Leasing a hybrid car through a limited company

[wettowel]

Hi folks,

This is my first post and I have already searched on the forum for possible answers, however as you all know there is no one-fits-all rule to working out if a company car makes sense, as it all depends on personal circumstances.

I will try to keep it brief and give the minimum required information. Here's my current situation:

1) I currently have a very thirsty petrol car on PCP (I'm averaging 29 mpg), at £300 per month. I have 18 months left on the contract, however an opportunity has arised for me to return the car at a minimal loss (circa £250) now.
2) Due to a mistake made by my accountant, I had to pay over £5k extra tax this year, which I did not foresee. As you can imagine, this has reduced the amount of dividends I can withdraw in this tax year if I want to keep in the 20% bracket and I have a family to support and every penny counts.

When asked in the past, my accountant advised me not to lease cars through the LTD company at all, due to the high BIK rates, however he failed to point out that hybrids are very cheap. This got me thinking about swapping my current car for which I pay out of my own pocket to a hybrid car, but I don't really know how to work out the numbers for my circumstances and I would appreciate some advice.

The car I am interested in, is a VW Golf GTE - I can get it approximately £250 per month + VAT with a £250 + VAT down deposit. According to the Next Green Car website, the BIK for this car is £48 per month this year, £70 in 2018 and then rises to £86 in 2019. My intention is to keep the car for not longer than 24 months.

Does it make any sense to change the car I currently have on Personal Contract Purchase at £300 per month to a Business Lease through the company?

From my limited understanding of the matters it seems to save me some money, as it should free up some cash for me (I will pay less from my personal income towards the car, which should leave over £200 per month) and on top of that I will save some corporation tax and will be able to reclaim half of the VAT, not to mention the fuel savings.

If I got it right, the figures will look more or less like this:

Company turnover: £100,000
Car value: £30,000
Car cost per year: £3000
Annual corporation tax saving: £600
Reclaimed VAT: £300
NIC contributions on BIK: £399 / £576 / £693
Car BIK (annually): £576 / £840 / £1023

And here two estimates I came up with, based on the same car price but leased personally vs through my business:

Personal lease:

Corp tax: £20,000
£45,000 personal income from which I have to deduct:
* £2,138 for dividend tax
* £3,600 for the car (£250 + VAT)
Leaving:
* £3,271 personal income net per month
* £35,000 in the company bank account at the end of the year (excluding VAT)

Business leasing:

Corp tax: £19,400
£45,000 personal income from which I have to deduct:
* £2,138 for dividend tax
* £576 BIK contributions
Leaving:
* £3,523 personal income net per month
* £32,501 in the company bank account at the end of the 2017 year (excluding VAT)

Is this correct, or am I missing something here? Also, I am too stupid to understand what I just wrote and I don't really know how to interpret these values. If I go for this particular car, which option would actually save me money?

Could anyone please advise, as my accountant doesn't offer any constructive advice.

Thanks

[Lance]

When asked in the past, my accountant advised me not to lease cars through the LTD company at all, due to the high BIK rates, however he failed to point out that hybrids are very cheap.

>>>> SNIP>>>>> tl;dr

Could anyone please advise, as my accountant doesn't offer any constructive advice.

What makes you think that we'll have any better advice than what your accountant said?
I agree with him but you ignored him.

Hybrids are a better BIK at the moment. But there's a budget coming soon, and as more cars become electric, and less diesel the treasury are gonna want a slice of that cake instead.

Just buy your own car and claim mileage allowance.

EDIT: and you haven't factored in insurance which costs more for a business car

[wettowel]

What makes you think that we'll have any better advice than what your accountant said?
I agree with him but you ignored him.

My accountant caused me so much grief it's ridiculous. I don't trust anything that guy says. I am in the process of switching to someone else.

Just buy your own car and claim mileage allowance.

Did you read my post? I already have a car which I want to change for a more economical one.

and you haven't factored in insurance which costs more for a business car

I have a 36 group car at the moment, GTE is 10 groups lower, at 26. I'm pretty sure the insurance will be cheaper (and also tax deductible!).

[northernladuk]

We've covered this at least 3 times very recently so there is some good reading for you. I seem to think we still never reached a conclusion though.

In Google type something like 'lease hybrid site:forums.contractoruk.com' and have a read to see if the existing threads covers some of the first bases so we don't need to go over again.

[Antman]

If you want to save money, return the PCP and pick up an old banger.

It's bangernomics init.

[Antman]

I was looking at a BIK calculator and the 330e se version came in really low, like £470 @20% bracket

[wettowel]

If you want to save money, return the PCP and pick up an old banger.

It's bangernomics init.

Thanks. This I already knew.

[TheFaQQer]

2) Due to a mistake made by my accountant, I had to pay over £5k extra tax this year, which I did not foresee. As you can imagine, this has reduced the amount of dividends I can withdraw in this tax year if I want to keep in the 20% bracket and I have a family to support and every penny counts.
...
Could anyone please advise, as my accountant doesn't offer any constructive advice.

1) Don't let the tax tail wag the dog. If you need the money for your family, take it out and pay tax on it, rather than scrimping

2) Demand some kind of restitution from your accountant if their mistake has cost you money.

[wettowel]

1) Don't let the tax tail wag the dog. If you need the money for your family, take it out and pay tax on it, rather than scrimping

I am not scrimping. We are perfectly fine on £45,000 per year, however freeing up additional £200 per month with no tax implications makes more sense to me than taking out even more dividends and pay even more tax on them.

Also, the savings in fuel shouldn't be overlooked. At least that's the whole point of this - to change to a cheaper car and save some tax.

[Lance]

Did you read my post? I already have a car which I want to change for a more economical one.

Not all of it. Too long.
Fine change for more economical one. But 29MPG isn't that bad. Changing a car for better MPG is normally a false economy but as you've leased and can give it back that's not an issue.
I was challenging the view of a lease through the company especially as the BIK WILL change. In fact an all-electric will have the same BIK as a small petrol by 2020.

I have a 36 group car at the moment, GTE is 10 groups lower, at 26. I'm pretty sure the insurance will be cheaper (and also tax deductible!).

You don't have the insurance figures in your calculations. It might be cheaper (maybe) but it will be different between personal and company and different between different lease types. The few hundred quid you think you save on year 1 may well vaporise when you get insured.