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Advice: How to buy a BMW 3 Series tax-free – By the Taxmole

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WE all know that if you buy a car through the company then you get a bit of a spanking from the local tax-man through company car tax just for starters.

However, there are exceptions. And some of them are so incredibly tax advantageous to you that you should buy as many as you can afford. No, really.

Let’s start with a new BMW 3 Series (a decent motor according to this website and many others) because BMW, thanks to EfficientDynamics, has reduced the CO2 emissions on this model – the 320d EfficientDynamics – to just 109g/km level. Now that’s a pretty crucial number…why? Because it means that you can claim the full price of £27,900 as an FYA – that’s a First Year Allowance.

This means that you can have profits or income of £27,900 tax free because your FYA allowance offsets this amount against your taxable profits. Meaning…not a penny to pay in tax until you’ve earned more than £27,900. Genius!

Assume for a minute that your company pays 20% tax (the small profits rate), you’d normally pay £5580 on that in tax…enter the BMW to completely eradicate that bill and wipe out £5,580 of corporation tax. So not only do you get a smart business car tax free, you also get £27,900 profits…tax free. Very generous indeed.

Yes there are other cars available under this magic threshold but the BMW is the first ‘exec’ type model to crack this magic nut.

Is it too good to be true?

Our expert David Rawlings thinks so. This is his take on 100% First Year Allowances (FYA) for company cars.

I think this is misleading. Regardless of the car’s emissions, business will get full tax relief for depreciation – the question is when.

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The 100% first year allowances simply mean you get tax relief in the first year, as opposed to 10% or 20% a year. Yes, it’s good for cash flow, but it’s not giving you anything you won’t get eventually.

With FYAs it’s naturally front-end loaded and doesn’t take into account the fact that there will be additional tax to pay once the car is disposed of.

This additional tax is due because the proceeds are deducted from the Tax Written Down Value in the main Plant & Machinery pool, thereby reducing the Writing Down Allowances available to the business.

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We run training courses that go over this in detail. In the calculations, we work out the real value of First Year Allowances to the company by taking its cost of capital and using that to value the acceleration in cash flow: you’re talking hundreds of pounds, but not thousands. David Rawlings, car tax and SME specialist, BCF Wessex.

 

Want to read a road test of the BMW 320d EfficientDynamics? Click here: The BMW that redefines the company car

 

Editor’s note: 100% first year allowances (FYA) are available on all cars with CO2 emissions of 110g/km and below. This allowance is available until 31 March 2013. We have more on the tax allowances for company purchased cars in our special supplement. Click on the link to download The big tax change – leasing and corporation tax changes.

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