Company Vehicle and Transport Finance
The franchise you are about to start may require a company car or another type of vehicle. When a car or van is linked to a business, there are specific tax regimes that apply. These include regulations regarding CO2 emissions, insurance and how the vehicle is treated for tax. Company cars have very strict tax rules that your business must comply with.
Vehicles in Your BusinessAny vehicle that you use in your business has to have the appropriate road tax and insurance (at least third party) applied to it. Any transport in your business can also have additional insurance cover. These include:
- Replacement vehicle cover
- Legal expenses cover
- Breakdown cover
- Limit of indemnity cover
- Additional drivers
In addition, if the vehicle is made available to an employee, this is called a ‘benefit’ and attracts a level of tax if the journeys made are for business purposes such as delivering goods to your customers.
Taxable benefits are part of the PAYE system and also impact on the National Insurance contributions you have to collect from your employees if your franchise has any. The forms and processes can be quite complex to anyone that has no prior experience of handling them. It is therefore vital that you take professional advice about all the types of transport your franchise will be using. Transportation could be essential to your franchise, so ensure you have your tax affairs in place.
Funding Your Vehicle PurchaseThe insurance that you have to pay on your company vehicles is important to get right, but you should also think carefully about how you buy your vehicle transport. You have a number of options including: hire purchase, leasing, contract hire and lease back agreements. This area of vehicle financing can be a minefield to successfully navigate so always take financial advice before making your decision.
Vehicle Transport and DepreciationAny transportation you buy for your franchise business is a asset. As such the vehicle(s) are treated in the same way as any other piece of machinery in your business. This means in practice that you account for the asset over time, and write off its cost. In certain circumstances you may be able to write off some of the vehicle asset cost against tax. This is called capital allowances. This isn’t always allowed, so take financial advice from your accountant.
Fuel for Vans and Company CarsThe use of transportation in your franchise will mean that you also have to account for the fuel that you and any of your employees buy. Again, if you or your employees use a vehicle for none business journeys these will be taxable as a benefits via the tax and National Insurance systems.
However, your employees won’t have to pay any tax on the fuel they buy under certain circumstances. Consult your accountant and the HMRC for advice. If you also provide fuel to an employee for private use, you will have to pay tax on this via your National Insurance contributions.
VAT and Company VehiclesGenerally, your franchise business won’t be able to claim back any VAT that you had to pay on a new or used car. However, if your franchise will have a car pool, special circumstances may arise where you can claim back any VAT you paid.
The rules are different if you bought a van for use in your franchise. In this circumstance you can claim all the VAT you paid back. Leased vehicles are again slightly different in that you can usually only claim 50 per cent of the VAT you paid.
VAT on the fuel your business buys will be affected by the C02 emissions of the car you are using. This is called the fuel scale charge. How you use your car, that is whether it is also used for private journeys can also have an impact on the VAT you pay, and how much can be reclaimed. These calculations can be complex, so always seek professional financial advice.
Insurance, leasing, fuel cost, VAT and tax all impact on any vehicle you use to run your franchise business. All of these elements impact on each other to a greater or lesser degree. To ensure you buy your vehicles with the right terms and gain the best tax exemptions if any are available to you, it is imperative that you take professional advice. Ultimately this could mean you pay less for your vehicles and more importantly, reduce your tax bill.