# What is the best tax efficient way to purchase a company car?



## Serty (17 Aug 2010)

Hi There

Any advice would be much appreciated, i'm a sales rep and require a car what is the best way to purchase a car through the company that is the most tax effiecient way?

thanks a mill
s


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## Pat Bateman (17 Aug 2010)

The short answer is that it depends on a number of factors such as the value of the car, the emissions of the car, the level of your salary and your mileage levels.


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## Paddy199 (18 Aug 2010)

I think the question should be:

Is it more tax efficient to use a company car or a personal car for my employment?

Answer: Company Car - diesel. Company can now claim a % of VAT back and also VAT on diesel. It pays all bills such as service etc. You use a fuel card.
You pay BIK and have no hassle re: claiming mileage and keeping records etc.


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## censuspro (26 Aug 2010)

The general rule is that if you're doing alot of mileage, it's better to use your own personal car. If you're doing low mileage it's better to use the copmany car.


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## Complainer (26 Aug 2010)

censuspro said:


> The general rule is that if you're doing alot of mileage, it's better to use your own personal car. If you're doing low mileage it's better to use the copmany car.


It's not that simple - if you are doing low milage on a company car you get crucified for BIK.


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## DB74 (26 Aug 2010)

I would almost always recommend a company car.

If you calculate the BIK which you would pay (even with low business mileage), you would never run the same car personally for less.


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## Complainer (26 Aug 2010)

DB74 said:


> I would almost always recommend a company car.
> 
> If you calculate the BIK which you would pay (even with low business mileage), you would never run the same car personally for less.


Yeah, but do you really want/need to run the same car?


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## censuspro (27 Aug 2010)

Complainer said:


> It's not that simple - if you are doing low milage on a company car you get crucified for BIK.


 
*General Rule*


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## Paddy199 (27 Aug 2010)

How is it better to buy the car personally when you would have had to use after tax earnings to buy the car!!

Thats always a point missed in giving advice.


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## Complainer (28 Aug 2010)

censuspro said:


> *General Rule*


Actually no, it's not a general rule. If you have low mileage, you will get hit heavily with BIK.



Paddy199 said:


> How is it better to buy the car personally when you would have had to use after tax earnings to buy the car!!
> 
> Thats always a point missed in giving advice.


If you are buying the car personally, you have a lot more options about the car you are going to buy, and how long you choose to keep it. If you get a company car, you will generally be getting a brand new car (and paying BIK on this value), and getting it changed every three years (and paying BIK on the value of the replacement).


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## censuspro (30 Aug 2010)

Complainer said:


> Actually no, it's not a general rule. If you have low mileage, you will get hit heavily with BIK.


 
Actually no yourself. BIK is dependent on the value of the car. If the mileage is low, the cost of insurance, car tax, fuel, repairs and maintenance  *generally *outweighs the BIK.


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## Complainer (30 Aug 2010)

censuspro said:


> Actually no yourself. BIK is dependent on the value of the car. If the mileage is low, the cost of insurance, car tax, fuel, repairs and maintenance  *generally *outweighs the BIK.


Surely company cars are a better option with high mileage rather than low mileage users. The big costs are the car itself and the insurance. These are pretty-much fixed costs, regardless of usage. Fuel is the big variable costs, with repairs and maintenance related to usage also.

So the big costs stay the same, regardless of usage. For high business mileage users, the BIK is cut out, making the car better value. I'm confused as to why you single out low mileage users as getting good value.


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## T McGibney (30 Aug 2010)

There is no simple answer to this question. The solution will depend more on the circumstances and preferences of the individual than on anything else.


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## censuspro (30 Aug 2010)

Complainer said:


> Surely company cars are a better option with high mileage rather than low mileage users. The big costs are the car itself and the insurance. These are pretty-much fixed costs, regardless of usage. Fuel is the big variable costs, with repairs and maintenance related to usage also.
> 
> So the big costs stay the same, regardless of usage. For high business mileage users, the BIK is cut out, making the car better value. I'm confused as to why you single out low mileage users as getting good value.


 
If the mileage is high, the mileage expense claims will outweigh the running cost of using your car. e.g. running costs say €5K, expense claims €8K. Individual is €3K better of for using their own car rather than take the company car option.

If the mileage is low, the running costs will outweigh the BIK e.g. running costs €5K, tax on BIK €2K, potential mileage expenses €4K. Individual has the use of a company car at a cost of €3K BIK per year as opposed to using their own car at a cost of €5K per annum.
If they opted to use their own car and charge mileage, they would only be entitled to €4K in mileage when it would cost them €5K in running costs.


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## Paddy199 (3 Sep 2010)

Deleted


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## Paddy199 (3 Sep 2010)

Complainer said:


> If you are buying the car personally, you have a lot more options about the car you are going to buy, and how long you choose to keep it. If you get a company car, you will generally be getting a brand new car (and paying BIK on this value), and getting it changed every three years (and paying BIK on the value of the replacement).


 
Your reply did not encompass any tax consideration and is way too simplistic. My question was actually a leading one - to use after tax earnings to buy a car is ridiculous if you have the option of a company car. Running costs would also need to be paid out of after tax earnings aswell.


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## Paddy199 (3 Sep 2010)

censuspro said:


> If the mileage is high, the mileage expense claims will outweigh the running cost of using your car. e.g. running costs say €5K, expense claims €8K. Individual is €3K better of for using their own car rather than take the company car option.
> 
> If the mileage is low, the running costs will outweigh the BIK e.g. running costs €5K, tax on BIK €2K, potential mileage expenses €4K. Individual has the use of a company car at a cost of €3K BIK per year as opposed to using their own car at a cost of €5K per annum.
> If they opted to use their own car and charge mileage, they would only be entitled to €4K in mileage when it would cost them €5K in running costs.


 
Both of these scenarios ignore the concept of having to pay for the car and the running costs out of after tax earnings.


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## Complainer (3 Sep 2010)

Paddy199 said:


> Your reply did not encompass any tax consideration and is way too simplistic. My question was actually a leading one - to use after tax earnings to buy a car is ridiculous if you have the option of a company car. Running costs would also need to be paid out of after tax earnings aswell.


And what about your simplistic reply which ignores BIK?


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## censuspro (4 Sep 2010)

Paddy199 said:


> Both of these scenarios ignore the concept of having to pay for the car and the running costs out of after tax earnings.


 
If you read my post Paddy you’ll see that’s exactly what it deals with and you’ll see I explicitly mention running costs, which I’ve highlighted below.




censuspro said:


> If the mileage is high, the mileage expense claims will outweigh the running cost of using your car. e.g. *running costs* say €5K, expense claims €8K. Individual is €3K better of for using their own car rather than take the company car option.





censuspro said:


> If the mileage is low, the running costs will outweigh the BIK e.g. running costs €5K, tax on BIK €2K, potential mileage expenses €4K. Individual has the use of a company car at a cost of €3K BIK per year as opposed to using their own car at a cost of €5K per annum.
> If they opted to use their own car and charge mileage, they would only be entitled to €4K in mileage when it would cost them €5K in* running costs.*


 
I’ve never come across a scenario where an employee was requested by their employer to purchase a new car. In the vast majority of cases, an employee either uses their own car that they had previously purchased and charge mileage back to the company or they use a company car and the company covers all related expenses, the employee is taxed on BIK for the benefit of having a company car.


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## Paddy199 (6 Sep 2010)

The OP specifically asked, what is the best option - personal car or company car.

To buy the car personally, the OP would need to utilise eg 20k after tax earnings. The Income tax cost here could be as high as 20k i.e. 40k*marginal rate of 50%. Same for running costs, it will have an income tax cost. Surely the OP would prefer to utilise this elsewhere than tying it up with a car and its running costs.

What about the opportunity cost of putting this after tax earnings on deposit v buying a car? There is also a cashflow benefit to having a company car, the OP may have to borrow to purchase the car / there may be a delay in getting his expenses paid. If he currently has a personal car, if he was to sell this (and put it on deposit) and get a company car, this must also be factored in.

Company car all the way - very little in the difference when comparing just BIK, running costs and mileage claims. The difference is to include opportunity costs (of car and running costs), cashflow benefits, less hassle in maintaining detailed records v using a fule card for instance, 20% VAT refund which the company will obtain on the purchase of the car, VAT on diesel which the company can claim,


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