LTD company, commercial 2 seater jeep BIK Issues

jerster

Hi there,
Any accountants out there?

I've considered the option of getting a 2 seater commercial company vehicle (treated the same as a van 5% BIK according to revenue) and having some private use outside of business use.

I've worked out cost of a 2016 Tucson 16,219 + VAT. based on the Original Market Value of 33,210 for a Hyundai Tucson, BIK liability of 1660 and depending on my rate of tax, a BIK tax bill of about €863 per year...

Given i would be buying the vehicle and putting all running costs through the business, i thought it would be quite cost effective...

However my friends accountant is of the opinion, say for example the car is worth 10,000
and for example if there is 60,000 in a company at year end
and to reduce your tax bill you put....

20,000 goes into a pension contribution (tax efficient)
30,000 you take as wages and pay income tax on it
you purchase a vehicle for 10,000..

That the 10,000 has now become a fixed asset, all that you have done is move the profit from cash to a vehicle...

so that 10,000 is still viewed as profit at the end of the year on your Profit and Loss sheet?
you can depreciate the vehicle at 12.5% for 8 years

so 10,000 x .125 = 1250
so 10,000-1250 = 8750

Due to the company being a service company and as such any retained profits must be distributed within 18 months or be liable to closed company surcharge... this 8750 become liable to closed company surcharge...i think 12.5%?

does this sound correct?
i have spoke to others and they disagree?

the BIK + the closed company surcharge makes me think company vehicle even with the reduced BIK of 5% is not as attractive as it seems??

Calahonda52

For a service company, IIRC, the surcharge is 15% on 50% of the service company distributable trading income.
https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/sec0441.html


I believe your friends accountant is wrong as there is not clarity in the thinking between the difference between the balance sheet and the profit and loss account, which is where the distributable trading income is calculated.

By buying the jeep, you have, by your own calculations, reduced the pretax distributable trading income by the 1,250 in year one and so on in the remaining 7 years.
The 10k will be written off over the 8 years as a business expense, assuming it meets the criteria as a legitimate business expense.

PS what would the accountant say if you bought 10k of eligible goods for the business?

howardmarks

You cannot reduce taxable profit for a capital expense.
The 10k is taxable at I'm presuming 12.5%.
The company can use the post taxable figure to purchase a vehicle and provide it to an employee subject to bik and claim capital allowances as described

I don't see the close company surcharge applying as there's no income left to charge

https://www.revenue.ie/en/starting-a-business/claiming-a-deduction-for-expenses/index.aspx

Marcusm

jerster wrote: »

Hi there,
Any accountants out there?

I've considered the option of getting a 2 seater commercial company vehicle (treated the same as a van 5% BIK according to revenue) and having some private use outside of business use.

I've worked out cost of a 2016 Tucson 16,219 + VAT. based on the Original Market Value of 33,210 for a Hyundai Tucson, BIK liability of 1660 and depending on my rate of tax, a BIK tax bill of about €863 per year...

Given i would be buying the vehicle and putting all running costs through the business, i thought it would be quite cost effective...

However my friends accountant is of the opinion, say for example the car is worth 10,000
and for example if there is 60,000 in a company at year end
and to reduce your tax bill you put....

20,000 goes into a pension contribution (tax efficient)
30,000 you take as wages and pay income tax on it
you purchase a vehicle for 10,000..

That the 10,000 has now become a fixed asset, all that you have done is move the profit from cash to a vehicle...

so that 10,000 is still viewed as profit at the end of the year on your Profit and Loss sheet?
you can depreciate the vehicle at 12.5% for 8 years

so 10,000 x .125 = 1250
so 10,000-1250 = 8750

Due to the company being a service company and as such any retained profits must be distributed within 18 months or be liable to closed company surcharge... this 8750 become liable to closed company surcharge...i think 12.5%?

does this sound correct?
i have spoke to others and they disagree?

the BIK + the closed company surcharge makes me think company vehicle even with the reduced BIK of 5% is not as attractive as it seems??

Are you sure that the company is liable for the professional services surcharge? There is a recent Tax Appeals Commission case on the scope of the surcharge which has been missed by many advisers. It dealt with the position of an accounting firm operated via a limited company. Revenue argued that all income of such a company was "professional" but this was rebutted by the tax payer with whom the Appeal Commissioner agreed. Book-keeping and similar services were treated as not being professional services etc. This has very much restricted the scope of the surcharge and you should ensure that your adviser has considered this before moving forward.