Query on an article about BIK

xabi

Read this today and am confused about the example used, how do they get the 24k figure for the omsp? Something to do with being a sole trader?

In today’s article we would like to introduce Mr. Murphy. Assume that Mr. Murphy is a sole trader and uses his car 100% for business – his wife also has a car which is used for the family and all personal travel. Mr. Murphy wants to change his car in the New Year and contacts us before doing so – a very good step if he wants to be tax efficient! We ask Mr. Murphy what type of car he likes and he says that he has always wanted a BMW 5 Series.
We advise Mr. Murphy to go for a post July ’08 2l diesel model as it is a low emissions vehicle – he buys a 2008 BMW 5-Series 2l diesel engine for €10k – because this is a low emission vehicle it has a deemed cost of €24k for Income Tax purposes (regardless of how much Mr. Murphy actually pays for it) – this means he will save €12k tax over next few years – not only does he effectively get the car for free – he will actually make €2k on the deal!

Synode

Where did you read that?

xabi

Synode wrote: »

Where did you read that?

On an accountancy firms facebook

Synode

Can you link it?

xabi

http://fhmaccountants.ie/using-car-van-business-part-two/

barneystinson

Well those boys are going to get their clients in trouble because there's no way a revenue auditor is going to accept 100% business usage - it's completely unreasonable and unrealistic. Don't think I've ever seen higher than 75% in practice on a car, although it would depend to an extent on the nature of the business.

CIARAN_BOYLE

barneystinson wrote: »

Well those boys are going to get their clients in trouble because there's no way a revenue auditor is going to accept 100% business usage - it's completely unreasonable and unrealistic. Don't think I've ever seen higher than 75% in practice on a car, although it would depend to an extent on the nature of the business.

Agreed, unless you personally own a separate car for business I've never seen business use that high.

Anyway to answer the op omsp is a vrt issue not related to deemed price for income tax which is different. Deemed price is explained in point 7 of the below leaflet.

https://www.google.ie/url?sa=t&source=web&rct=j&url=http://www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-corporation-tax/part-11/11-00-01.pdf&ved=0ahUKEwij0u7J2InRAhUOMFAKHaOABkoQFggaMAA&usg=AFQjCNGgGk2szBPFWuYBCS6uF7-WlkdF6w

Synode

It's a capital allowances issue. The example is poorly worded by FHM. They make it sound like a BIK saving, when it's not, it's a granting of additional capital allowances. The owner would still have to pay BIK on personal use of the car unless Revenue accept it's used 100% for business. I've never had such a case in Ireland but have in the UK, and it can be accepted in certain circumstances

exaisle

Synode wrote: »

It's a capital allowances issue no? The example is poorly worded by FHM. They make it sound like a BIK saving, when it's not, it's a granting of additional capital allowances. The owner would still have to pay BIK on personal use of the car

That's not correct. BIK does not apply to self-employed sole traders. In fact, the article quoted does not include the expression "BIK" at all.

For self-employed sole traders, where there is business use of (for example a car), then the full cost of running the car is calculated, and the non-business element of this is "added back" (ie discounted for the purposes of calculating the taxable profit). Barneystinson is absolutely correct...I've only once seen more than 75% of motor expenses allowed (in that case the actual business mileage was astronmical).

In the example given, the maximum realistic annual capital allowance available is 24,000 x 12.5% x 75% = 2250. Assuming the marginal rate of tax to be 50%, this represents a saving to the taxpayer of 1,125 per annum. The best the taxpayer could do in terms of recouping the cost of the vehicle would be to keep the car for 8 years, gaining 18,000 in capital allowances and saving 9,000 on tax. But then, you have to ask yourself, what state would a 16 year old BMW 5 series with a few hundred thousand km on it be in?

I think the article is rubbish, to be honest...I suspect we're probably agreed on that...

Synode

Sorry your right. I had it in my head that he was a director for some reason. Yes agreed, the article is rubbish.