Company car

xabi

I'm contemplating buying myself a new car through my company.

Option 1 - company buys car and I pay BIK, what would the other benefits be going down this road? Fuel, tax, insurance, depreciation and then sell to me.

Option 2 - draw down extra salary and buy the car privately myself.

The car will be between 50 - 60K new.

Whats the main pros / cons for each?

Lockedout2

How many business miles

xabi

Lockedout2 wrote: »

How many business miles

15K

exaisle

Buy the car yourself and pay yourself for the business mileage at civil service rates. It will work out at around €8750 per annum if you're doing 15000 miles (ie 24000 km). Draw enough salary to pay the finance less any excess from the mileage that you receive.

Do not do a PCP under any circumstances. They are toxic.

xabi

Sorry, it's 15K kilometres at a push, probably less. I don't see the issue with pcp once you can afford it, want a new car every few years and don't want to pay massive monthly loan repayments.

exaisle

xabi wrote: »

Sorry, it's 15K kilometres at a push, probably less. I don't see the issue with pcp once you can afford it, want a new car every few years and don't want to pay massive monthly loan repayments.

It's a dirty form of finance...designed to allow people who can't afford to finance cars to do so by basically kicking a large portion of the finance down the road.....it ranks right up there with payday loans and ambulance chasing legal firms....appealing to those who know no better. All very well when interest rates are low, but once they rise you'll have to finance the balloon payment at a higher rate and that's when the low monthly repayments become high monthly repayments.....

If you don't see the issue with PCPs, find out more about them!

Avatar MIA

xabi wrote: »

The car will be between 50 - 60K new.

Keep in mind...

There's limit to the amount a company can claim Capital Allowance on company cars.

Also, you'll paying tax on 30% OMV each year as BIK for as long as you own the car.

xabi

exaisle wrote: »

It's a dirty form of finance...designed to allow people who can't afford to finance cars to do so by basically kicking a large portion of the finance down the road.....it ranks right up there with payday loans and ambulance chasing legal firms....appealing to those who know no better. All very well when interest rates are low, but once they rise you'll have to finance the balloon payment at a higher rate and that's when the low monthly repayments become high monthly repayments.....

If you don't see the issue with PCPs, find out more about them!

Absolutely if you can't afford it, but with a very low interest rate and the ability to pay the balloon if the need arises I don't see the issue. I have heard of some people borrowing the deposit with no reserves to pay the ballon at the end, now that's crazy.

PCP I appealing to me as I'm buying through my company and don't want the massive outlay in one go and the interest rate I'm getting is way better than any bank or HP could offer, plus the ballon payment is there if I need it.

Avatar MIA

xabi wrote: »

PCP I appealing to me as I'm buying through my company

The PCP option would be there as an individual as well.

Say a 60k car, you personally will be paying €9k per annum BIK. Your company will be paying the Capital plus PCP interest. The company will be able to claim approx. 41.67% of the cost from a Tax POV, which will reduce tax profits with cash gain of 12.5%.

Whereas you get a car allowance from the company and the cost to the company is ER PRSI on top of the 60k which is fully tax deductible at 12.5%.

Say the car is paid over 5 years at 3% interest you'd draw down approx. €2,200 extra per month Gross to be able to pay the approx. €1,100 due to be paid on the car. PAYE Tax payable approx. €13,000 per annum. But, the car is yours after that.

Whereas, in Year six under BIK you'd still be paying €9k per annum.

xabi

How would the car allowance work? Wouldn't that also be TAXED at the higher rate, effectively 50%? So if I take 60K in an allowance it will cost the company's 120K

There's also tax, insurance, maintenance and fuel that the company will pay, estimated at 3K. That's 6K that I would have to draw from the company

Avatar MIA

xabi wrote: »

How would the car allowance work? Wouldn't that also be TAXED at the higher rate, effectively 50%? So if I take 60K in an allowance it will cost the company's 120K

Worse - it would cost you the company the Gross amount plus 10.75% ER PRSI. But, you are financing a car worth €60k which is not going to be cheap.

The full amount will be tax deductible at 12.5% roughly a €16,612 saving.

xabi

Avatar MIA wrote: »

Worse - it would cost you the company the Gross amount plus 10.75% ER PRSI. But, you are financing a car worth €60k which is not going to be cheap.

The full amount will be tax deductible at 12.5% roughly a €16,612 saving.

So better let the company buy the car rather than me drawing the addition salary to fund it privately? Or am I missing your point

The advice from my accountant is that it's better to let the company buy the car if it can afford it due to the small amount of claimable miles I'm doing.

What's ER PRSI? I pay class s

Avatar MIA

xabi wrote: »

So better let the company buy the car rather than me drawing the addition salary to fund it privately? Or am I missing your point

The advice from my accountant is that it's better to let the company buy the car if it can afford it due to the small amount of claimable miles I'm doing.

Get him to show you the figures for each, and post on her or PM and we can sanity check.

How long are you going to own it for? That will impact also, because say, for example, you own the car for 10 years before buying again (extreme to demonstrate) you'd still be paying €9k BIK per annum in year 10 for the same car.

xabi

Avatar MIA wrote: »

Get him to show you the figures for each, and post on her or PM and we can sanity check.

How long are you going to own it for? That will impact also, because say, for example, you own the car for 10 years before buying again (extreme to demonstrate) you'd still be paying €9k BIK per annum in year 10 for the same car.

3 years max, I'll re evaluate then. What's er prsi?

Avatar MIA

xabi wrote: »

3 years max, I'll re evaluate then. What's er prsi?

Employers PRSI.

I'd still get him/her to work out the full implications for each option.

dbran

If you are on the top rate of payroll taxes (53%) I would be inclined to go with your accountant and let the company purchase the car if it has the funds to do so.

As you rightly pointed out, if you are to take out a personal loan to buy the car then the company (you) will have to pay out additional salary plus grossed up payroll taxes in order to make the loan payments. This is a significant deciding factor of the decision. You will of course get a deduction for this but only at 12.5%.

In years 2 and 3 you may be paying BIK on the original market value of the car when the market value of the car will be far lower, but if you are intending to change it every three years then this is not so much of an issue.

In any case there are a number of factors at play here which would need to be taken into account before the decision is made. Your existing accountant would no doubt be aware of them.

dbran

exaisle

dbran wrote: »

In years 2 and 3 you may be paying BIK on the original market value of the car when the market value of the car will be far lower, but if you are intending to change it every three years then this is not so much of an issue.

dbran

I have to disagree...
If he replaces the company car with another company car, then he'll pay BIK on the new one...

Company cars have traditionally been viewed as a perk, but when the amount of business mileage is minimal, the BIK (on the original market value) makes it far less attractive.

dbran

Even if there is no business mileage at all the BIK will be 60000x30%x52%=€9360

But the extra payroll taxes on the capital element of the loan alone is going to be 12000/.48x.52= €13000. Take away the extra CT deduction of 12.5% of 13000 @12.5% is €1625.

There are capital allowances and interest duductions against CT but they are either small potatoes or affect both sides of the equation.

So €11375 versus €9630. For me, if the company has the money, it buys the car.

The fact that the BIK is on the OMV of the vehicle is a red herring. It is about he overall cost to the taxpayer, and not about BIK to market value of the vehicle. All this means is that the new purchase has to be a new vehicle and not a second hand one. It is the governments way of helping out the motor industry and keeping old bangers off the road.

dbran

exaisle

@dbran - PM Sent :-)