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Cars for kids

A car for my child? Good swap, some will say! But this note concerns not barter but the benefits, in the right circumstances, of providing a car via limited company rather than personally.

Your child has at long last passed her driving test. And if she really must drive, you’d rather she did it in a new car with modern safety features (and anyway, Daddy - Tanya and Lucinda have got one...). The rules make it surprisingly tax-efficient to give her a car on the company: provided it’s the right car. Assuming the car has CO2 emissions of less than 100g/Km (and there is now a reasonable range of cars which meet that test) full 100% capital allowances are due, provided the car is bought new before 31 March 2013; and the taxable benefit in kind (sadly, assessed on you at your marginal rate of tax rather than on your daughter) is only 10% of the list price. So a car costing, say £8,000 will give rise to a tax bill of under £30 a month for a 40% tax-payer. And of course all running costs (including that horrendous insurance bill) are tax-deductible for the company. Overall, running the car through the company can, over the life of the car, be thousands of pounds cheaper than the alternative of drawing salary or dividend from the company to meet costs personally.

A couple of words of caution, though. First, beware of cars in the 100 – 120g range: at present the benefit in kind is 10% but this will increase from next April. To get the full range of tax benefits, stick below 100g. And don’t be tempted to put fuel through the company: even at a 10% benefit in kind rate, your child would need to be driving around 15,000 miles a year (or to be extraordinarily heavy-footed) before the tax charge on free fuel became cheaper than drawing salary or dividend to pay for fuel privately.

Oh, and if you are lucky enough to have been running your own expensive car on the firm, there’s a strong likelihood that you should by now be thinking about removing it. From last April the “price cap” of £80,000 which made it tax-efficient to run really nice cars on the company was removed.

For more on this, please email help@bkltax.co.uk or your usual BKL contact.