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Thinking of buying a new car for the company?

Well it may pay to figure out the tax consequences first.  Especially so as the rules are expected to change from 1 April 2017.

So from our previous blog “How do I claim vehicle expenses when I have a company?” we know that Fringe Benefit Tax (FBT) will apply where a company owns a vehicle and allows this to be available for use by a shareholder-employee.

However, that is to change from 1 April 2017 when many small companies will be allowed to use the rules that apply to non-companies (ie individuals, partnerships and trusts).  These rules are explained in the blog “Can I claim my vehicle expenses?” and allow people to apportion their vehicle costs using either a logbook percentage, actual records or mileage rates.  This can be simpler and cheaper in the long-run than filing FBT returns and paying FBT.

To qualify the company must:-
·         Be a ‘close company’ = controlled/owned by 5 or fewer shareholders,
·         Have shareholder-employees whose total fringe benefits amount to only 1 or 2 vehicles, and
·         Make an election to apply these rules and not the FBT rules

So why did I suggest that you wait before buying the new car?

Well, the new rules will only be available for vehicles acquired by the company on or after 1 April 2017.  If the vehicle was owned by the company, or used for business purposes, prior to 1 April 2017 then the old rules will apply and FBT will need to be managed.

Our suggestions are simple.  Make sure you fully understand the impact of buying a new car in the company.  You may get some good claims for expenses but there may be some unforeseen FBT returns to file and payments to make.  If you think that the business will get a better claim without having to comply with FBT then you may be best to wait until after 1 April 2017 before buying in the company name or using it for business purposes.

If you would value a tax review of your particular circumstances then please get in contact and we can discuss the benefits and costs with you.

Lastly, please bear in mind that the tax bill which includes these changes has not yet received royal assent but we’d expect this to be a simple formality.

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