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'Excuse me boss, can I buy the company car?' Here are the tax implications of answering 'yes' to this question

by , 10 June 2014
Picture this: Your employee John, has been using the company car for the past two years as a company benefit, but you've just given him a promotion and he won't need to travel for business any more.

But John likes the car so much he comes to you and asks if he can buy it. Since you were thinking about replacing the car anyway, you agree.

But wait! What you may not realise is the price you sell the car for may have huge tax implications.
Keep reading to find out what they are...

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Don't make this mistake when selling John the company car 

The worst thing you could do in this situation is to randomly pick a price and get going with the sale. 
 
The reason for this, according to the Practical Tax Loose Leaf, is if you sell John the company car at lower than market value, it immediately becomes a taxable fringe benefit. This means John will have to pay additional tax on the benefit of getting the car at a cheaper price.
 
This means, you're not actually doing him any favours by dropping the price of the car. 
 
So what should you do instead? 
 
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Sell John the company car at market value!

You should rather sell John the company car at market value. Market value refers to the amount a car of its age, make, model and use would normally be valued at. 
 
To find out what the market value of your car is, take it in for a full valuation by a professional. This is something you should do regularly anyway to ensure you're paying the right amount of tax on the car.
 
If you sell John your company car at this price, he won't have any tax liabilities. This because you're not providing him with any benefits he normally wouldn't get. 
 
So don't be tempted to sell the company car to him at a lower price unless you've consider the tax implications of the price you've agreed on.
 

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