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Category: Limited Companies

Recovering VAT on motoring repairs

Posted on by Andrew

If your business is VAT registered and is not using the flat rate scheme, you may be eligible to recover all of the input VAT on vehicle maintenance and repair costs provided that the vehicle is used some of the time for business journeys. This is true even if the vehicle is also used for personal use.

For self employed people or partnerships, to recover VAT on vehicle maintenance, you just need to be able to evidence business use. This is usually easy if it’s a van or commercial vehicle, but for domestic cars, you will need to have some form of mileage log detailing business journeys.

For limited companies, where the vehicle is owned or leased by the company, any repair costs should be paid for by the company directly and VAT recovered as normal through your accounts.

But where the vehicle is not owned or leased by your limited company, the rules are different and there are a number of conditions that must be met in order to recover VAT on motor repairs:

  • The invoice must be made out to your company and the company must pay the invoice to the supplier directly.
  • The vehicle must be used for business purposes at least some of the time, evidenced by business mileage claims perhaps.
  • The employee must make good the payment to the company of the GROSS amount to avoid a P11d taxable benefit charge on the amount and Class 1A NICs.

If you fail to follow all of the above, there are severe penalties for failing to disclose this and for failing to submit P11d’s.

This may therefore be a bit of a hassle for only a small gain if your motor repairs are small, but it could be worth considering if you incur a large repair bill at some point.

Example

Here is an example of how this works in practice for a limited company where the vehicle is not owned by the company and instead, the company pays the approved 45p per mile for business journeys to the employee/director:

If your company pays £500 plus VAT from the company bank account for a repair, the entries in your accounts would be as follows:

  • Payment of £500 plus input VAT of £100 that will be reclaimed on the VAT return. Allocate this payment to travel and subsistence or motoring (use same code as mileage payments are allocated to).
  • The director then repays £600 into the company bank account and the transaction is recorded as a bank receipt of £600 (NO VAT – or Out of Scope) from the director/employee which should also be allocated to the same code i.e. travel or motoring. You may need to explain it as a Refund in some accounting packages.

The net effect is that the company will recover £100 of input VAT, but will not receive any corporation tax relief for the payment because it is not allowable. It will in fact pay tax on the extra £200 received from the director, but overall the company has gained because the VAT reclaimed is more than the additional corporation tax charge.

Company Electric Cars

Posted on by Andrew

With the price of fuel soaring and the government encouraging more people to consider greener modes of transport, we are being increasingly asked about buying or leasing electric cars through a personal company.

Here we provide a brief summary of how this may benefit you, but please note this advice only applies to businesses who trade as a limited company (not ordinary self employed and partnerships).

Ordinarily, it doesn’t make sense for business owners to operate their own car that they will use for business and private use, through a limited company. This is because of the high taxable benefit charge that applies to most cars, to tax the private use element.

However, the government are currently offering an incentive to encourage ownership of pure electric cars, which means for companies, there is currently a very low taxable benefit charge. Therefore, even after paying the taxable benefit charge and additional National Insurance on the car, there is likely to be an overall tax saving, after factoring in corporation tax relief on the cost of the car and running costs.

There are still downsides to consider though:

  1. The cost of electric cars is still relatively high compared to petrol cars, which means any tax saving may be wiped out by the extra purchase or lease costs.
  2. The low taxable benefit charge is currently only suggested to last until April 2025, after which time, we don’t know if the government will raise the charge, or to what extent. That could then totally negate any saving at that point.

However, for some people who are in the market for a new car at this time, it could still be something to consider, but we would say that you would probably fit one of the following categories:

  1. You are currently in the market for a new car.
  2. You are interested in the option of ‘going green’ and the price is less of an issue.
  3. You have surplus funds in your company, that to extract to buy a car privately, would incur additional taxes that could be avoided by buying a company vehicle instead.

It is quite a complex scenario and isn’t the correct option for everyone, but if the idea of a company electric car interests you, please ensure you discuss this with us first before you buy or lease one through the company, because it must be reported to HMRC immediately, and the benefit in kind taxes calculated.