Question:

“I am a Limited Company IT contractor and drive to work using my personal car and claim the 45 pence per mile business mileage back from my company. I am considering selling my car and purchasing a van / pickup instead as it would be handy for personal use at the weekend and I could use it to drive to my contract work in the week. Is it tax efficient to buy the van through the company and what pitfalls are there? Also I am on the VAT Flat Rate scheme, can I claim the VAT back on the van?”

shutterstock_221001208

Answer:

It can be quite tax efficient to run a van through a limited company. Firstly you need to make sure that the vehicle you are purchasing is definitely a van for tax purposes, the dealer will be able to confirm this, if this is not the case and the vehicle is a car then the below advice is irrelevant. A car is generally not tax efficient to run through a contractor limited company these days unless ultra-low in emissions.

The van should be invoiced in the company’s name and the company should pay for the van from the company bank account. The company can then claim the VAT back even though you are on the Flat Rate Scheme as it is a Capital Purchase of over £2k. The full cost of the van can also be offset as an expense in the year of purchase through the Annual Investment Allowance so it will reduce your corporation tax bill. Bear in mind though that if / when you sell it that the sale will have VAT charged on it and the sale price will be income for corporation tax purposes for the company.

Because you will be using the van for both personal and business use there is a Benefit in Kind charge which is calculated for the 15-16 tax year as a fixed amount of £3,150 x your income tax rate which (if you have already utilised your basic rate band for salary and dividends) will be 40% – so this will be £3,150 x 40% = £1,260. This will be a charge each year that you have the van; the £3,150 is likely to increase each year subject to government legislation.

Also if the company pays for all the fuel you will also have to pay a personal Benefit in Kind tax on the personal use of the fuel which for 15-16 is calculated as £594 x 40% = £237.60, again these rates are likely to increase each year.

These benefits will be reported on the end of year P11d return. The company will also pay Class 1a National Insurance on the total benefit of £3,744, charged at 13.8%. The Class 1a charge of £516.67 for 15-16 is payable by 19th July 2016.

The company doesn’t have to pay the fuel costs, you could pay them all personally and claim back mileage from the company for business travel at the HMRC approved rates which are here. It may be better for the company to pay for the fuel though and for you to pay the benefit on this, especially where there is likely to be a significant amount of non-business use.

Be aware that the legislation could change in future years to make this strategy not worthwhile but at the moment it seems a good idea.

As always with any form of major business purchase we recommend taking advice from your accountant beforehand.

You might want to read our newer article here:

Van lease, tax and accounting treatment