Buying a car through my LTD

Right im getting a little confused with what im reading and hoping that someone will be able to clear this up:

I'm in my 1st contracting through my LTD, and I'm looking for some new wheels, had a word with the accountant who said i could write off 20% against my corporation tax up to 3k i think. However having a look today i saw i could claim 100% FYA on capital expenditure if the car was new and below 110 co2 emissions?! (this is where im getting confused)

Now the car i wanted to get before i knew about this was golf 1.9 tdi se, looking to spend about 6-7k anyway which if i did and put it through the company would save me £1,200.

But having read about this 100% FYA deductible car i looked at all the newish, tax band B cars which are starting from around 10k onwards.

So anyway my question 100% FYA - does this mean if i bought a car say 12k, tax band b, low emissions i could completely offset that against my tax? This could mean me not paying any corporation tax at all if i was on less than 60k assuming CT at 20%?

I probably dont have a clue what I'm talking about:p.. but but any advice would appreciated!

Capital allowances reduce your profit, not your tax bill - so a £10k allowance will reduce your tax bill by £2100.

Couple of questions though:

Are you caught by the IR35 provisions
How many miles pa will you do
How much profit are you expecting to make excluding car costs
How much do you need to take out - all of it or can some be retained in the company
Will you be making pension contributions

Quote:

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Originally Posted by hoponbaby

Capital allowances reduce your profit, not your tax bill - so a £10k allowance will reduce your tax bill by £2100.

Couple of questions though:

Are you caught by the IR35 provisions
How many miles pa will you do
How much profit are you expecting to make excluding car costs
How much do you need to take out - all of it or can some be retained in the company
Will you be making pension contributions

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Thanks for the reply...still not getting it:arf: From what i understand "If you are buying a new company car with emissions of not more than 110 grams per kilometre (g/km), you can claim a 100 per cent first-year allowance for its full cost."

What i'm trying to work out is if it would be beneficial for me to buy a new car with low emissions and try offset some of that cost against my tax bill or buy a 2nd hand as i had planned and instead use that towards my CA

Bearing in mind ive only been driving for 1 year so my premiums are pretty high anyway..

in answer to your questions:

Are you caught by the IR35 provisions - No
How many miles pa will you do - around 20k business
How much profit are you expecting to make excluding car costs - MMm - alot will depend on bonuses but i expect in the region of about 20-25k profit
How much do you need to take out - all of it or can some be retained in the company - im currently paying myself £110 a week (advised by accountant) and will be looking to pay myself a dividend at the end of the year
Will you be making pension contributions[/quote] - No

You need to do a full comparison of the tax savings over a longer period really to decide which way to go as you have 4 choices:

1. Buy a new sub 100g car through the company - yes you get to write off the entire value against your profit in year 1 (and so save 21% of it's value) but for years 2 onwards there would be no allowances left to claim, you also have to pay tax on the benefit in kind on the car (and fuel if the company pays for that).

2. Lease a sub 100g car through the company - the bik is the same as above but you get to offset the rentals against profit over the term you use the car.

3. Buy a used car through the company - you only get to write the car off over a longer period. Whether that is an issue depends on the amounts involved and how long you intend on keeping the car. You still then have the personal tax to pay on the BIK.

4. Buy a car personally and then charge the company for business mileage at the approved rates of 40p & 25p. If you are doing 20000 business miles then that would equate to £6500 that you can take out tax free, which the company still gets tax relief on. Add that to the savings you make on not having the BIK tax charge.

As you are only going to be a basic rate taxpayer and have high insurance premiums then the company car route will probably work out the best, but you need to run through all of the running costs etc and have a crystal ball really to be totally sure. It also depends on whether you want to do 20k miles in any of the cars that drop in that low a co2 band as they're pretty uninspiring.

thank you for taking the time out for the response, very much appreciated

My accountant said it was worthwhile me setting up a directors account within the business account, i basically have the money anyway to buy a car (personal savings) but i figured i could put that into the business account and then pay for the car with that anyway? is it worth it or should just use the company's money?

also Car insurance: my insurance for the current car is due next week, should i insure my car through the company and then get it amended when i buy the new car - i take it that would be an allowable business expense.

I know i should be asking these questions to my accountant but he's my dads mate, doesnt explain anything really to me in much meaningful detail...just waffles on. I havent the heart to get rid of him yet!:p

No problem.

You need to run the comparatives - is it beneficial to have a company car and suffer the tax or not and do you want to drive a sub 100g car?!

The insurance is only an allowable business expense if it's a company car, otherwise if you keep the car as personal and pay the insurance from the company HMRC can treat it as the the company paying your personal liability and then gross it up to generate a tax & ni bill.