Ltd Company & Contract Hire Car - Not the Usual Question

[Pickled Piper]

Hi like many, I am Director of my own Ltd Company. In the past I have done the usual thing with cars i.e. Leased or bought my own and then charged the Company at the appropriate HMRC rate for using it on Company business.

I have been looking into contract hiring a new vehicle and I am being advised by some contract hire companies that they can offer a better deal if the agreement is with my Company rather than me as an individual. I guess this is because it becomes a business to business transaction and therefore not bound by consumer credit law etc.

Now the question is, can I set a up the contract hire agreement through my Ltd Company and then reimburse my Company so that I do not have a BIK liability for the car? I have heard references to other people doing it, perhaps by keeping a Director's loan account in credit for the monthly payments.

Cheers in advance for any advice.

pp

[rfoster]

I'm guessing it's a Mercedes? The way that MB Finance work is that they often offer additional support money if the car is going out on a business lease rather than personal, hence the price differential between the two.

I have a few customers who have done the same as you are considering - specifically they were driving C63 AMG Estates and Coupes and putting them through the business to get the better rate. I *think* the company then sub-leased the car to the director, and the director then suffered the VAT (but still cheaper than paying the company car tax on one of those.)

I'm no accountant, just work in the leasing side, I think Eric Mc is your man for a comprehensive answer on this.

[Pickled Piper]

Hi rfoster,

It's a BMW. Have since spoken to my accountant. He explained that if I reimburse the Company fully including VAT, then there is no BIK.

pp

[rfoster]

Ah - sounds about right! Didn't realise that the BMW deals were cheaper on business, thought they were the same. Unless it's a really high powered one then it would be worth checking the company car tax side, some of the 5 Series for example fare rather well on CO2 emissions.

[Eric Mc]

Pickled Piper said:

Hi rfoster,

It's a BMW. Have since spoken to my accountant. He explained that if I reimburse the Company fully including VAT, then there is no BIK.

pp

Reimburse the company in full effectively means "buying the car from the company" does it not?

Or are you therefore sub-leasing the car from the company?

Would that be completely above board with the head leasing company?

Would they allow a car that they own to be sub leased by the lessee (which is the company)?

Should the company not declare the "income" it is receiving from the director (essentially he is hiring or buying the car from the company) be part of the company's income - and therefore be subject to Corporation tax?

What is the VAT position of the income being received by the company from the director?


I fully concur with the wise old Irapaho saying, always beware of car salesman or accountant who speak with forked tongue.

[MaxFromage]

Pickled Piper said:

Hi rfoster,

It's a BMW. Have since spoken to my accountant. He explained that if I reimburse the Company fully including VAT, then there is no BIK.

pp

Sorry your accountant is wrong:

http://www.accountingweb.co.uk/anyanswers/question...

This comes from an accountant I will continue to advise my clients not to go down this route.

[mjb1]

I suspect HMRC would take one look at that arrangement and come straight to the conclusion that you're trying to avoid CC tax. And the hit on that may well be more than any saving on the lease.

[arguti]

Eric Mc said:

Reimburse the company in full effectively means "buying the car from the company" does it not?

Or are you therefore sub-leasing the car from the company?

Would that be completely above board with the head leasing company?

Would they allow a car that they own to be sub leased by the lessee (which is the company)?

Should the company not declare the "income" it is receiving from the director (essentially he is hiring or buying the car from the company) be part of the company's income - and therefore be subject to Corporation tax?

What is the VAT position of the income being received by the company from the director?


I fully concur with the wise old Irapaho saying, always beware of car salesman or accountant who speak with forked tongue.

But if you declare the full reimbursement as corporate income then surely you can offset the cost of the lease ie it would be neutral. We would typically put this through loan account as a monthly loan assuming the car is leased or rented not purchased

Edited by arguti on Saturday 14th December 15:25

[Mandat]

mjb1 said:

I suspect HMRC would take one look at that arrangement and come straight to the conclusion that you're trying to avoid CC tax. And the hit on that may well be more than any saving on the lease.

That's precisely the intention to avoid company car tax, since avoidance is not illegal.

Since the company is not paying for the car (i.e. the employee/director is reimbursing all of the costs back to the company) should the BIK be levied by HMRC at all?

[MaxFromage]

arguti said:

But if you declare the full reimbursement as corporate income then surely you can offset the cost of the lease ie it would be neutral. We would typically put this through loan account as a monthly loan assuming the car is leased or rented not purchased

Edited by arguti on Saturday 14th December 15:25

Yes it would be neutral, but not in HMRCs eyes. There is case law to show they can charge a BIK even though all costs have been reinbursed.

[Eric Mc]

Mandat said:

mjb1 said:

I suspect HMRC would take one look at that arrangement and come straight to the conclusion that you're trying to avoid CC tax. And the hit on that may well be more than any saving on the lease.

That's precisely the intention to avoid company car tax, since avoidance is not illegal.

Since the company is not paying for the car (i.e. the employee/director is reimbursing all of the costs back to the company) should the BIK be levied by HMRC at all?

The company IS paying for the car.

The legal title to the car is in the company name

The company name is on

a) the finance agreement

b) the registration document

HMRC can block tax avoidance tactics EVEN IF THE TACTIC BREAKS NO LAW.