Co cars and sole trader
Discussion
Can someone please confirm that my following understanding is correct?
Assuming you are a sole trader and also VAT registered: if you get a vehicle on contract hire, the VAT can be claimed back by the business (OK, its NOT a 'company' as such) - and the car can be used for both business and personal travel without it becoming a "company car" and therefore a taxable benefit in kind. Seems a good deal if this is correct!
Seeing an accountant next week, but need to check this more urgently.
TIA, Bryan
>>> Edited by TUS 373 on Thursday 24th February 16:26
Assuming you are a sole trader and also VAT registered: if you get a vehicle on contract hire, the VAT can be claimed back by the business (OK, its NOT a 'company' as such) - and the car can be used for both business and personal travel without it becoming a "company car" and therefore a taxable benefit in kind. Seems a good deal if this is correct!
Seeing an accountant next week, but need to check this more urgently.
TIA, Bryan
>>> Edited by TUS 373 on Thursday 24th February 16:26
If you are acquiring the car under a Contract Hire arrangement, you will probably find that VAT is charged on the entirety of each monthly repayment. For example, if the monthly repayment is £352.50, £52.50 of this is VAT. If the monthly repayment relates ONLY to the hire payment in respect of the vehicle, then VAT CANNOT be reclaimed.
If there is an additional elenment being paid every month in respect of a Maintenance Contract, then 50% of the VAT element of the maintenance payment can be reclaimed.
The important thing to ascertain is whether the Hiring Agreement relates to an Operational Lease, a Finance Lease or a Hire Purchase. Contract Hire agreements are usually Operating Leases. VAT is not charged on repayments under Finance Leases or Hire Purchase Agreements. With Finance Leases and Hire Purchase agreements, the VAT is charged up-front on the capital cost of the asset. Being a car, in most circumstances, the VAT could not be reclaimed (there are some very limited circumstances where it can).
Regarding Benefits in Kind - Benefits in Kind only apply to employees and/or officers of a business. In a Limited Company, a director is an "Officer" so Benefits in Kind will apply to Directors of Limited Companies. The proprietor of a Sole Trading business is not an officer of his own business, he is the proprietor. Therefore, he cannot be assessed on a Benefit in Kind on a car owned by the business and used by him personally. Please note that BIKs would apply to any cars owned by the business and used by his employees.
>> Edited by Eric Mc on Thursday 24th February 17:00
If there is an additional elenment being paid every month in respect of a Maintenance Contract, then 50% of the VAT element of the maintenance payment can be reclaimed.
The important thing to ascertain is whether the Hiring Agreement relates to an Operational Lease, a Finance Lease or a Hire Purchase. Contract Hire agreements are usually Operating Leases. VAT is not charged on repayments under Finance Leases or Hire Purchase Agreements. With Finance Leases and Hire Purchase agreements, the VAT is charged up-front on the capital cost of the asset. Being a car, in most circumstances, the VAT could not be reclaimed (there are some very limited circumstances where it can).
Regarding Benefits in Kind - Benefits in Kind only apply to employees and/or officers of a business. In a Limited Company, a director is an "Officer" so Benefits in Kind will apply to Directors of Limited Companies. The proprietor of a Sole Trading business is not an officer of his own business, he is the proprietor. Therefore, he cannot be assessed on a Benefit in Kind on a car owned by the business and used by him personally. Please note that BIKs would apply to any cars owned by the business and used by his employees.
>> Edited by Eric Mc on Thursday 24th February 17:00
jaglover - I have to attend CPD too. The big problem I have is staying awake.
TUS373 - trying to work out what type of agreement you have been offered is sometimes quite difficult to ascertain. Generally, Operating Leases are fairly obvious. The lease will usually talk a lot about Monthy RENTAL payments and will often include a schedule of the monthly amounts payable together with the VAT element contained in each payment (if appropriate).
The problems usually arise when trying to decipher if you are looking at a Hire Purchase agreement or a Finance Lease Agreement. They look very, very similar but legally they are fundamentally different. They are also treated in a fundamentally different way for tax purposes.
>> Edited by Eric Mc on Friday 25th February 09:37
TUS373 - trying to work out what type of agreement you have been offered is sometimes quite difficult to ascertain. Generally, Operating Leases are fairly obvious. The lease will usually talk a lot about Monthy RENTAL payments and will often include a schedule of the monthly amounts payable together with the VAT element contained in each payment (if appropriate).
The problems usually arise when trying to decipher if you are looking at a Hire Purchase agreement or a Finance Lease Agreement. They look very, very similar but legally they are fundamentally different. They are also treated in a fundamentally different way for tax purposes.
>> Edited by Eric Mc on Friday 25th February 09:37
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