Buying or leasing a car through your business can offer a range of financial benefits for you as a business owner. However, the process is often more complicated than it seems, with a variety of rules and regulations that you’ll need to follow to get the best deal.
Below, Business Adviser and Corporate Consultant, Neil Debenham explains the entire process of running a vehicle through your business and provides a range of tips and tactics that you can use to get the best possible value for money.
The basics of running a car through your business
Running a car through your business has historically been an easy decision, with the process offering numerous financial benefits over purchasing or leasing a car as an individual.
At the most basic level, running a car through your business can offer a range of tax potential benefits as opposed to buying it as an individual. However, some benefits are only available if you’re willing to comply with regulations and restrictions on the use of the vehicle.
Buying a car through your limited company
If you have a limited company, buying a car through the company will affect the tax treatment of the vehicle.
When a company purchases a vehicle outright, it can claim capital allowances to gain financial relief for the vehicle’s cost. This can reduce your company’s taxable profit and potentially reduce the amount of tax your company is required to pay.
In the event that you finance the purchase of the vehicle via a loan, the interest payments made for the vehicle are classed as a company expense.
For a company car, a variety of factors can affect the amount of tax that you’re legally required to pay. These include:
- The vehicle’s CO2 emissions
- The type of fuel the vehicle uses (for example, petrol, diesel or electricity)
- How the fuel is purchased (by your company or you as an individual)
- The personal income tax band that the vehicle falls into as a benefit
- The list price of the vehicle
Currently, the capital allowance that’s available for company vehicles depends on the amount of CO2 that’s emitted by the vehicle. For cars, the current rates are:
- 100% for electric cars or vehicles with CO2 emissions of 50g/km or less
- 18% for cars with CO2 emissions of 50g/km to 110g/km
- 19% for used vehicles with CO2 emissions of less than 110g/km
- 6% for vehicles with CO2 emissions of 110g/km or higher
For leased vehicles with CO2 emissions of 110g/km or higher, there’s a flat rate disallowance of 15 per cent for payments made for the vehicle. This means that you’ll be unable to claim the full cost of a high-emissions vehicle as a business expense if it’s leased by your company.
Buying a van or motorcycle for your company
Unlike cars, vans and motorcycles are classified differently and both qualify for 100% tax relief via the Annual Investment Allowance (AIA).
From a tax perspective, company vans are viewed as a type of plant or machinery. Motorcycles are also treated differently from cars and qualify for a 100% allowance, provided they’re used for business-related purposes.
Buying a vehicle personally for business use
When you purchase a vehicle personally, you’ll be held responsible for its purchase price or, in the event that you finance the vehicle, the cost of financing. These costs are not tax deductible when your vehicle is owned by you personally, even if it’s used for business purposes.
You’ll also be unable to claim tax relief for fuel, servicing and other vehicular running costs, as well as insurance and road tax.
However, you will be able to claim a tax-free allowance for the mileage you accumulate during the course of doing business. This could mean travelling to visit a business partner, driving to and from a meeting or using your vehicle to transport supplies for your business.
As an individual, you can charge your company 45p/mile for up to 10,000 miles of travel in your personal vehicle per year. After 10,000 miles, you can bill your company an expense of 25p per mile travelled for business purposes.
These expenses are not subject to tax and lower your company’s profits, meaning the company will be able to receive Corporation Tax relief for these expenses. This may be a suitable option if you already own a vehicle and need to use it for business purposes, concludes Neil Debenham.
Tips for running a vehicle through your business
- Consider choosing an electric or low-emissions vehicle. The lower the emissions, the more you’ll be able to claim via a Capital Allowance, reducing long-term costs for your business.
- Pay close attention to private use rules. Using a company vehicle for things unrelated to business will affect its tax status and could make you liable for VAT and a reduced level of tax relief through capital allowances.
- If you’re considering buying a vehicle for your business, talk to an expert first. They’ll be able to inform you about all relevant tax advantages and help you select a vehicle that’s best for both your business and your bank account.
Neil Debenham www.neildebenham.com