Car Options - Advice/Input Welcome

**kaiser78** · 31 October 2016, 21:38

Originally posted by drob1984 View Post

Hi,

I've searched the forums and read several threads for help (all to no avail) including...

http://forums.contractoruk.com/gener...asing-car.html
http://forums.contractoruk.com/welco...ar-leases.html
http://forums.contractoruk.com/accou...-back-vat.html

I've after some advice as to what the best option is. My situation is:
* I started IT Contracting mid-way through this year
* I've gone Ltd Company route and it is my intention to stick to the basic 20% rate threshold in terms of salary and dividends
* So far I've not paid myself anything from the business apart from reimbursement of expenses. (I've so far lived off of savings).
* I will be giving my personal car to the Mrs as she's expecting in the next few weeks.
* Unless absolutely necessary, I am not keen to give up a decent amount of personal saving to use a car that I will 90-95% of the time use for contracting as there are other things we need to do with the house etc.

The options I've looked at so far are as follows:
1) Use the dividends I plan on taking out of the business between now and April 2017 (approx 25K) and spend about 6-7K of it on a 2011 Civic Diesel. Of course, anything over 5K will be taxed @ 7.5% (almost 2K)
2) Business Lease a new Civic Diesel - I've seen quotes inc. maintenance for around £185 a month for 10-15K miles (CO2 emissions = 98, so its road tax exempt)
3) Personally Lease a new Civic Diesel - though what I take out of the business is limited to basic rate only and only dividend until April 2017.

I've asked my accountant about the above and I've had the following back..
a) "The short answer is you can get a company car but it will result in additional income tax for you personally and additional tax"
b) "The following link is to a calculator which may help you estimate the benefit you will receive that might be of use when making your decision on buying car personally or through the company: http://cccfcalculator.hmrc.gov.uk/CCF0.aspx"

So it seems, I need to calculate this on my own.

Option 1: Personal Car - 7K upfront of personal money (already having spent £1875 tax on the dividends I withdrew). Likely to spend £1000 a year on maintenance. So on the car purchase and maintenance, that's 10K over 3 years, plus depreciation value of the car....

Option 2: Business Lease: 3-year lease. £1200 upfront, £185 a month ex VAT (includes maintenance) - £2220 a year, total capex cost to business = £7660 over 3 years.
BIK at 20% = £826, which approx costs me personally £69 a month in tax. Where I am completely confused is around the Class 1 National Insurance contribution by my company @ 13.8% . Is that based on the BIK 20% value or the total value of the car if purchased new (this bit really isn't clear no matter what site or HMRC document I read).

Option 3: Personal Lease: 3-year lease, £1200 upfront, £230 a month inc. VAT (includes maintenance) - £9280 over 3 years . No BIK, no corporation tax.Obviously though its all coming out of the salary/dividends I take home and means I'll have a higher amount of corporation tax to pay on the business side, likely to pay 15-20K a year in corporation tax.

Appreciate with Option 1 and 3 I can claim mileage I do back on the business. at present I'm doing approximately 190 miles a week, however... when this contract ends and I move onto the next, its possible I'll be commuting on public transport!

Based on the numbers above, option 1 looks like the best option even though it means using up personal funds that I don't want to. I'd welcome any feedback and an answer to the National Insurance question would be of most help.

Many thanks!

Go with option 3.

**northernladuk** · 31 October 2016, 21:40

I think you need to go back to your accountant and get him to run the numbers rather than asking us. The emissions of the car and value when new are key and you've not mentioned either.

Go back to your accountant with all the details and get the numbers. I'll bet it's not worth it. I'd put money in 3 as well.

**drob1984** · 31 October 2016, 21:43

Originally posted by northernladuk View Post

I think you need to go back to your accountant and get him to run the numbers rather than asking us. The emissions of the car and value when new are key and you've not mentioned either.

Sadly my accountant doesn't seem overly interested in assisting with this. I did mention the emissions (98g/km). The P11D value of car is 21340.00

**northernladuk** · 31 October 2016, 21:45

Just becareful with a personal lease though. If you get a long gig with a big commute it could get expensive if you go over the mileage.

**bobspud** · 31 October 2016, 21:48

The conventional wisdom is unless it is electric, company cars don't work for contractors.

Business miles for private vehicles are 40p for the first 10k and 25p thereafter you can manage something fair on the mileage payments alone.

Never lease cars because as a contractor you can't easily protect the mileage and I know too many guy that have been whacked by over miles when they hand the car in.

I'd aim to spend half my company mileage payment for this year on something reasonable. Use the rest to fill it up.

Worked well for me in previous years. I wouldn't wed myself to a diesel either public opinion is turning on them and they are liable to get slapped in future

**malvolio** · 31 October 2016, 21:56

Originally posted by bobspud View Post

The conventional wisdom is unless it is electric, company cars don't work for contractors.

Business miles for private vehicles are 40p for the first 10k and 25p thereafter you can manage something fair on the mileage payments alone.

Never lease cars because as a contractor you can't easily protect the mileage and I know too many guy that have been whacked by over miles when they hand the car in.

I'd aim to spend half my company mileage payment for this year on something reasonable. Use the rest to fill it up.

Worked well for me in previous years. I wouldn't wed myself to a diesel either public opinion is turning on them and they are liable to get slapped in future

Ermm - 45pp, for the first 10k.

And if you're happy with a Civic diesel, get a Toyota Hybrid instead and do the numbers again.

**_V_** · 31 October 2016, 22:00

https://www.tesla.com/en_GB/support/incentives

**kaiser78** · 31 October 2016, 22:02

Originally posted by northernladuk View Post

Just becareful with a personal lease though. If you get a long gig with a big commute it could get expensive if you go over the mileage.

Yes sound advice - I nearly got caught out like this the other month...

**chopper** · 31 October 2016, 22:23

Go with HP/PCP rather than a lease. At least with PCP, going over the mileage is only a problem if you plan to hand the car back, as you have other options (e.g. keeping it) where mileage isn't an issue. With a lease, you have to hand it back, and you would have to pay any mileage overages back.

I use PCPs and always choose the lowest mileage option available but never just hand the car back, but instead trade it in for something else, usually well before the end of the finance period. The dealer will at least give you in trade in what is required to settle the finance, even if you burn well over the mileage.

Of course, a real contractor shouldn't be financing a fancy new car but instead buying a cheap shed for cash to aid the building up of the warchest in minimum time. So consider paying cash for a proper tulipheap like a proper contractor, for example
http://www.autotrader.co.uk/classifi...01609268139972

Car Options - Advice/Input Welcome