Came as a surprise to me.
Old friend who I had a chat today mentions that since I am self employed , have a big advantage in either buying/contract hire of a new car.
Since its hearsay hes not sure of it.
Any knowledgeables having info on this??
Thanks
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If you are VAT registered then you could claim the tax back.Go to www.contractoruk.co.uk. for everything you need to know plus a million job vacancies world wide.
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That's half true! If you use the car for personal use you can reclaim half the VAT. You can also reclaim VAT on fuel and charge all your motoring expenses against your income. There is though a VAT scale charge to pay in your VAT return to cover the VAT on fuel.
The biggest advantage is that you are outside the scheme that taxes company car users for the "benefit in kind" (BIK). This means that you don't have to obsess about emissions, list price and Euro IV compliance.
Whether it's worthwhile having a car on contract hire is your call. It's easy enought to calculate the cost of ownership vs. the cost of using a car on a contract hire agreement and work out which is cheaper. There is a cashflow benefit in contract hiring (which is a benefit to firms with large fleets) but most self-employed people I know don't really need that.
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It comes down to whats right for your business. For instance, if the business has amassed a pile of cash it would make sense to buy the vehicle outright as the interest lost from the savings account would be much lower than interest paid on borrowing/leasing. Conversely if the business has no cash, its much easier cashflow wise to lease.
The VAT side of things is a different matter. If you are buying a Commercial (payload > 1 tonne) all the vat can be claimed back, but this is restricted if buying/leasing a car.
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I am self employed but not VAT registered. My benefits are reclaiming business use fuel,Insurace,tax, repairs,and a quarter of the cars initial cost annually. This is not a net saving as the total reclaimed is then deducted from your taxable income so I reckon on a 25% overall saving. Contract hire my accountant says is not a viable option.
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Would it make sense then buying a new car instead of a second hand one since a quarter of the cars initial cost can be reclaimed and that percentage would be greater , the more the initial cost is.
Is it that straightforward??
If so then the best thing would be to go for a nearly new or a new car with some 0% finance as well!!
Any thoughts on this??
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JohnX - No! The more you spend the more tax you save, but you have to spend a lot more to save a bit more tax.
Spend less; save money not tax.
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You can only claim all the contract hire payments for cars up to £12K. Over that, it's pro-rata.
But if you contract hire a Light Commercial Vehicle (LCV) you can claim all the payments (subject to private useage). Hence the number of double cabs around. So if you need to carry some people you can get a double cab or one of those vans (usually Vitos or Transporters)with a 2nd row of seats and half windows, as long as they have a load capacity of 1 tonne.
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IIRC when I spoke to the taxman a couple of years ago as self employed you could claim 25% of initial purchase price in year 1 and then 25% of the reducing residual in following years. (But this also had a maximum of about £12,000 initial price) Plus all your other business related running costs.
There is/was also a simplified method of claiming all costs based on claiming 40p per mile for lst 10,000 miles and then 25p per mile for each additional mile. Obviously you needed to do the sums so see which worked out more beneficial. But you could not swap between them unless you bought another car. I think your turnover also had to be below a certain figure to use the simplified method.
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GSB is correct. The simplified method only appies when your turnover is below the VAT threshold. In addition, if you decide to use the simple method you have to stay with it until the vehicle is changed - you can't swap back and forth to get the advantage every year.
The 25% of initial purchase is correct, and is called Capital Allowance (CAs). As said elsewhere the maximum purchase price of the vehicle for CAs to apply is £12k. For instance, if you where to buy a car for say £15k, the 1st year CA would be £3000 (25% of £12k), the 2nd year £3000 and so on. You do not lose out completely on the full value however. When you sell the vehicle you can claim a Balancing Allowance, which is the difference between the Capital value in your accounts and the amount you receive. eg: In year 3, the brought forward value of the car above would be £9000. Say you part ex it for £7000, you would be able to claim a balancing allowance of £2000.
Of course all of the above figures also have to be adjusted for any private use.
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