“One of the most common questions I’m asked by small business owners is whether it is beneficial to buy or lease a car through the business?”

Time was when it was of great benefit to have a company car, but over the last twenty years tax on company cars has increased so that it’s no longer so straightforward. These days it depends on the legal status of the business, the type of vehicle and how many business miles the driver does each year.

If you’re self-employed or in a partnership, the costs of a car can be put through the business, with these costs apportioned and the personal usage element disallowed for tax purposes. Alternatively, the owner can claim mileage allowance of 45p per mile if this gives a higher tax deduction. Under either method it’s essential that detailed mileage records are kept.

However, if the business is a limited company then it’s more complicated, as the director will be taxed upon the car benefit, which is calculated as a percentage of the list price of the car. The percentage is based upon the CO2 emissions of the vehicle with a 3% surcharge for diesel vehicles. The greater the emissions, the higher the tax charge. Since its inception the percentage charged has been increased each year and this is likely to continue.

If the company buys the car then it can claim capital allowances and a tax deduction for any HP interest plus running costs. Alternatively if the car is leased the company can claim a tax deduction for the rental payments plus the running costs. Both methods will reduce the 20% corporation tax charge however this saving will be partially offset by the company having to pay class 1A national insurance at 13.8% on the taxable benefit.

To be able to decide whether it is worthwhile buying or leasing a company car it’s therefore necessary to compare the tax deductible costs of owning and running the car against the additional tax to be paid by the director on the benefit. If the director is a higher rate tax payer it is very unlikely to be advantageous.

In addition to the car benefit there is also a separate car fuel benefit where the company pays for fuel for personal usage. This is calculated using the same percentage as for the car benefit on a fuel cost escalator of £21,100. In many cases this can be a higher taxable benefit than the car itself, so unless there’s a very high mileage it’s unlikely this will be beneficial. Company directors should therefore pay for their own fuel and then claim back for business mileage. The rate will again vary depending upon the engine size and type of fuel.

Given the complexity of the rules it pays to do your homework and find out what the tax implications will be before making a decision whether to buy a company car. Be sure you know what the list price of the car is, what the CO2 emissions are and what the tax percentage will be? If in doubt, small business owners should seek advice from their accountant before deciding which road to take!

In most cases it is not necessary for an employment contract to be in writing to be legally binding. The contract commences as soon as the employee starts work even if it is not in writing. The terms that have been offered and accepted will be implied by the way the parties conduct the relationship.

The problem is that the employee and the employer’s understanding of those terms may differ significantly and may cause disagreements later on. Once an employee has completed their two year statutory probationary period they may be able to claim unfair dismissal if they are asked to do something which is not included in their contract. It is therefore recommended that employees be asked to sign a written contract of employment so that there is no dispute over their terms and conditions.

Where there is no contract of employment the Employment Rights Act 1996 still requires employers to provide employees with a written statement of the main terms of employment within two months of starting work. As an employee does not have to sign a statement there is no formal agreement, but the employee’s agreement to the terms will depend on whether they have acted in accordance with those terms.

Should an employee successfully take an employment tribunal case against their employer then where there is no statement or contract of employment then an additional award of two to four weeks pay may be made against the employer.

Employers should therefore ensure that they get employees to sign a written contract of employment and then keep to the terms of the contract, particularly any grievance procedures.