Company Car – is a personal or business purchase best?
If you are a limited company business owner thinking about a company car for yourself and perhaps staff you can go about this in a few different ways. Each option comes with its own tax liabilities and tax relief implications to understand in order to make an informed decision.
Personal purchase
If you decide to go with the personal purchase option, the car will have to be paid for out of taxed income, you’ll need additional salary or dividends to pay for it.
A personal purchase doesn’t qualify for tax relief on the cost of the vehicle or certain running costs (insurance and road tax). However, if you use your personal car for work you can claim back 45p a mile for the first 10,000 miles you travel for work that year with Approved Mileage Allowance Payments.
Company purchase
A company car can seem like a great perk but it doesn’t always stack up. When it comes to buying a company car, your business could be eligible for relief on the initial cost of the car via capital allowances. The rate will depend on CO2 emissions, but you will have a taxable benefit in kind, payable each year you use that car, based on list price and CO2 emissions.
Your business should get tax relief for the cost of insurance and car tax, but the business mileage you claim will be at a much lower rate than private ownership which accounts for full running costs.
A company car purchase is likely a good choice if the car has very low CO2 emissions and a low list price. Personal ownership may be preferable if the car has a high list price with high CO2 emissions, but it is worth doing the calculations whatever the situation and particularly when they fall between these two ends of the spectrum.
See also company car calculator (HMRC)
Tax on electric vehicles
Electric cars are an increasingly popular choice for company cars. We’ve written a blog on buying electric company vehicles to dive deeper on this subject. The benefits of electric cars shouldn’t be overlooked, as they come with a significantly lower benefit in kind rate than petrol and diesels. Also, 100% capital allowances may apply so the cost of the vehicle can be fully written off against profits in the year of purchase, making electric cars a really cost effective option as a company car.
Let’s Talk
If you would like to find out more about your options purchasing a car as a limited company owner or would like to chat about options in relation to other business and personal tax planning, let’s talk.
