Tax implication of paying portion of private car from company funds (self-employed, Ltd. Company)

Mr.Me32

Hi,

 

Tried searching for an answer to this but can’t find this specific question.

 

To avoid cashing in a well performing investment I’m wondering what the tax implication is if I paid a portion of a new car price directly from my Ltd. company funds to the dealer.

 

So, if for example the company transferred €10k directly to the dealer. The balance of the car is paid from private savings.

 

Does that mean I would owe approximately €5.2k (52%) of that in tax in the next payroll cycle? Or am I missing something?

 

Thanks in advance for any advice!

ari101

If you take 10k net, the regross at high rate would result in tax of ~11k as you would need to pay yourself ~21k at 52% to achieve a net payment of 10k. I'm assuming you are a director and not liable for ER PRSI.

Alternatively you could take a director's loan if you will have the funds in future to repay and if there is sufficient equity in the company that 10k is less than 10% of net assets.

You should charge interest or suffer BIK on the loan amount, and if you don't repay this within a short time frame you would pay additional corporation tax on same, so if you decide you are interested in this route you should contact your accountant first.

Mr.Me32

https://www.boards.ie/discussion/comment/118616298#Comment_118616298

Thanks for the feedback!!

I'm assuming that the 10% of net assets would apply at the time of the loan? So if the company at the time of the loan only had the 10k in funds I could really only take 1k max? Or does it apply over the course of the financial year in which case 10k would potentially fall within the 10% of net assets?

3DataModem

Net assets could theoretically include things other than cash. E.g. if you have a contract for services with another company, or other receivables, then they could be valued.

You'd need to pay the company interest at 13% on the directors loan.

Mr.Me32

I didn't realise a contract could be considered. That helps!

I thought the interest rate was 5% on directors loans?

If terms are set out and a loan period is set, would the interest still need to be paid in full if paid early?

ari101

4% if the loan is used to buy a home I believe, but for any other purpose the higher rate (13.5%) applies.

Interest is time based so 13.5% on 10k is 1350 for a full year but if you repay the loan in 4 months you'd only pay 450 for example.

Best to get your accountant to confirm the net asset value if you are going that route.

kheb

The net assets are the net assets presented at the last agm which is in effect the prior years net assets. Contracts are not capitalised so wouldn’t be relevant.

Mr.Me32

https://www.boards.ie/discussion/comment/118617506#Comment_118617506

Thanks for clarifying! That's quite helpful to know.

https://www.boards.ie/discussion/comment/118623037#Comment_118623037

This would rule out the loan this early in the year for me so.

3DataModem

https://www.boards.ie/discussion/comment/118642633#Comment_118642633

I wouldn't rule it out. Talk to your accountant.