Reader’s question: If I structure my ltd company with my two older children as directors’, can I then via company supply them lease cars paid from the company as they are directors?
Expert answer: The expert for this question is Qasim Parkar from Dolan Accountancy.
The directors
I think it is first important to establish the age of your children you wish to appoint. You mention your older children, but for reference, I have laid out the complications for under 18 and above.
Under 18
As children under 18 are classed as minors they would only be allowed to be shareholders, but any gross income received would therefore result in the tax liability being passed to the parent.
You can set up a trust and the company can pay dividends to that trust, that will then go to the children. If this is applicable, then I would suggest seeking proper advice from a tax advisor specialising in trusts.
Over 18
If they are over 18, you can appoint them as company directors; however, in order to benefit from a company vehicle, such as a lease, they should be active company directors, work for the company and most importantly generate income for the company for this benefit to be justifiable.
If you are also considering giving shares where dividends will be payable, the above will be applicable otherwise they will be caught by the income shifting legislation, as only spouses are protected without being employees.
Company car lease
This is a great question that requires a lot of detail to fully answer.
Firstly, we will assume your company is not a motor related, such as a taxi driver or driving instructor, we will also assume you are not looking to purchase/lease a van.
Secondly, as an employer, providing a company car is permissible to other directors (permitted you have the reserves); however, there are reporting obligations and conditions to consider.
You will need to consider the following:
- The directors
- Are you using the company car for personal or private use?
- Will the company pay for fuel costs? (this is charged separately in addition to Benefit in kind)
- Calculating how much tax you owe to HMRC.
Private or Business use?
When purchasing the company car, you need to consider if the car will be an outright purchase by the business. HMRC will deem it reclaimable if you can prove your children are using the vehicle wholly and exclusively for business use only.
Nevertheless, VAT can be reclaimed on a shared car that is kept on the company premises overnight. This would mean it would have to be allowed by all staff.
If however the car is also used for personal the vat charged would be recovered at 50% lease payments
Key facts to remember:
- Vehicle should be on site overnight when the car is wholly owned by the business.
- Driving to and from your regular place of work is regarded as ordinary commuting.
- If your company car is available for private use, then this will result in a taxable benefit in kind.
Will the company pay for the fuel costs?
HMRC will require proof that no fuel was used for private purposes. If personal use has been made, then HMRC will consider you to have received a cash benefit.
Calculating how much tax you owe to HMRC
To work out the tax owed to HMRC, you can use the formula below, which considers the value of the car, the CO2 produced by the car and the tax rate band you are in.
P11D value x C02 emission tax band percentage x Personal tax rate = amount of annual company car tax
As each value is being positively multiplied, a small increase in any of the coefficients results in the total amount of tax being increased. Below is an example to demonstrate this, that purchasing a low emissions car compared to a normal emissions car.
Vehicle Benefit Tax
Audi A4
| Tax Year (6th April to 5th April) | 2021/22 |
| P11D Value | £30,835 |
| Percentage Charge | 32% |
| Benefit in Kind | £9,867 |
| Tax Payable at 20% | £1,973 |
| Tax Payable at 40% | £3,947 |
Tesla Model 3
| Tax Year (6th April to 5th April) | 2021/22 |
| P11D Value | £40,935 |
| Percentage Charge | 1% |
| Benefit in Kind | £409 |
| Tax Payable at 20% | £82 |
| Tax Payable at 40% | £164 |
Fuel Benefit Tax
Audi A4
| Tax Year (6th April to 5th April) | 2021/22 |
| P11D Value | 24,600 |
| Percentage Charge | 33% |
| Benefit in Kind | £7,872 |
| Tax Payable at 20% | £1,574 |
| Tax Payable at 40% | £3,149 |
Tesla Model 3
| Tax Year (6th April to 5th April) | 2021/22 |
| P11D Value | £0 |
| Percentage Charge | 1% |
| Benefit in Kind | £0 |
| Tax Payable at 20% | £0 |
| Tax Payable at 40% | £0 |
In conclusion, leasing a vehicle as directors is possible if you take into consideration the advantages and disadvantages demonstrated above.
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