WE WENT round to a friend of ours on Saturday as we hadn’t seen them for some while. And while catching up over a beer, my friend Gary asked me if he – and the three other partners in their Limited Liability Partnership (LLP) firm – weren’t missing a trick.
Gary explained to me that many years ago their accountant’s advice had been to run their cars on a private basis. But, said Gary, he had spoken to several friends who had moved to contract hire and, apart from anything else, were enjoying getting 50% of the VAT back on the rental.
What did I think? Well, almost certainly they were missing a trick. As partners they are treated as self-employed so there is no company car tax payable.
And under the tax rules that came into play last April, the system of allowable expenses is much easier than under the old and rather complicated ‘half the excess’ rule.
Here’s how it works. Where a company car’s emissions exceed 160g/km, 15% of the lease rental is disallowed against your profits. Below this threshold the full rental is tax-deductible. So there’s not much to dislike here!
For example, Audi has this following contract hire offer on my Audi A6 2.0 TDIe, based on 10,000 miles a year over three years.
Monthly payable: £339 + VAT
Initial deposit (3 months): £1017 + VAT
Excess mileage: 6p per mile + VAT
All round this looks a pretty good deal – even the excess mileage is not going to hurt much if you go a couple of thousand miles over your expected mileage each year. Plus, in addition to the standard kit of leather, cruise control and Bluetooth mobile phone connection, Audi is throwing in DVD Satellite Navigation and a CD changer, too.
So the car’s good; the spec’s good; the fuel economy is excellent (over 53mpg is the official figure) and under contract hire you could put all £339 of the monthly rental against your taxable profits and reclaim £29.50 of the VAT.
I’ll be sending Gary a copy of our download The big TAX change so he can look into it in further detail. If you want to know more about how the taxable allowances changed regarding contract hire, you can download it too here: The big TAX change.
Business Car Manager: Editor’s Blog
