Company car or private purchase?

This question comes up quite a lot and as you would expect when considering tax, the answer is – it depends.

Second to a house, buying a car is the biggest purchase we make.  Just choosing the type of car based on personal preferences can be a real headache, but what about when you add tax into the mix?

This blog cannot help you decide whether you want leather seats or metallic paintwork but it could help you buy your new car in a tax efficient way.  If you are about to buy a new car then read on…

If you run a business through your own Limited company, you can make the purchase or the company can make the purchase.

If the company makes the purchase

You will not be able to recover the VAT unless you are a driving school or a car hire business unless you buy a “truck”.  If you are going to do this please check the details with your accountant first.

Your company will be entitled to capital allowances based on the purchase price of the car (including VAT) at a rate that depends on the CO2 emissions, see the table below:

CO2 emisions Capital allowances
Less than 110g 100%
Between 110 and 160g Plant pool 18% reducing balance per annum
Over 160g Plant pool 8% reducing balance per annum

Cars such as some Golf’s, smart cars and other small cars are designed to fall into the 110g or less band.

All the car’s maintenance such as servicing, car tax and repairs can be charged to the company.

If the car is purchased by the company and you use the car for private use in addition to business use, there will be a benefit-in-kind.  This charge is calculated based on the price of the car plus accessories and CO2 emissions of the car.  This benefit-in-kind is subject to national insurance on the company and tax on you.

When you travel on business in a company car you can only claim for the cost of the fuel (unless the company pays for fuel – which is not covered in this blog).  At present this amount is between 12p and 26p per mile.

What if you buy the car yourself?

You can claim 45 pence per business mile up to 10,000 miles and 25p per mile above 10,000 miles per year.  You cannot claim anything else, however there is no benefit-in-kind, so no extra tax to pay.

What if you trade in your own name as a freelancer or self-employed?

Your car will be a business asset and you will qualify for maintenance, servicing and tax allowances based on the percentage of business  miles you drive compared to non-business mileage .

Be careful!

The Chancellor keeps making changes: putting up the benefit-in-kind on company cars, changing the tax allowances and the top rate of tax may stay for a while (even though it was brought in as a temporary tax increase).

If in doubt, ask us to check the figures for you.