Right first off, we have three directors that all work in the business part-time (We all have full time jobs and are on the top band tax rate). At the moment we do not pay ourselves, but the company is now in the position to where we can pay ourselves.

We had a meeting and it was decided that two of the directors get company cars (lease cars), instead of paying small salaries and getting hit with more tax.

I know we can claim these against profit to lower our CT bill, but can we claim the full amount plus VAT back. Can we also claim business mileage at 40p back?

Thanks in advance

David
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No, you can only claim back half of the VAT.

You may not be able to set the full amount of the lease payments against CT. If the price of the car is more than ?2,000, the amount that you claim is restricted.

And, of course, the directors concerned will pay income tax on the benefit of having the company cars plus the fuel benefit if the company pays for fuel for private use.

Not to mention that you can't claim the 40p per mile - that's only for use of your own vehicle for company business.

You'd need to do the sums each time, but in general having a company car could well be the least efficient way of extracting value from a company!

Have you actually purchased these? Why didn't you take advice from your own accountant? :|
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Had the meeting Friday evening and will speak to our accountant on Monday. At the moment we want to take out about ?000 per month from the business.

What do you suggest is the best way in which we can take this out, quarterly dividend? I thought you had to pay salaries before dividends could be paid to shareholders?

We do not do masses of miles in the business, so really the 40p taken away from us is not a problem. So could be put all payments against the business and only half the VAT, or am I wrong?

David
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You don't have to pay salaries before you pay dividends. Dividends do have to be paid at the same rate per share to all shareholders, so there is less flexibility than with salaries.

If the car costs more than ?2k, you won't be able to set all of the leasing costs against profit for corporation tax. If it's a ?0k car, then there is a formula which means that you can only claim 16/20ths of the rental cost (Put simply, it's everything on the first ?2k plus half of the excess)

The director will be taxed personally on the benefit of having the car. That's worked out by applying a percentage based on CO2 emissions - table here (http://www.hmrc.gov.uk/manuals/eimanual/eim23410.htm) - to the list price of the car plus accessories fitted. Note that's the full manufacturer's list price, not the amount that you paid for the car.

As I said before, you need to do the sums every time to see what it will cost. The more private miles that you do, the lower the relative cost of the tax - i.e. a ?k tax bill is better value if you do 12k miles than if you only do ?k miles
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Right this has opened a whole new can of worms. I guess if you say the car costs more than 12k you mean the actual value and not the rent payable on the car per year?

Right so we can pay ourselves dividends without having to pay salaries, all at the same amount per share. Problem two of us do more work than the other shareholder and thus his earnings from the business should be nothing! I do remember my accountant saying this was a no-no, as basically nobody is working in the business yet the shareholders are making money, how does that work with HMRC?

I guess the car's values are going to be around ?0,000 each, we pay around ?00+ VAT for both per month for 10,000 miles a year. I reckon we each will do 3,000k per year business and the rest personal use?

What do you reckon the best way to pay two of us avoiding more income tax? I know if a speak to our accountant he will just say to pay each of us a wage of ?00 per month and put through 40p per mile.
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There are plenty of businesses where the directors take little or no salary, or a salary that is well below market rate. It's none of the Revenue's business if you choose to pay a salary or not.

As I've said, you have to do the sums based on the actual cars and the actual emissions to work out the effective cost of having them, what the CT savings will be, and make a value judgment.

Other things to be looked at could be different classes of shares, splitting shareholdings with wives or life partners (usual health warnings apply) company contributions to pension plans, just as a few. It may well be that a salary - certainly up to the NI level - is the best way forward, particularly if you want to differentiate between participants. If you are all higher rate taxpayers the personal NI might not be a problem as you can request exemption from paying it with this company because you will be over the maximum (doesn't stop company NI though)

Edit - just to clarify on the 12k - yes it is the price of the car, not the annual rental. I bet you could get a tidy motor for that much!
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"Company car" is fully paid for by the company (hence the new tax rules), service, petrol and repairs etc. Why would you want to claim mileage when you are using it for free?
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