Company Car and BIK

Hi

I have read previous posts on this topic and done a lot of revenue reading. I am a company director and I need to change my car. I am thinking of going for the company car option with a car with Original market value of 45k. The Bik is a big hit especially when the car gets older as the Bik is calculated on the OMV

I do 20k Kms a year in company mileage and I expense this at the approved rates. I don't want to go for a commercial option as I occasionally use the car on weekend with my son.

Does anyone have a view on what the breakeven mileage would be? Or with the Bik is expensing the mileage the most cost effective way to go?

I am trying to work out is having the company buy the car, reclaim vat etc better for me overall versus taking money from my own savings. I Have worked up a few options in excel but I suspect someone here has possibly done the maths already and I Would appreciate any guidance.

Thanks

As far as I'm aware the company can't reclaim the VAT on a passenger vehicle, it can claim for depreciation and servicing costs. In your case I would think expensing the mileage is the most viable option based on your annual km's

Awwww no way! I typed up a big long post about this earlier but it's vanished... I mustn't have hit the button; well here goes again..!

Leroy has pointed out the VAT won't be repayable, but that doesn't necessarily mean that company car is a bad way to go - for some reason this seems to be the "conventional wisdom" but I'm not certain it holds up, given how costly fuel is now, and with mileage rates having reduced as well...

At an OMV of €45k and business mileage of 20k kms that means a 30% BIK, so an additional €14.5k of notional income. Assuming you're a high rate taxpayer that's additional tax, PRSI & USC payable of nearly €8k.

On the flip side of this, the extra €14.5k of notional salary is a deduction for the company, as will be all of the running costs, tax, insurance, servicing and fuel. As well as the lease rentals/capital allowances (whichever is applicable), and interest charge on any HP/loan finance.

Assuming the company is otherwise profitable, these deductions (€14.5k + all the others totalling nearly the same again - we'll call it €25k in total) save over €3k in tax in the company. That's a net cost, in tax terms, of €5k.

Now lets consider private ownership of the car by you, and expensing your business miles: 20k kms results in just over €7.5k in tax free expenses. Out of this you have to pay for all the petrol/diesel, running costs, tax, insurance, tyres, servicing etc, as well as servicing whatever type of finance you acquire the car under. Obviously not feasible - so you're going to have to draw additional salary out of the company to fund these expenses, but you'll be paying income taxes at 52% in order to get your hands on the cash to pay these costs, rather than having the company cover them.

It'd require a comprehensive jobby on a spreadsheet to thrash it out, but particularly in a case where the business mileage is higher and the BIK % is lowerI'd say company car might edge it...

Well put arguement Mandelbrot,

in my defence OP said he was going to buy car out of own savings, considering the return he may be getting on these mileage might be the better route and perhaps put a few quid out of the company into his pension to ease the pain

I'd go with Mandelbrot on this one overall, but up to 20% of the VAT can be recovered on A,B or C class cars. Also the company does not get a deduction for the entire 14,500 only the tax element.

I bow to Mandelbrot and Joe 90,

it's to late to be crunching numbers

Joe_90 said:

I'd go with Mandelbrot on this one overall, but up to 20% of the VAT can be recovered on A,B or C class cars. Also the company does not get a deduction for the entire 14,500 only the tax element.

Click to expand...

Of course...

Hi
Thanks to you all for the feedback. I appreciate your input and advice.
As you outlined I think it is marginally in favour of the company car option if I reduce the OMV by going for a cheaper car.

Also swinging me towards the company option is that my own car has incurred a few tyre replacements and one big scratch down one side - like someone walked between car outside hotel where I was staying with a bag and scratched my car pretty badly when I was on a business trip. Paying for these out of my own pocket wasn't nice!

Going with the company car will also save me the end of month checking of aaireland to confirm Kms between cities!

I also think the civil service rates cover you ok for costs when you claim the higher level up to ~6k but after that when you are on the reduced rates the allowance doesn't cover the costs incurred and the depreciation in value of your car with the miles clocked up on it

Thanks again