Leading on from my well worn previous topics of going contracting, and wanting a van.

Have any of the contractors with ltd companies on here bought a company van and used it primarily for personal use?

I’ve been reading up on the tax situation here and it seems my company would buy the van (pre income tax) and claim the VAT back; I then pay income tax on a £3k benefit in kind.

Obviously a few years down the line, I’d buy the van from the company (unless I sell it in the mean time) and at that point pay the income tax and VAT on the depreciated value, but this still works out cheaper than buying the whole thing (VAT and all) out of post-tax personal dosh.

There doesn’t seem to be anything in the rules that requires you to use the van for business use (although I would be doing so, as any miles travelled to clients offices count as business miles). It just has to be ‘primarily designed for carrying goods’, which would suit a nice new VW Kombi 🙂 in my opinion, the perfect biking vehicle!

Flamers need not participate – I’m not evading tax, I’m just trying to work with the tax rules as they stand.

Dave

More guidance here; it looks like I have read the rules correctly.

Woop!, this might mean I can actually afford a decent van 😀

Dave

I’ve recently looked into this, but the main reason I’ve not gone for it is that I’m on the flat rate scheme, so couldn’t claim the vat back. I’ve bought it personally, and claim the 45 per mile for it. It may not be the most efficient way, but it works for me. I also didn’t want to buy a new van, which influenced the decision.

If you haven’t done so already, have a look at the flat rate scheme, it may influence your decision.

Are you sure that you understand the difference between income tax and corporation tax? If not I hope you have an accountant, if you do then what you are suggesting should go without a hitch.

I tried to look at the flat rate scheme, but it confused me. Am I right that you claim a flat amount of money from the VAT man based on your turnover, rather than based on your outgoings?

Could I buy a van, claim the VAT back and then register for flat rate afterwards?

Dave

Things to consider (not sure whether they’re a problem or not, just off th top of my head)

– Does it make a difference if you’re flat-rate VAT registered (if you are indeed on the flat-rate VAT scheme, most contractors are)?

– Is the Kombi registered as a Panel Van? Dunno is this makes a difference

– Insurance might be interesting. Van insurance tends to be a lot more than car insurance. Also, would your company or you have to insure tha van? If it’s the compabny you may lose out on accruing NCD

Again, all of this may come to nothing, just thinking out loud…

Don’t have an accountant yet – I’m starting my first contract at the end of the month, and for now I’m signed up with an umbrella company.

Once I’m settled, I’m going to look into going limited – a process that will involve some proper sums with a bit more of an informed standpoint (and an accountant!)

Dave

Flat rate VAT. I charge at 20% and pay 14% to the vat man = 6% extra on all sales.
in simple terms, it tends to be beneficial, if you are not buying and reselling stock.

http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

iirc if you’re on the flat rate scheme you can still claim the vat back if the cost of the item was over 2k.

Accountant’s always advised against vehicle purchase- it was on the do’s and don’ts list he issued on signing up to him. Never bothered asking why, but I trust his advice.

– Is the Kombi registered as a Panel Van? Dunno is this makes a difference

Kombi counts as a van for tax purposes – This changed for VWs at the end of 2008, not sure why, but it did 🙂

– Insurance might be interesting. Van insurance tends to be a lot more than car insurance. Also, would your company or you have to insure tha van? If it’s the compabny you may lose out on accruing NCD

I had a van before, and never found it to be much more. Not sure whether company insurance would be higher – the savings from doing it this way probably outweigh higher insurance. I’ve got NCB on my car, so that might not be too much of an issue.

Dave

Am I right that you claim a flat amount of money from the VAT man based on your turnover, rather than based on your outgoings?

No, you PAY the VAT man a flat rate, based on your turnover. You charge VAT to your clients on your services, you pay slightly less than this amount to the VAT man (so you make a bit of money) but you can’t claim VAT back on (most) purchases (so it tends to even out).

Sounds like you need a chat with your accountant. If you don’t have one, I’d recommend SJD on Royal Well in ‘Nam

iirc you can still claim the vat back if the cost of the item was over 2k.

That sounds good, I’ll have to investigate that

Accountant’s always advised against vehicle purchase- it was on the do’s and don’ts list he issued on signing up to him. Never bothered asking why, but I trust his advice.

I was warned off buying a company car, because the BIK payments make it more expensive than buying it personally, but a van attracts a much lower (flat rate) BIK value, so looks like it should be different.

Dave

Flat rate VAT. I charge at 20% and pay 14% to the vat man = 6% extra on all sales.

Not quite. You charge 20% on sales, so a £100 sale has £20 VAT = £120 turnover. You pay VAT at 14% on that £120 turnover = £16.80, so you make £3.20. Still up on the deal, but not by as much as you thought.

I’m signed up with an umbrella company.

Speak to them.

If you want a recommendation for an accountant give Crunch a go http://getcrun.ch/glenggj1ru

Sign up and we both get a £25 amazon voucher 🙂

No, you PAY the VAT man a flat rate, based on your turnover. You charge VAT to your clients on your services, you pay slightly less than this amount to the VAT man (so you make a bit of money) but you can’t claim VAT back on (most) purchases (so it tends to even out).

ah right, that makes sense… so can you do what vinnyeh said for purchases over £2k?

I’ve recently looked into this, but the main reason I’ve not gone for it is that I’m on the flat rate scheme, so couldn’t claim the vat back.

You can claim the VAT back for one-off items even though you are in the FRS – talk with your Accountant.

We have a horsebox bought through our Ltd company, not used for company business and therefore a taxable benefit (for my wife, and Director) – it works out about £1k pa. Therefore a very cheap way plus uses up ‘profit’ and means we didn’t need to take the money out (which would cost over 50% – income tax, employees and employers NI).

But, because there is no business use the VAT cannot be reclaimed, AFAIK and was advised – as we looked at new first. My company motorcycle on the other hand is 100% business use, and the VAT was reclaimed.

Edit – we claim for all costs, except fuel for the horsebox.

Sign up and we both get a £25 amazon voucher

those offers do make me laugh… make a decision that will affect you to the tune of tens of thousands of pounds, but here is 25 quid to tempt you 😆

Thanks for the recommendations.. I have a friend who is a contractor accountant, so he will probably be my first port of call.

Dave

IHN – its a good job I’ve got an accountant to do my VAT returns 😯 😆

so can you do what vinnyeh said for purchases over £2k?

I think so, but not bought anything big yet. When it comes to it, I’ll ask my accountant 🙂

Seriously, if you fancy a chat over a pint about making the leap in the world of contracting let me know, I made the jump last year so it’s all still pretty fresh in my mind 🙂

Thanks for the recommendations.. I have a friend who is a contractor accountant, so he will probably be my first port of call.

Perhaps he could advise on the van purchase then.

Perhaps he could advise on the van purchase then.

are you suggesting that STW is not the place for these discussions? I always tread it as the first port of call for all queries.

1. STW
2. Google
3. Wikipedia
4. Abstract thought
5. Mates
6. Professional advice

😀

Dave

Seriously, if you fancy a chat over a pint about making the leap in the world of contracting let me know, I made the jump last year so it’s all still pretty fresh in my mind

That sounds good… I’m off to coed y brenin this weekend, but if you’re around some time next week, I could be persuaded to partake of some beverages in one of the many fine cheltenham watering holes.

Dave

Claiming VAT back on capital assets

Of course another rule to consider in these discussions is whether you could look the tax man in the eye with your hand on your heart and say that you’re not taking the piss.

You should also consider how going ltd later may affect any significant purchase you make now – would the ltd co have to buy the van off you? I dunno, but worth thiunking through.

Oh and I take your point about the amazon voucher, but I’ve found crunch pretty good and reasonable value for money – I spent a bit of time looking into this about a year ago.

geoffj… i need to charge up some funds before I actually buy a van (I don’t like credit), so won’t be buying it any time soon – probably wouldn’t do it while in the umbrella company either – the cost/benefits wouldn’t work out the same.

I don’t think I’d be doing anything ‘dodgy’, the only thing suspect is the fact that I don’t really need a van for my work, but the rules talk explicitly about vehicles being provided for predominantly private or exclusively private use, so I don’t think I’m on thin ice there.

Didn’t mean to slag off your accountant, just find the offers of tiny amounts to sway massive decisions quite funny. Cheers for the recommendation.

Dave

Flat Rate Scheme:
You can claim the VAT on capital expenditure over £2k.
You pay flat rate VAT on your gross turnover. Also look at cash accounting whereby you don’t pay the VAT on your turnover until you have been paid for it.

Buying a van:
You could claim the VAT back.
Your benefit in kind is £3000 on the van and £550 for the fuel
HMRC can argue that it’s not work related and disallow the van as an allowable expense so you can’t claim capital allowances or the VAT and running costs would be treated as a private expense.
The van can be bought from the company at market rate not the depreciated value. Any difference below the market rate would be classed as a benefit in kind.

Don’t have an accountant yet – I’m starting my first contract at the end of the month, and for now I’m signed up with an umbrella company.

ditch the umbrella co and get a ltd company. If you’re using an umbrella co, you may well fall under the new european working directive rules, which will totally scupper any attempts to avoid IR35, which will vastly outweigh any tax saving you’re going to make on a van.

@craigxxl
I had read the stuff about personal use with fuel, but I thought that was different in the new regs (post 2007?) so it doesn’t matter if it is company or private use. No idea about claiming the tax for non business use – but I can show that I will be using it for business miles (albeit for a journey that could easily be done in a car).

@t_i_m
I plan to ditch them, but I wanted to make sure contracting was for me first, without the added stress of incorporating a company and paying an accountant up front.

I’m going to give it a month or two, then see about switching.

Dave

The benefit in kind is for the private use. 100% business use attracts no BIK.
If you are using the van mainly just for commuting to a regular place of work then HMRC would argue that it’s private use and not allow the VAT or capital allowances or apportion a percentage to private use and the rest as business. This is how they treat cars where you can’t claim the VAT on the purchase and only 50% of the lease VAT, reduced capital allowances and benefit in kind all the car and fuel if paid for.

but my ‘travelling to work’ calculation is different. because I’m a contractor, my ‘place of work’ is home and then I travel to temporary work places (my clients’ offices)… so the primary use of the van would be to do those business miles.

not sure how it affects this if I then cycle to work (which I will be doing)

Dave

Am I right in thinking that the definition of “regular place of work” is more than two years at the same place, i.e. the same definition as used for claiming mileage?

not sure how it affects this if I then cycle to work (which I will be doing)

I think you can claim for that at around 21p per mile 😆

Buying a van but not using it due to cycling to work might make it hard to justify the purchase as a legit business expense.

Travel to work is normally the place you work so going to Joe Bloggs Ltd Park Row office 48 weeks out of the year and their other offices. Then the trip to Park Row and back would be a commute. I know you say your self employed so work from home but large numbers of people working under IR35 contracts fail to meet HMRC criteria of self employed when tested.

but my ‘travelling to work’ calculation is different. because I’m a contractor, my ‘place of work’ is home and then I travel to temporary work places (my clients’ offices)… so the primary use of the van would be to do those business miles.

Am I right in thinking that the definition of “regular place of work” is more than two years at the same place, i.e. the same definition as used for claiming mileage?

It’s a bit more complicated I think- for instance if you worked in the CIty in London for one company, then changed to another, also in the City, this does not reset the clock (again, according to accountant’s advice)- you need to be working in a substantially different location.

Yeah, I realise that vinney. You can claim for two years though IIRC.