Tax on profits

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kerrybull

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Hi There

This may seem a simple question but here goes. I have set up a company with two other directors.

I understand that we only pay tax on our profit. However, it seems that we may have an after expenses profit of €60,000.

If I buy a car for €40,000 and use it as a company car, can our company say that we have a net profit of €20,000.

What is the most effective way of doing this?

Many, Many, Thanks if you can help.
 
If you buy a company car for E40,000, you will still be liable for BIK tax on that at 41%.
The mopst tax efficient way of taking money out of the business is through a pension - you can take it out tax free out of the company and put it in a pension, the company will also get tax relief on contributions to a pension scheme.
 
buying a 40k car will not reduce your profits for that year by 40k. Instead, it will reduce the profits by the capital allowances relating to that vehicle (20% of 23k, I think).

Then you also have the BIK issue as Sally mentioned.
 
Yes - but you are benefitting from it. If you were to buy a commercial vehicle such as a jeep and justify that the business needs it, there may be a way around it!
 
Again Thanks, please excuse my ignorance, what is BIK??? and would it be more effective for the company to lease a car and have that as an opperating cost.
 
BIK=Benefit in Kind
When a company provides benefits to employess other than salary it is generally taxed as a BIK
It is generally not tax efficient to take a company car unless you are doing substantial mileage
 
You need an accountant...advice on a site like this is not enough when you're dealing with a business scenario like this.
An absolute novice like yourself could end up in deep trouble pretty easily based on your posts.
 
kerrybull said:
Hi There

This may seem a simple question but here goes. I have set up a company with two other directors.

I understand that we only pay tax on our profit. However, it seems that we may have an after expenses profit of €60,000.

If I buy a car for €40,000 and use it as a company car, can our company say that we have a net profit of €20,000.

What is the most effective way of doing this?

Many, Many, Thanks if you can help.
Click to expand...
How much expenses are the 3 directors taking from the company
 
The €60,000 or so will be left as profit after our wages and all running costs have been paid.
 
The company will get benefit of the car for a few years and not just the year you buy it. You will still be driving it next year and the year after as part of your business. Technically then it is helping you make money in furture years. Therefore it is an asset to the business and not and expense.

An expense is something like insurance. You insure the business this year and next year you have to get new insurance. Therefore it is not an asset of the business it is an expense.

So you see as the previous poster said you will be able to reduce your profit only by a portion of the value of the car. Essentially the fall in value of the car each year is the expense to the business. So your profits next year will also be reduced by a potion of the value of the car.
 
Sometimes, saving tax by spending money on (perhaps unnecessary) depreciating assets is not really good tax planning. It still costs the after tax amount. Far better would be proper planning to legitimately avoid the tax altogether in full or in part ( as mentioned on pensions) . Talk to your accountant/auditor and financial advisor.
 
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