Buying a van through a limited company

[5n0wb0mb3r]

Afternoon,
Are there any friendly accountants on here that can confirm this for me?
I own and run a small limited company, my accountant has said my corporation tax this year (ending in June) is going to be around £30k.
To get this down I can buy another Van, plant /machinery etc.
I know I can claim the vat paid back and offset the value of the van against the corporation tax owed. But does this affect my profits?
He's tried to explain it to me, but as a tax dunce I just want it verified before I jump in two feet first.
Thank you all
Jim

 

[harveyj09]

Not an accountant, I bought mine last September, at the time 130% tax relief, and have paid no corporation tax this year and next year will pay around 5k less. I’m a tax dunce myself it will obviously affect your profit as you only pay tax on your profit, how it works I don’t know, but you had to buy it, couldn’t be leased or pcp and had to be brand new with you as first owner. No brainier for me if you’ve got the money and want a new van.

 

[DaveCrampton]

Anything you buy through and for your business can be used to:

Claim the VAT paid back on so long as you paid tax on it - and your business brings in enough for VAT to be applied to your invoices.
Deducted from 'profit' and hence corporation tax will not be levied against.

Remember the Van will belong to the business and if you find yourself in financial difficulties the van can be used as a company asset. I'm not sure for vehicles but I think write down periods are 5 years for business assets which can then be written off. This may be different for vehicles/high value items. Also remember that when you sell the vehicle on, you will be expected to pay the value of sale at that time, of VAT to the TAX man.

Rather than buy something which I will not use much (unless I really need it, I push nearly all profits into my pension pot. I leave a small amount which allows us to pay out a £2k tax free dividend on to the directors - after Corporation Tax has been applied.

Disclaimer, I am not a qualified accountant.

 

[Irvine101]

I am an accountant and can confirm that for accounts purposes you depreciate the van in line with your accounting policy. This depreciation is the amount you write off to P&L each year. As company director you choose the rate. e.g. you could write off at 25% per year. The tax write down is different, that follows set statutory capital allowance rates which are laid down by tax law. There was a 130% tax super deduction but that ended on 31 March 2023. You should however be able to claim a 100% write down in the year you buy the van.

Be careful with leases as the tax write down can be based on the monthly payments instead of an up front tax deduction

When talking to clients I always advise there is no point in spending money just to save the tax. You may spend £30,000 and save yourself approx £6000 in corporation tax, but the net cost is still £24000. Do you need a new van / would you benefit from buying one? If not what is the point in spending the £24000 just to have saved the tax.

Also make sure any new van does meet the definition of a van for tax purposes, especially if you look to buy a Kombi with a second row of seats. You need to ensure the payload meets the definition of a van, otherwise it could be classed as a car for benefit in kind tax purposes (search the Coca Cola van case)

Company pension contributions can be a good way of saving corporation tax whilst benefiting yourself personally long term

 

[5n0wb0mb3r]

Thanks guys. Appreciate the advice.
I'm not desperate for a second van. I was thinking the value of the van would be deducted from the corporation tax, and because the van is an asset the value would offset the amount spent, keeping the profit for the year the same?

 

[Irvine101]

As above if you spend £30k you save around £6k corporation tax.
Assuming 25% depreciation your profit after tax falls by £7.5k depreciation but increases by £6k less tax. So a net reduction in profit of £1500 on these numbers.

But if you say you aren't desparate for a second van i do wonder why you are looking to buy one? It still costs you £24k.

Spending £30k doesn't save you £30k tax,it saves you £30k at approx 20% ct rate, so only approx £6 on my numbers plus insurance, tax, repairs etc. It is an expensive way of reducing your corporation tax bill by £6k

 

[DaveCrampton]

The best way to save on tax (now) is to push profits into your pension, though you then pay tax on the pension draw down at the tax rate at that time, I,e if you are a higher rate tax payer, you can pop £30,000 into your pension and then draw it out of your pension once you reach retirement age. If you draw it out below the higher rate then you would pay the lower rate of tax at that time.

 

[accounting]

HI Im a newby here and an accountant with bad news ,

Party seems over for you happy campers claiming deductions on your camper vans , and Kombi's with rear windows and seats (unless you actually destroy their fixings) . Following the cocacola case a few years back HMRC have been deciding how they are going to approach their win in defining the above as cars rather than vans for business purposes thats both limited company and self employed . Happy valentines who loves u baby or not . They've just come out with new guidance pursuing their win . dees is de new rules

EIM23115 google to get to the hmrc manuals. Although not law in itself it does follow the above case decisions . basically to be a qualifying van both at the point of manuafacture and unless SUBSTANTIALLY altered to primarily only carry goods thereafter , (that doesnt mean temporarily covering your windows or merely sliding out the rear seats ) vehicles with a second row of rear seats and windows will be classified as cars for income tax purposes not commercial vehcles .​

and they have a particularly specific section for all you happy campers following another case . vacations over.

What about those urberts in their double cab, yep them bad boys are in the ditch with you . Talking of ditches, we'd better cruz over what the tax implications are

Brief history lesson first. The argument stemmed from HMRC insisting that the vans Coca-Cola give to their mobile engineers are actually cars. Given that the vehicles in question are the Vauxhall Vivaro and VW T5 Kombi one might ask what difference ?
According to the Judge’s ruling the Vivaro with extra seats is a van while the VW with extra seats is a car. Ouch on two counts for you vw officianados !

Having won the principle that one must focus on the intended use of the vehicles design to determine whether it was primarly designed to carry people or goods, they've been honing down how they can apply it to income tax, given contradictory rules in the VAT treatment ( the trusty 1 metric ton carry weight used in VAT) remember that?

We'll they've been living with the VAT marker up to now but no more. Well not after 1st July 2024. vehicles bought after then will follows the above classifications with some interim transitionary rules for those of you waiting on your orders .

Whats the big deal ?

We'll first if you buy your Kombi you might have expected to claim the full cost as a capital allowance against tax . Can't do that for cars. The relief you get depends on the co2 ratings of your vehicle but it's a relatively small percentage over probably its normal expected life

Now you're out of pocket lets empty the tank quite a bit more .

For the self employed its the usual dissallowance of costs based on proportionate busines private use.

For those trading within a limited company, the private use benefit in kind for a VAN is £3600with £688 of fuel . IE add that to your taxable income and the company pays employers NiC on that at 13.8% .

Now, if you have a car, that benefit is based on the CO2 emissions on a scale rate. Say the average combi is 162g/km on which the annual benefit every year is 37% of the official price of the "car" when new. Never mind if yours is second hand tough!

Shall we say a deisel Kombi about £42000 once you have some accessories on it so the deemed extra income is £15540 at maybe 40% £6215 of income tax p.a. generally 4% less with petrol.

Now add in fuel the extra private use benefit equivalent is £25300*.37=£9361. Double ouch again!.

What about those erberts in their double cabs ? yep they are in the same ditch as you!

Now never mind tax. With all this expense where's the smart money going ?
Well probably out of fueled cars which should slam the brakes on the second hand values - trebble whammy.

Electric's the way out but at some capital cost and as yet limited choice and range.

How about happy camping? well as commented on another stream Are you really taking the P?
they are singled out as cars not vans period.

However I'd like to leave you on a high so

You could still put the brakes on the tax bill with a vw idBuzz fully electric with a 2% BIK rate set to remain for the 2024/25 tax year, after which it will increase by 1% a year each year to reach 5% in 2027/2028. so who cares for now if it is a car on the company.

Happy days A

ps got things to do so probably won't be around for a Q &A , unless you need a professonal tiger i the tank. remember him?

 

[Shaun Witts]

…vehicles with a second row of rear seats and windows will be classified as cars for income tax purposes not commercial vehicles .

Well that should help clarify the possible tax implications for some, albeit in a somewhat gloating fashion.

As for the above excerpt about having a second row of rear seats AND windows (which isn’t new as it was already in the HMRC definition), I have wondered whether the seats have to be legal for passenger use (i.e crash tested with seat belts etc.) so would a U seat arrangement fall foul of that definition, or a seat/bed not suitable for carrying passengers?

Anyway, it’s not worth the risk of a potentially large tax bill some years down the road, although plenty of people get away with it or are ignorant of that risk. This is not helped by the converters who will happily insist that a Kombi is a van for all tax purposes or that putting seats and windows in a panel van will not change its status for tax purposes.

 

[accounting]

Well that should help clarify the possible tax implications for some, albeit in a somewhat gloating fashion.

As for the above excerpt about having a second row of rear seats AND windows (which isn’t new as it was already in the HMRC definition), I have wondered whether the seats have to be legal for passenger use (i.e crash tested with seat belts etc.) so would a U seat arrangement fall foul of that definition, or a seat/bed not suitable for carrying passengers?

Anyway, it’s not worth the risk of a potentially large tax bill some years down the road, although plenty of people get away with it or are ignorant of that risk. This is not helped by the converters who will happily insist that a Kombi is a van for all tax purposes or that putting seats and windows in a panel van will not change its status for tax purposes.

Hi the emphasis is the other way round , HMRC guidence emphasises that merely removing rear seats or temporarily covering windows isn't sufficient alteration for that to be considered enough to convert what they see as a car back into a van. Not sure about you're configuration idea but basically the thrust is if the vehicle is equally or primarily designed to carry/accommodate people ,its not commercial for tax .

 

[ChrisBell]

I'll be grand to drive at car speed limits then, get MOT as a car, pay tax associated with a car! Not have commercial van or load rated tyres... As usual nice and grey! Oh no... That's my van! Usual spin put on things without properly being thought out by the people bringing new guidelines or legislation into place!

 

[Bav]

I'll be grand to drive at car speed limits then, get MOT as a car, pay tax associated with a car! Not have commercial van or load rated tyres... As usual nice and grey! Oh no... That's my van! Usual spin put on things without properly being thought out by the people bringing new guidelines or legislation into place!

HMRC aren't interested in fairness, logic or consistency - the big clue as to their focus is the R in their name!

 

[psulli16]

The best way to save on tax (now) is to push profits into your pension, though you then pay tax on the pension draw down at the tax rate at that time, I,e if you are a higher rate tax payer, you can pop £30,000 into your pension and then draw it out of your pension once you reach retirement age. If you draw it out below the higher rate then you would pay the lower rate of tax at that time.

The rate now 2024 has gone upto £60k per year per person in the pension.