Buying a Company Vehicle? - BIKareful

We recently received an enquiry from a client asking about buying a new ‘Hilux Crew-Cab’ through their Private Limited Company, the salesman in the garage told him he can “buy it through the business” and “claim the VAT”.

Thankfully, in this case, our client reached out to clarify the information received before proceeding any further.

The client was told 3 things about this purchase, but the 4th was left out, and it is the 4th that proves to be the important one:

The pitch included:

1. “there’s much lower VRT as it is a Crew-Cab”.

2. “you can buy this through your company as a commercial and tax it commercially”.

3. “You can reclaim the VAT on this through your business”.

The first 3 points are all true in one way or another, but all need to be taken with caution which leads us to the part that was omitted from the sales pitch – (I doubt it does the sales department of the dealership any good).

4. Benefit in Kind on crew cabs is considered and dealt with in the same manner as a car and likewise, should be processed through your payroll each week/month.

The Crew-Cab is classed as commercial for VRT purposes, and this particular type of vehicle has a VRT rate of about 13% compared to 35% for a new car. VRT is handled by the garage, so this is in the hands of the car dealers and the Revenue systems assigning the rates.

Taxing the vehicle commercially is a massive annual saving as its classed as a goods vehicle (approx. €333 compared to €1800 for a 3L engine).

However, in order to remain as a ‘commercial vehicle’, no private use is permitted.

VAT may be reclaimed where the vehicle is used exclusively for business purposes. If any private use take place, the vat reclaim should be apportioned accordingly.

Test Case to Revenue

We recently took a test case to revenue seeking clarification on the whole area.

In the eyes of Revenue, a crew cab is the same as a car and should be subject to the same BIK rules.

For the example provided, we have assumed that the client is already at the high rate of tax and completing very low business mileage.

BIK Charge Calculation:

Crew Cab costs €55,000

BIK rate annually 30% (Less than 24,000 business KMs per year)

Annual BIK deemed benefit reported through payroll €16,500

Approximate tax cost to the individual annually of €8,500

In this particular scenario, the Crew-Cab was purchased on a Hire Purchase Agreement over 5 years. Over the 5 years, between the cost of purchase, Interest and BIK, the crew cab has cost well in excess of €100k.

While not all situations are similar or the same to this one, it must be said that there are many examples of similar scenarios that we have come across.

The morale of the story is that it is always best to fact check any information provided to ensure you are fully aware of what you are committing to and all of liabilities associated with the purchase.

We are always on hand to assist and are delighted to help, inform and advise on this area at Icon Accounting.

If you have a query on BIK or purchasing a vehicle for your company, please contact us on info@iconaccounting.ie or you can call 01-8077106 to speak to our team of expert advisors today.

Author

John Bell

Director

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