Buying a car with the taxman's help
Buying a car for a family member is often a necessity, and with recent rises in VAT an expensive one.
There are however several little known options that can ease the pain on your pocket (and the environment), with the help of none other than the taxman.
When buying a new car, the purchase options available to you are many.
You can opt for lease purchase, hire purchase, contract hire or outright purchase, and the overall cost can vary significantly depending on your choice.
With the government now basing tax charges solely on CO2 emissions, a more eco-friendly car will greatly reduce the overall cost, whoever you are.
But if you own your own company, the benefits can be even greater.
There are hundreds of thousands of privately-owned companies in the UK.
If you own one of them, you can use the current tax rules to your advantage perfectly legitimately.
Consider the following scenario. Your 18-year-old daughter is off to university, and you want to get her a £10,000 car so that she can visit home.
You have two options: pay for it personally or get your company to buy it.
If it is bought via the company, then in the normal course of events you will be taxed on what is called the benefit-in-kind that you are receiving.
A company car with no CO2 emissions - such as an electric car - accrues no benefit-in-kind tax charge at all.
As emissions rise, so does the value of the taxable benefit, on a scale set by the Revenue.
So cars with emissions of up to 75g per km result in an annual taxable benefit of only 5% of the list price of the car when new.
Emissions between 76g and 120g per km will result in a taxable benefit of 10%.
And those between 121g and 130g are deemed to produce a benefit worth 15% of the list price when new.
After that, there is an additional 1% rise in the taxable benefit for each 5g of CO2 and a further 3% if the car is diesel.
The cash cost
So if you are a 40% taxpayer - and company owner - the true cash cost to you of supplying your daughter with a £10,000 car, with emissions between 121g and 130g, will be only £600 (£10,000 x 15% x 40%) per annum.
Remember, the car has been bought by the company and the cash that you pay is the tax for receiving a benefit-in-kind.
This charge covers all expenses paid by the company, other than fuel, and specifically includes inexperienced driver motor insurance for your 18-year-old, which is also paid by the company.
The cost of supplying the car in the lower emissions brackets mentioned previously would be nil, £200 per year and £400 per year respectively.
Meanwhile, your company will be able to claim full corporation tax relief for it too, making the deal even sweeter.
Husbands and wives
Those in a sole trader business or partnership also have options open to them.
Family members often help out with the running of the business.
If they do, providing them with a low-emission car on business expenses can prove very economical.
Let us suppose a wife is receiving a modest salary of £5,000, and her husband - a sole trader or partner - chooses to buy her a car.
If the wife's remuneration package, including the car benefit, is under the lower limit of £8,500 per year she remains outside the scope of benefit-in-kind taxation.
As the husband is a partner or sole trader - rather than a director or employee - he cannot be taxed either, making his wife's car completely tax free.
These are common situations, and show that even as rail fares and fuel costs go up again, there are ways of managing your travel costs.
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