December 14, 2019

Should I buy a Company Car ?

If you are a director of your own company, there is the opportunity for you to put the purchase, running costs and fuel for a car through the company. The down side is that HMRC will view this as a perk of the job and tax you on the benefit received, on their calculation. This calculation is linked to the full retail price of the car plus accessories (not the purchase price you paid) multiplied by a percentage based on the CO2 emissions. There is then another benefit of the fuel with the same percentage used on a prescribed figure for fuel for the year. If you then multiply this benefit by your highest rate of tax, you may appreciate that it will depend on the amount you use the car and the CO2 levels as to whether you wish to pay the extra tax.

 

Other considerations are that you cannot claim the VAT back on the purchase of the car unless you are a taxi or a driving school i.e. it is a tool of the trade. You may have to pay extra for insurance as if owned by the company, it must be insured in the company’s name. The company may not yet have any no claims discount. Insuring it through the company may also affect your no claims. If you have company insurance for a number of years, your personal no claims discount may expire. Depending on how you intend to finance the vehicle, leasing companies and finance houses may want to have a close look at the accounts for the last three years.

 

When I had a company car, my company took out a bank loan to fund it and my insurance company (NFU) looked at real life so there were no insurance implications. They did not just tick boxes on a form/computer screen. Any car used for business should have appropriate cover, particularly if you are using it to deliver goods to customers as the goods need to be insured ‘in transit’.

 

By all means get a company car, but calculate (or get someone else to) how much it will add to your tax bill up before you sign on the dotted line. Fuel can be treated separately so don’t assume if you have a company car, you have to get the company to pay for all your fuel. You can put in a claim per mile which is much less than 45p per mile as you use your personal car.

 

The alternative is that you own and fund the car yourself, making sure you include business within the insurance cover. You can then claim your 45p per mile and get the company to pay you at that rate.

 

The situation is different if you are a sole trader – but I will leave that for another day… If you are looking to make a decision and need assistance – contact me

What are your costs of distribution?

A cost that is often overlooked when deciding on prices, or considering profitability is the cost of getting your product or service to the customer. Whether it is you travelling to a meeting at your customer’s location or the cost of postage and packaging, they are each costs you would not incur if you had not made the sale.

What bought this home to me was the cost of distribution of my, soon to be launched, book. I could buy padded envelopes from W H Smiths at 99p each (or 3 for 2) or I could buy 100 for under £10 with free delivery on 300 or more. That was just the first cost. There was then the cost of postage. I am glad I have a franking machine but it still over £1 second class.

The costs can mount as much and more when delivering yourself. Parking at the station, the cost of the train fare, taxi to and from at the other end. I know that today I will spend more on taxis than the pre-booked train fare but this is still cheaper than driving at 45p per mile – and I can get some work done on the train. This cost of travel can make quite a dent in the daily rate. I know I am doing more work locally and from my office. I have no travelling costs or time involved so I don’t have t have the conversation about why they should pay for me to go to them. To be fair, my daily rate is less when they come to me as I know I can do chargeable work when I would otherwise have dead time while I was in the car.

If you have engineers or technicians on the road, just consider what the costs are. I am not saying you shouldn’t offer the service, I am saying make sure you build in the cost when calculating the price. The idea of being in business is to make a profit, not just deliver a fantastic service. If you don’t make a profit, you will not be able to continue which means that people will be deprived on the quality products and services you offer. If you do not get the figures right, you cannot continue.

When did you last claim expenses ?

There are 3 good reasons why you should put in an expense claim:

1. You have paid out money on behalf of the firm so they owe it to you
2. The firm needs to know what it has paid out/costs it has incurred otherwise it is working with an incomplete picture
3. If expenses are to be recharged to the customers. They should be included before the customer forgets they agreed to pay for them.

Whether you work for someone else, or yourself the same three rules still apply. The sooner you put the expenses in, the sooner you can be paid and the firm knows it has a liability.

You might trade as a sole trader and the concept of expenses seem strange. The same rules apply. If you pay parking of, on average, £2 per day and record it for 45 weeks of the year that amounts to £450 worth of costs. So, if you pay 20% tax and 9% NIC that is £130.50 extra you would need to pay in taxes if you didn’t make the claim.

For many small expenses such as parking, you cannot always get a receipt. HMRC understand this providing you are making notes and claims as you go rather than inventing a lump at the end of the year. It may be that your bank statements show when you had to park to go to the bank. As well as the parking, don’t forget to claim the mileage unless the business owns the car and pays for your petrol.

Other amounts often overlooked are postage, paper (when bought from Tesco’s with the week’s shopping), car washes and charity donations. All are allowable and some do have receipts, others don’t. If some of the items on the receipt are business and some not, then include the receipt and just mark which you are claiming for – at least you have proof that the money was spent.

The important thing is to do it while you still remember – Happy to chat things through with you if I can be of help