Cars. Can you put them through your business?

A commonly asked question, the short answer is… yes. If you have a Limited company, you can but the key consideration is whether it makes sense to from a tax perspective as there are various taxes it will affect. For the purposes of the below, we’re referring to a car used for business travel, not a taxi and not a van which have very different rules.

Benefit in Kind

HMRC assumes that unless the car is a pool vehicle, kept on premises when not in use, it will be used privately as well as for business purposes. So, in the same way that your salary is taxed, HMRC will tax this as a benefit you have received as an employee.

To calculate the benefit received, the list price of the car is multiplied by a percentage which is dictated by the car’s CO2 emissions. The company pays 13.8% National Insurance on that benefit. The individual in receipt of the benefit is taxed on it according to the bracket their income falls under.

Deduction for Corporation Tax

The portion of the car’s cost that the company uses to offset against its profit to reduce Corporation Tax is also dependant on CO2 emission levels. Whether the vehicle is purchased outright or leased will also affect this.

VAT

Whether you can claim back any VAT paid is also dependant on whether the vehicle is leased or purchased outright. Assuming an element of private use, if you lease you can only claim back 50% of the VAT suffered. If you purchase the vehicle, you can’t claim back any of the VAT suffered.

Under current rules, the tax savings are usually far greater if the vehicle is fully electric, this is effectively the government incentivising the more environmentally friendly option. And it can be more tax efficient to purchase the car personally and put through business mileage which can currently claim at 45p for the first 10,000 miles and 25p thereafter.

Whilst it seems a straightforward question, there’s a lot to consider and every case is different. Please get in touch if you are considering purchasing a new car and we can run some calculations to confirm the best approach for your circumstances and get you motoring in no time.

This summary is to serve as a guide, further information can be found on the Government website and it should not be taken as professional advice.