Financial Considerations For Having A Company Vehicle
Financial Considerations For Having A Company Vehicle
Love the idea of having a shiny new company car or van to cruise around town in but not quite sure how it works and what you need to consider? As much as the idea is appealing and you might think you can write off all the expenses at tax time, it isn’t quite that straightforward.
The financial rules for vehicles can be quite complicated. There are actually different rules for sole traders and companies, variations that depend on whether the vehicle is exclusively used for business or also allows personal usage, and a slew of other considerations.
In some cases, it may be more prudent to maintain your own personal vehicle and claim back expenses such as mileage and maintenance.
Let’s have a look at some of the financial considerations to take into account if you have a company vehicle.
Financial Considerations For Having A Company Vehicle
Is It Viable?
Before you start looking at all the shiny new cars on the lot or deciding whether to go petrol or electric, you need to know if it is a viable choice for your business.
First and foremost, you need to figure out if you have enough financial stability to make such a sizeable investment up front. It is not just the cost of the vehicle to consider, insurance and other associated costs add up. Although you can write off a substantial amount, you still need the money upfront.
If you don’t have the funds upfront, you may decide to take out a loan to purchase a company vehicle. In some cases, the interest on the loan may be tax-deductible. But, don’t bank on that fact. It pays to check with your accountant before making any financial commitments. They will have the right advice for your individual situation and advise whether or not it is a good investment for your business.
Ongoing Costs
Cars and vans are not a one-time purchase. You will need to have the budget to maintain a WOF and registration, make repairs, pay road user charges (if applicable) and cover insurance for all employees who use the vehicle. Again, most of these expenses are deductible, but your bank account needs to be healthy enough to sustain unexpected costs.
Although it is possible to claim back all the running costs, petrol, insurance and even depreciation of the car, bear in mind that you are likely to be required to pay fringe benefits tax (FBT). This is tax your business is liable for if the company car is made available for staff for any form of private use. Even travelling from home to work is considered to be personal use – unless you are a sole trader and using a truck or van as your company vehicle.
The amount of FBT you pay depends on how much the car is worth and how much your company earns. If you are a sole trader, you won’t need to pay FBT on your business vehicle – instead, your accountant will make other tax and GST adjustments.
If your company vehicle is a non-passenger vehicle and is only ever used for work-related tasks, you are exempt from FBT. As a general rule, if you are more likely to use the vehicle for personal use, it makes more financial sense to pay FBT.
Do You Need It?
Probably the biggest consideration is whether or not your business needs a company vehicle? Because it makes your financials a lot more complicated, you should carefully consider if you are buying the vehicle for the right reasons or for vanity’s sake.
Deciding whether or not to invest in a company vehicle is no small decision. You need to discuss your current business requirements and finances with an experienced accountant who can advise you of your options and help you save money in the long term.
If you are considering buying a company vehicle and need to understand how it could impact your business, then get in touch with us here at Accountants Plus today. We can advise you on the best way to handle the vehicle situation specific to your business.
