Borrowing money to buy an asset

System
System Posts: 100,534 🤖 Admin 🤖
edited 12:08PM in AAT member discussion
Hi

I have a client that wishes to borrow money against his house to buy a company car for a limited company.

He wants to know if the company can pay the interest and capital repayment on the money borrowed against his house.

How do I treat this transaction

a- for the company car
b- for the interest
c-are there any tax implications

Thankyou
Carl

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Borrowing money to buy an asset

    You would put the car into the fixed assets and the finance costs into the directors loan account. Then as the payments are made the directors loan account balance is reduced.

    I'm not sure of the tax implications as it is the director not the company borrowing the money. I would imagine that the interest will not be an allowable expense against the corporation tax. Is the company not able to buy the car in it's own name and meeting the payments out of hte bank? Then the interest would be allowable. The capital part of the payment is not allowable as it is a capital item.

    If you like I have a hire purchase t account that I use for my clients which show how to make all the double entry book accounts.

    Who's name will the car be registered in?

    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Borrowing money to buy an asset

    Thankyou Annette

    I would appreciate seeing the T account.
    The car would be in the companys name.

    Carl
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Borrowing money to buy an asset

    Can you leave me your email address via a private message and I'll doctor one and send it to you (mine are client's ones so I'll need to make sure there's no identifying data on them)

    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Borrowing money to buy an asset

    Can anybody help?
    When buying an asset what is the most tax advantageous method for a small sole trader?

    Thanks

    Jack

    :?:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Borrowing money to buy an asset

    Carl

    I cannot think of a time when its more benefical for the director to have a company car?

    What I would advice to do is for him to purchase the car privately and pay for the running costs through his salary and to the charge the company for the use of it.

    10,000 miles @ 0.40p per mile is to bad now is it?

    Doing it this way saves:-

    His directors account doing overdrawn by the magic £5,000 and if it is overdrawn for more than 9 months the company gets charged 25% of the outstanding balance. Not to mention the cash equivalent having to go on a P11D for the director and that then being taxed too.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Borrowing money to buy an asset

    Carl - I agree with Dean especially as he will be personally financing the car not the company.

    Jack - what exactly do you mean? All fixed assets are written down (for tax purposes) by proscribed HMRC rules - FYA if applicable and 25% for the rest (with a very exceptions).

    If you mean financing the purchase, then if it is purchased on credit, then all/a portion of the interest (not capital) can be set off against tax.

    Let us know more about exactly what you are on about, and we will to help you.

    So Dean - we dont seem to have given up the day job -shame really on a day like this 8)

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Borrowing money to buy an asset

    No, haven't given up yet although after todays efforts I sometimes wish I could!

    ADMIN DAY! :evil:

    Regards

    Dean

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