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For example.
Our company , based in the uk. From 6th April 2012, is to offer me as manager a petrol driven 5 door hatchback, with CO2 emissions of 139g/km. The list price of the car is £18,000, including VAT, but the company has negotiated a 15% discount off this list price.
The company will also pay for car tax of £120, insurance and servicing of the cars.
The insurance for each car, on the company’s group insurance policy, will be £400, and the other running costs (excluding fuel for business mileage) are estimated to be £300 per year.
In addition, I as manager can opt for a £500 annual reduction in my salary, and in return receive petrol for private motoring.What will be the cost of the car if my marginal rate of income tax is 40%.
your comments will be appreciated
many thanks
awdal26
Please show your answer and I will try to get back to you with comments. Your answer should of course be based on the FA 2011 and therefore be for the 11/12 tax year not 12/13 as per your example. I would also suggest only working examples where answers are given and there are plenty of those available to students from which to learn!
Interesting question.
I am also a student of F6 dec sitting, but want to solve this question as per my knowledge.
First of all car is exempt from VAT as per question the Company’s trading activity is not a buy or sell car so we will use list price exclusive of VAT.
– We always use list price before trade discount so we should neglect 15% discount.
– Insurance, servicing, maintenance , up keeping are exempt for the calculation of cost of car as these are bear by company.
– You as a manager opted to deduct 500 for the petrol which is not allowable as you are not paying in full so full fuel benefit will be calculated.
Cost of the car will be 15000
Car benefit will be 15000*17% = 2550
Fuel benefit will be 18800*17% = 3196I am waiting for exact answer by tutor.
And also your comments are welcome…
@Taxtutor said:
Please show your answer and I will try to get back to you with comments. Your answer should of course be based on the FA 2011 and therefore be for the 11/12 tax year not 12/13 as per your example. I would also suggest only working examples where answers are given and there are plenty of those available to students from which to learn!Hi thank you for your answer. My answers are on its way. But what I will like to ask you is that , according to the question it says that the company’s year end is 31 March . so why shall I use FA 2011/12 rather than 2012/13
many thanks
awdal
Not received your answer yet but in relation to your question we are computing the effect on the individual not the company so we look at the income tax year and your exam is based on FA 2011 NOT the FA 2012 rules which would actually apply for the 12/13 tax year. You would therefore be expected to assume the 11/12 rules still applied in 12/13 for this purpose.
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