Hi All - first post, I've trawled the search but can't find anything to help, so thought I'd pick the collective brains.
I have asked my accountant this, and whilst he's usually very good he seems reluctant to get off the fence on this one! I'm owner/director of small firm and looking at ways to be more tax efficient on dividends, which were payable at the 32.5% rate this year and will likely be for the foreseeable.
I'm exploring whether taking some money which would otherwise be payable as part of the dividend in the form of a low emission hybrid company car. I've got modelling spreadsheets full of numbers behind this but would like to share some headline figures please (the costs, BIK, NIC, VAT etc are 'checked' by the accountant, so assuming correct). I'm ignoring mileage as this would effectively be a perk car, with long distance company mileage done on another privately owned small diesel.
I'm comparing the cost getting a hybrid version of the car (a Volvo) on a business contract hire, vs a diesel version on personal contract hire. My calcs seem to show that it is significantly advantageous to go for the company car, but this is at odds with almost all the general advice out there....hence I'm questioning my logic.
A. Personal cost / tax position (private lease car diesel)
Car lease cost net (6 + 35) +£20,440.55
VAT payable on whole lease +£4,088.11
Car expenses (net) +£3,215.83
Vat payable on expenses +£313.17
SUB-TOTAL +£28,057.66
income tax payable on gross dividend equivalent to privately funded car (32.5% rate) (i.e. a gross dividend of +£41,566.90) = +£13,509.24
A. GRAND TOTAL +£41,566.90
B. Company cost /tax position (hybrid)
Car lease cost net (6 + 35) +£26,185.88
Reduction in corporation tax on net lease (19%) -£4,975.32
Non-recoverable VAT (50%) +£2,618.59
Car expenses (net) +£3,515.83
Reduction in corporation tax on net expenses (19%) -£668.01
NIC contribution on BIK (13.8%) +£3,695.63
B. GRAND TOTAL +£30,372.61
C. Personal tax position (Company car hybrid)
Income Tax on BIK (40%) +£10,711.98
Sub-total +£10,711.98
Reduction in income tax through reduced dividend equivalent to privately funded car (32.5% rate) -£13,509.24
Income tax payable on dividend equivalent to fund BIK tax charge (32.5%) +£5,157.62
C. GRAND TOTAL +£2,360.36
SUMMARY POSITION OVERALL
Diesel private car - company cost (£0) + personal total cost (£41,566.90) = +£41,566.90
Hybrid company car - company cost (+£30,372.36) + personal tax position (+£2,360.36) = +£32,732.97
Taken in the round, a hybrid company car could be £8,833.93 cheaper over three years than the cheaper diesel equivalent (for a more expensive, and arguably interesting car).
I'm sure there must be a flaw in my logic here...so what am i missing...?!
Cheers all, any thoughts welcome
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