At first glance, buying a car through your limited company might seem like a complete no-brainer, especially if you’re planning on using it predominantly for business purposes.
However, this process is much more complicated than it perhaps first appears, potentially resulting in all kinds of business tax implications and added costs. The true benefits of buying a car through your business will depend almost entirely upon your circumstances, with factors such as vehicle type, purchase method and CO2 emissions having to be taken into account.
There’s an entire list of things you need to take into consideration before deciding how to make the purchase, which is why you might need a little help in figuring out the best option for you and your limited company.
Benefits in kind
Before you even start thinking about purchasing a vehicle through your limited company, you need to be 100% sure of what it’s going to be used for. You’re only able to claim the VAT back on vehicles solely used for business purposes, which sadly doesn’t involve your daily commute to and from the office.
Any company vehicles used privately will result in a taxable benefit in kind, which is based on the value of the vehicle when it was new (not the price you paid for it), while you could also be taxed on any fuel costs which are paid for by the company. Your limited company will also need to submit a P11D form to register the benefits with HMRC.
Leasing a car through your business
Your decision on whether to purchase a vehicle through your business will largely depend on how you intend to pay for it. There are always multiple financing options when it comes to buying a car, so you need to decide whether your business will be better off leasing the vehicle or simply purchasing it outright.
When leasing a vehicle, your company won’t actually own it, meaning you can’t claim any capital allowances. However, it also means you’re able to claim it as a business expense, allowing you to pay for 100% of the monthly leasing costs through your company’s profits– so long as the vehicle’s CO2 emissions are under 130g/km. If your emissions are above this threshold, then you can only claim 85% as an expense.
Additionally, it’s worth noting that if you’ve taken out a business loan to pay for the vehicle, then only the interest payments can be classed as a company expense; while the same is also true for cars bought on a hire purchase arrangement.
If you do decide to purchase the vehicle outright, then you’ll be able to claim tax relief through capital allowances, since it will be classed as a fixed asset (you may also be able to get some tax exemption through asset financing). There are strict rules regarding how much can be claimed, and the amount of available capital allowance will largely depend on the vehicle’s CO2 emissions.
In short, the higher the emissions, the less tax relief you can claim. Most vehicles have emission levels over 130g/km, in which case 8% of the purchase price can be deducted from your annual profits; but any vehicles under 130g/km can claim 18% every year. If you’re buying a new car with CO2 emissions under 50g/km, then 100% of the vehicle price can be deducted in the first year.
Type of vehicle
One of the biggest things you need to consider is what kind of vehicle you’re planning on purchasing. Buying a car through your company comes with a rigid set of rules which, while potentially opening you up to all kinds of fantastic tax benefits may also incur extra costs and become a poor investment.
If you’re planning on purchasing a van or truck through your limited company, however, then you’ll find yourself freed from many of these frustrating limitations. HMRC allows for “insignificant” levels of private use, meaning that you’ll be able to drive the van home so long as it’s still only being used for commercial purposes.
This means claiming 100% of the vehicle cost is a much more straightforward matter, so purchasing a van through your business will typically be a much better option than buying it personally.
Whether you’re planning on buying a car, van, truck or motorbike through your limited company, you need to seriously weigh up all the different factors involved and decide whether this is the best option for you. Although your purchase decision will ultimately depend on your specific circumstances, hopefully, we’ve helped to clarify some of your bigger concerns.