Imagine this: you can go down the motorway in your luxury car. You know, the one that your company provides, so that you look like a big shot and feel compensated for all these nights on the road. Hey, you still don't want all those miles on your car, so this is the perk, or so they say. You may even need to choose it, your favorite color, all the necessary accessories, including the luxury CD player you are listening to. You drive in style, heading home after a long day of hay. Waiting for you to have a letter from your accountant. Or maybe Internal income. And this is when we will talk about dramatic music and freeze on the large growth of your mouth, which is wide open with a cry of indignation.
Because you owe government money! Since you have forgotten to include an income of £ 6,000 on your taxes, the fact that you owe about £ 2,500 in taxes than planned.
And this is all because of this damned company car.
Indeed.
In the car game of the company there is a dark secret that no one likes to talk about: the equivalent value of the car of the company you manage, expressed as a monthly amount, is taxable income for you. If payments or car rentals are £ 500 per month, and if your company pays for it, even if you didn’t know it was happening, the amount is considered a regular income tax. And the tax man comes to that, whether you or your boss understand the concept - this is called a benefit in kind - or not.
But there is a way around this that works better for you and has absolutely no flaw for your employer - Personal Contract Hire. If you “hire” a car yourself — in other words, if you rent it from an agent who actually owns the vehicle — and your company reimburses you for these monthly rental payments, then the cost becomes a deductible business account for the company (which is what happened in the first scenario, so nothing changes for them), like any other element of your account. And this is for you complete impeccability, because every penny you spent on rent is reimbursed through your expense account, canceling each other. No income, no taxes. And you still look cool on the road.
The reasons for renting a car, whether through your company or in person, are many and compelling. The trick is to talk to your boss, and he will help remind him that cars rented for employees are included in the company's balance sheet as assets, improving the ratio and the power of borrowing. But in any case, consider this:
- you can choose the brand, model, color and accessories ... go ahead, get these 22-inch wheels and see how the bosses light up;
- monthly payments with a personal contract are usually lower than with a sales contract, because only the depreciation during the rental period is advanced, and none of them are of interest ... hey, you will lose this money anyway, therefore you can reduce the monthly nut;
- the cost of the vehicle, which is the determining factor in the calculation of depreciable depreciation, is often less through an agent for hiring a personal contract, since their purchasing power allows them to provide pricing in the fleet;
- Renting a personal lease agreement is usually two or three years, which allows you to switch to a new vehicle at the end of each rental period;
- you have flexibility in your payments, because a larger advance deposit can reduce the monthly hit;
- at the end of the lease you just leave; or you can buy a car for a residual value, which may be less than the market value itself, in which case you can sell the car for a profit, or simply drop it at sunset;
- when writing on an individual title, there are no tax consequences “in kind”, and if your company does this and then refunds you, this is a write-off for them and a wash for you. .. ask your boss if he can say "win-win", look what he says.
However, one hidden trap of a personal lease agreement is a terrible measure. Lease contracts determine the maximum number of miles that a car can drive per year, with any surplus exceeding the car’s surcharge. If the contract belongs to you and not to your company, you are on the hook for this trip to John O & # 39; Groats, so carefully choose your run plan. And, as with any method of payment, the cost of insurance and maintenance (except for what is covered in the service package attached to the lease itself) is borne by the owner of the lease.
