiplied by the co2 emissions
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benefiting kind rate multiplied by your
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personal tax rate now this sounds very
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complicated but don't worry we've
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prepared an example calculation to show
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you how this works
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[Music]
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now there is a hmrc company car tax
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calculator you can use although i do
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warn you it's not the most user-friendly
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and a bit clunky but it is the most
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complete calculator and it's straight
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from the horse's mouth hmrc and produces
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exactly the right results so let's run
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through an example so you can get an
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idea let's take a mitsubushi outlandia
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phev which stands for plug-in hybrid
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electric vehicle 2.4 design four-wheel
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drive also as our example the list price
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of the vehicle is 36
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825 pounds its co2 emissions is 46 grams
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per kilometer and the electric battery
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range on a full charge is 28 miles so
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let's put these details into the
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calculator first of all you need to
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select the relevant tax share now this
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is important as rates differ from one
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tax year to the next and in addition if
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you only have access to the company car
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part way through a tax share then the
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car benefiting kind charge is actually
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reduced
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now the optional remuneration applies to
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employees have been given the offer of a
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company car or cash equivalent allowance
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we'll click no for the purpose of this
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calculation as we're not really covering
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this point in this particular video
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the number of days the car is
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unavailable pertains to periods when the
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car is perhaps in for servicing or
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maintenance or genuinely unavailable for
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justifiable reasons this again reduces
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the car benefit in kind charge
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now as an employee or even a director
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employee of your company you can make
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capital contributions if you buy the car
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through your company so of the thirty
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six thousand eight hundred and twenty
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five pounds you can make a maximum of
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five thousand pounds in a capital
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contribution or less and that will
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actually again reduce the car benefit in
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kind charge likewise the ongoing
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contribution to private use if in the
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year you say for example contribute 500
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pounds
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to the ongoing private use that again
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will reduce the car benefit in kind
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charge
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now enter the date first registered so
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we're going to select the 6th of april
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2020 onwards for this example and then
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the fuel type and in this example
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because it's a phev it falls under
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category a all other cars
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the engine capacity we know is 1401 cc
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to 2000 cc the next thing you want to do
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is put in the approved co2 emissions
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figure and we know in this instance it's
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46 grams per kilometer
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and by putting that in a new box appears
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and you can see it's called zero
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emission mileage now this appears
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because any sort of co2 missions between
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one and fifty then the next question
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that will be asked is how much can the
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car do in terms of mileage on a single
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charge and that's why that box appears
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and what you'll find out is if i put
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let's say a figure of 52
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in the co2 emissions figure box that
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zero emission mileage box will actually
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disappear
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now the next question is car does not
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have a co2 emissions figure well in 99
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percent of cases most cars or certainly
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new cars will certainly have that figure
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so you should be able to get that and
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put it into the relevant box
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in this instance we're going to say that
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your employer does not pay for private
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fuel and there's no fuel provided for an
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optional remuneration arrangement so no
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in both of those boxes
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once done you click on next
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and here are the results you can see the
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car benefit charge at the top at 20 20
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21 is
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4176 pound now that's not the amount of
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tax you pay that's just the car benefit
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charge the tax is based on whether
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you're a basic rate taxpayer or higher
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rate taxpayer and you can see in these
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boxes here if you're a basic rate
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taxpayer the actual company car
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benefiting kind tax to your percy
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becomes 835 pounds and 20 pence
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and if you're a higher rate player it's
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1 670 pounds and 40 pence
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and there's a few more details just
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summarizes the whole calculation here
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now what i've also done is put the same
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calculations into the comcar.co.uk
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company car tax calculator and you can
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see clearly here it's the mitsubishi
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outlander phev 2.4
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and the results are coming out pretty
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similar to the tax calculator the
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difference is in the original tax
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calculator from hmrc we actually denoted
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that 20 days of the car is not available
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and in this particular calculator
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unfortunately you cannot do that
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but the good thing about this tax
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calculator is if you scroll down it
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gives you a few more details well
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actually quite a few more details than
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the hmrc tax calculator it summarizes
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certain tax components it tells you what
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the electric battery ranges
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and some vehicle details and the most
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important one here is the corporation
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tax you can clearly see here it says 100
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fya and if you recall earlier on in the
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video i mentioned capital allowances and
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if you do decide to buy the car as
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opposed to leasing the car then that is
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exactly what your company would get and
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100 fya denotes a first year allowance
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so it's the most favorable type of
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capital allowance that you can get
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[Music]
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now this is a good question you can
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claim about 100 of the vat on a new car
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providing it is being used 100 for
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business use only no personal use at all
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so for example pooled cars which i
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explain in the next section
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if there is any personal use again even
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just one mile then you will not be able
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to claim back the vat at all
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if you are leasing the car then again
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you can claim back 100 of that if there
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is no personal use the good news here is
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that if there is personal use then you
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can still claim back 50 of the vat
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[Music]
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there are two options for you here
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number one is to buy what is known as a
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pool car now this is a normal car and
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it's made available to all employees
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parked at your business's premises and
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not available for personal use for
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anybody and this can be any type of car
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a diesel petrol hybrid phev or electric
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estate agents are a good example of
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businesses that use pool cars
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if you're a small one or two person
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limited company business and work from
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home then to be honest this could be
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quite difficult to prove to hmrc but not
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completely impossible
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number two is to buy at least a fully
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electric or hybrid car with a mileage
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range of 130 plus on a single charge now
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i am not expecting cars but i do know
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some of the big marquees such as volvo
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ford bmw mitsubishi and audi sell both
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electric and long range phev vehicles
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in the 20 to 21 tax year there is a no
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benefiting coin charge to you personally
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and it rises to 1 in 21 22 and 2 in
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22.23
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now these are low figures and in my
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professional opinion these kind of tax
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rates will not be around for too many
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years
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[Music]
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if you're not looking to get a 100
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electric car or a hybrid with a mileage
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range in excess of 130 and need a car
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for some business use then using a
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personal vehicle and claiming a mileage
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allowance through your business is quite
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favorable
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we have done a separate video on this so
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click on the card above
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[Music]
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purely approaching this question from a
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tax perspective i can only really come
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up with two valid reasons
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number one if you are genuinely going to
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use a car for business purposes only so
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a full car is the best example here
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where it is made available to all
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employees and stays on the businesses
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premises with no personal use by anybody
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or number two if it is a 100 electric
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car or hybrid car with 130 mile range on
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a single charge
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