Company tax saving for leased Outlander PHEV

I was hoping to place an order for the PHEV GX3h but the price has risen from around £260pcm to £290 over the last month or so. As this takes me over what my company will allow for a lease vehicle, I wondered if I could sweeten this a little by offsetting the increased cost with the amount the company would save on tax.

The question is does anyone know what the tax saving would be for the company per month?

Thanks in advance.

I'm not sure that the company does save any tax in the strict sense of the word, does it? There is a 100% writedown against Corporation Tax in the first year which is advantageous, but in years two and onwards, I don't think the company benefits in any way apart from the zero road tax, does it? We are in the process of buying a GX4h as my wife's company car (it's also her company). Our accountant calculated an effective tax saving of around £5000 in the first year for the company which is the Corporation Tax that would be due on profits equivalent to the purchase price of the car. After that, it is pretty much tax neutral - the company will hold onto it for three or four years until it has depreciated a bit, then sell it to us.

If the vehicle is being leased, then I'm not sure if the company even gets the Corporation Tax advantages - if anyone does, then it's the lease company.

Thanks Maby,
I guess I will need to look into this in a bit more detail. Even if I could show the company a saving of £1000 over the 3yrs of the lease it would be enough to offset the extra monthly cost. There is also the NI contribution savings and road tax to consider.

If anyone has anything to add or could share a similar experience I would be grateful to hear about them.

I'm not sure that the NI contributions make that much difference in absolute terms either, do they? They will be deducted from profits before Corporation Tax is calculated, so the saving is the difference between the rate of the NI contribution and the rate of Corporation Tax. The primary benefit to the company is the 100% write-down in year 1.

If your BIK is only 5% compared with whatever the normal rate for say the diesel would be, then the company is saving NI (13.8% I think) on the BIK, isn't it? Not sure it would be that significant as it is a % of a %...

Let's see:

Say £30K car cost at 18% BIK rate = £5,400
Say £30K car cost at 5% BIK rate = £1,500
Difference is £3,900 x NI rate of 13.8% = £538.2 annual saving for company
£538.2/12 = £44.85 per month NI saving for the company (gross of corporation tax) Net saving around £36?

caveat, caveat - I really have no idea if that is right (it is a long time since I took my tax exams!)

Cheers
H

http://www.energysavingtrust.org.uk/content/.../1/.../Driving+tax+savings.pdf

Have just found this - see page 5 of this download. Hope the link works...

Hypermiler said:

If your BIK is only 5% compared with whatever the normal rate for say the diesel would be, then the company is saving NI (13.8% I think) on the BIK, isn't it? Not sure it would be that significant as it is a % of a %...

Let's see:

Say £30K car cost at 18% BIK rate = £5,400
Say £30K car cost at 5% BIK rate = £1,500
Difference is £3,900 x NI rate of 13.8% = £538.2 annual saving for company
£538.2/12 = £44.85 per month NI saving for the company (gross of corporation tax) Net saving around £36?

caveat, caveat - I really have no idea if that is right (it is a long time since I took my tax exams!)

Cheers
H

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I think you probably are right - my point is that Corporation Tax is levied at 20% or more of the profits after things like salary and NI contributions have been deducted - so I don't think that reducing a company's NI bill has a significant impact on profits - it just moves money from one tax to another. A company that makes no profit pays no Corporation Tax - ask several high profile coffee shops and internet book sellers!

Maby
Not sure I understand your point re corporation tax. Employer's NI is a cost to the company, whether it pays CT or not. Just because you might get corporation tax relief on it (i.e. it is deductible for ct purposes so reducing the CT paid, if you have a profit) doesn't really matter.

The OP needs to point out to the company (in the nicest possible way), that they could choose a higher CO2 emitting car with a higher BIK rate which would cost more to the company in NI than the extra lease costs (both the NI and leasing costs would be CT deductible I should think, so not really an issue). The best thing for the OP to do would be to illustrate the position by showing the company the figures for a car within the company's lease cost limit, which the OP could choose instead, which would cost the company sufficiently more in NI to justify the extra lease cost for the PHEV. i.e. the overall cost to the company of lease + BIK monthly cost is the same or less than an equivalent car which would be acceptable under the scheme rules. If that makes sense!

Cheers
H

It's all about Class 1A contributions as far as NI goes, regardless of how the company funds the car. If you can calculate the cost of NI Class 1A contributions payable by the employer on what you currently drive, then do the same on the Outlander, you should be able to demonstrate how much of a saving the company will make.

There are plenty of Class 1A calculators on 'Internet so a quick google should do the trick.

Cheers

Hypermiler said:

Maby
Not sure I understand your point re corporation tax. Employer's NI is a cost to the company, whether it pays CT or not. Just because you might get corporation tax relief on it (i.e. it is deductible for ct purposes so reducing the CT paid, if you have a profit) doesn't really matter.

...
Cheers
H

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Why doesn't it matter? From the company's point of view, the only thing that matters is the bottom line on the balance sheet. If I have £1m revenue and end up with £300,000 profit after paying all costs including those of employment and Corporation Tax, then I don't really care very much how the missing £700,000 are carved up. If I have two employees, both with company cars, and I pay NI contributions of £6000 for one of them and £5000 for the other, that is just £11,000 to be deducted from the revenues before Corporation Tax is levied. I'm not saying that there is no benefit at all to the employer from the reduced BIK, but as far as I can see, HMRC simply come along and take most of the benefit back in the form of a different tax. Certainly, when we asked our accountant to analyse the economics of an Outlander PHEV, she highlighted the 100% year 1 write-down for the company and the BIK for the employee.

It's quite a complex calculation if you are the employee and the employer.
There are essentially 3 variables that will determine whether or not buying as a company car is advantageous to the individual and the company.
1. Your salary
2. Your anticipated mpg
3. Your anticipated yearly mileage.

It works for me for the first 3 years, but then I will probably sell the car back to myself and start claiming at 45p a mile.
have a look at www.comcar.co.uk for calculators that will assist you in your decision.

pheverish said:

It's quite a complex calculation if you are the employee and the employer.
There are essentially 3 variables that will determine whether or not buying as a company car is advantageous to the individual and the company.
1. Your salary
2. Your anticipated mpg
3. Your anticipated yearly mileage.

It works for me for the first 3 years, but then I will probably sell the car back to myself and start claiming at 45p a mile.
have a look at http://www.comcar.co.uk for calculators that will assist you in your decision.

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Strictly speaking it's your marginal tax rate rather than your salary - though the two are intimately linked, of course. Assuming that you are going to have the car one way or the other and you are in control of how you get it, then the calculation is how much you would have to draw in bonuses from the company to have enough to buy the car after paying income tax vs. the cost to the company of providing it to you plus the BIK penalties. When we looked at it for a conventional car a year or two ago, the BIK penalty was high enough to wipe out any other tax benefits - which, of course, it is intended to do. According to our accountant, the current rules relating to low emission vehicles are enough to tip the decision in favour of taking it as a company car.

Your salary also affects NIC for employee and employer.
Personally, I have a current account mortgage, so I can obtain funds at my mortgage percentage rate without having to rely on taking salary/dividends from my company

pheverish said:

Your salary also affects NIC for employee and employer.
Personally, I have a current account mortgage, so I can obtain funds at my mortgage percentage rate without having to rely on taking salary/dividends from my company

Click to expand...

But sooner or later, you'll want to pay the car off - presumably with money coming from the company in one way or another? We are really just discussing the most cost effective way of getting the car sitting on your driveway and available for you to use!

You could make a voluntary contribution to make up the difference. This could\should lower your bik as well

Great idea Eggtastico, if the OP's company will wear it. Assuming the alternative is a conventional ICE car the BIK saving will more than offset the extra £30 a month and as you say the tax paid will be reduced in respect of the voluntary contribution as well.

maddogsetc said:

Great idea Eggtastico, if the OP's company will wear it. Assuming the alternative is a conventional ICE car the BIK saving will more than offset the extra £30 a month and as you say the tax paid will be reduced in respect of the voluntary contribution as well.

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An employee contribution of £30 per month should reduce your tax liability by approximately £12 per month. I'd guess forking out £18 of your own cash every month would be insignificant compared to the reduction you'll see in your BIK liability, assuming your current company car isn't low value/low emission.

Just wanted to say thanks for all the contributions to this topic. Who'd of thought tax could be so complicated!!

Anyway, I had a chat with my boss today and he is happy to go with the extra cost after all (even after I had a stab at explaining all of the potential benefits - Company NI contributions, No road tax, saving on service cost if we went with the £500 for 3yrs option) I think he is pretty open to changing over to hybrid/electric vehicles as he uses a Nissan Leaf to commute himself.

So, order placed at last and hope to take delivery in November. Just the matter of getting the home charge sorted now.

All the best.

baldrick said:

Just wanted to say thanks for all the contributions to this topic. Who'd of thought tax could be so complicated!!

Anyway, I had a chat with my boss today and he is happy to go with the extra cost after all (even after I had a stab at explaining all of the potential benefits - Company NI contributions, No road tax, saving on service cost if we went with the £500 for 3yrs option) I think he is pretty open to changing over to hybrid/electric vehicles as he uses a Nissan Leaf to commute himself.

So, order placed at last and hope to take delivery in November. Just the matter of getting the home charge sorted now.

All the best.

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Very enlightened!

Good sense prevails - excellent!
H