New business set-up - should you go limited if business owns a car?
September 22nd, 2009
When setting up a new business, one question always arises - what form to use for tax efficiency: limited company, partnership or sole trader.
While there are the more obvious factors of salaries, dividends, tax implications for capital allowances and loss relief, one less obvious factor relates to motor cars. The treatment of cars for tax purposes differs depending on whether you are a partner/sole trader or a director of a company. There is a big benefit-in-kind charge for directors who have a company car. The company also has to pay Class 1A NI contributions on the value of that benefit-in-kind. On a car costing £20,000, and using current rates of tax and NI, the total additional cost of the car will be almost £13,000, some of which is picked up by the director and the balance by the company.
If a car is part of the deal, this needs to be factored in when deciding on which route to take.
The content of this article is for general information only. It should not be relied on and action which could affect your business or personal circumstances should not be taken without appropriate professional advice.
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