Q&A: Buying a car through your business
Q&A: Buying a car through your business
Buying a vehicle through a business is one of the topics clients frequently seek advice from us about. There are several ways to do this and various tax incentives are available, particularly for electric vehicles.
Here, Tasha tackles some of the most frequently asked questions on the subject.
What are the advantages of buying a car through a limited company rather than buying it personally?
If you buy a car through the business, the initial cost and finance costs are tax deductible. You can also claim tax relief on running costs such as road tax, insurance, and servicing. Mileage can also be reclaimed at the HMRC fuel advisory rate, which will vary depending on fuel type and engine size.
If you buy a car personally, you cannot claim for the purchase cost or running costs but instead, you can claim a tax-free allowance from your company for any qualifying business mileage. The mileage rate is 45p a mile for the first 10,000 business miles and 25p per business mile thereafter.
Is it better to buy an electric car through my limited company as a hire purchase or rental lease?
If you are buying a new electric vehicle through a hire purchase or PCP, you can claim 100% of the cost as a capital allowance in the first year. This is because the government is currently incentivising the purchase of electric cars. If you are thinking about buying an electric car, you might want to do it sooner rather than later as this scheme is scheduled to end in March 2025. VAT can’t be reclaimed on the cost of a vehicle.
If you get an electric vehicle through a rental lease, the tax benefit is spread over the period of the rental lease, rather than in year 1 of purchase. 50% of the VAT on the rental lease can be reclaimed on a monthly basis.
The running costs such as insurance, maintenance and repairs can be paid through the company regardless of whether the vehicle is purchased through HP/PCP or a rental lease. Any interest costs relating to the finance is also tax deductible.
What if I’m not buying an electric vehicle?
The 100% capital allowance relief is only available for new electric vehicles. If you are buying a second-hand electric vehicle or a new car with CO2 emissions 50g/km to 110g/km the capital allowance is 18% a year. If the emissions are over 110g/km the capital allowance is 6% a year.
The running costs can still be paid through the company.
What about benefit in kind?
In terms of personal tax, you are entitled to taxable benefit in kind however the car is purchased. The BiK rate is calculated based on the market value of the car and its CO2 emissions. Additional taxable benefit in kind is available if fuel costs are paid through the company.
For more information on tax, vehicles and electric vehicles, speak to Tasha or one of the Wild & Co team on 01423 222710
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