Clients often ask whether it is tax efficient to buy a car through the company. The answer is, it can be, but the amount of tax relief is linked closely to CO2 emissions and use, so this decision needs some careful planning. All in all it’s all somewhat of a minefield, so to simplify let’s just say that buying a car through the company comes down to two kinds of taxes: capital allowances and Benefit in Kind (BIK) tax. Of these, it is BIK that you must watch out for.
|Upside of buying a car through Company||Downside of buying a car through Company|
|You own a car without having to pay from personal funds. So cash flow wise it’s great as you don’t have to worry about paying for the car from your own money.||Very high BIK unless you buy a green, hybrid, or a car with CO2 emissions of less than 95g/km|
|A low emission car can make good sense in terms of tax planning.||BIK tax is calculated on the list price of the car and not on the purchase price, so you must only buy a new car or pay more in tax than the car is worth!|
|Buying the car through the company is good from a cash flow perspective, because you spend the company’s money gross and not after tax has already been paid.||You are not able to claim the mileage allowance.|
|You could recover VAT if the car or van is purely for business use without any private use, or where the car is plant, i.e., a minicab driver, who can claim back the full VAT on the purchase.||Company directors must fill in a form P11D and are liable for BIK. The actual charge is determined by the CO2 emission, which means that cars with emissions less than 95g/km attract a BIK of 10% of the list price of the car (regardless whether it is new or not).|
What does this mean?
Without a doubt, buying a car through the company makes sense providing that the car is an essential part of the business and can be treated as plant and machinery. For example, if you’re a chauffeur service or a courier company, say, where the car is treated as plant and machinery, you can claim 100% first year allowance of up to £250K each year. In this situation, then, buying a car through the company is an easy choice.
To help you decide whether buying a car through the company is beneficial in terms of taxes or cash flow we will need to know the following:
List price of the car
CO2 emission of the car
Purchase price of the car
Car type: petrol or diesel
Your current tax status: basic rate tax payer or a higher rate tax payer
Based on accurate information in response to the questions above we will do all the calculations for you with respect to the tax, and then help you decide whether you’re going to be a winner or looser if you buy car through the company.
In a nutshell it makes sense to buy car through the company if you’re thinking of buying any of the following cars:
- Hybrid car
- Zero emission car
- Car with CO2 emission of less than 95gm/km
If you don’t intend buying a car that fits into the above three categories, then buying a car through your company may not be wise in terms of tax savings.
However, accurate calculations depend on each taxpayer’s personal circumstances.
Please note, however, that if you buy car through your company you cannot claim mileage of 45p per mile, and there is not much maintenance allowance either. Also, the company cannot fund fuel for your private use, or else you will end up paying a huge amount of fuel benefit charge.
I wish this decision could be easier, but it’s a minefield, and you are advised to put some hard thought into this decision before you make it. If you would like an instant decision as to whether or not it’s wise to buy a car through your company then please get in touch with your Account Manager, who will be pleased to help you.
To find out the VED on particular models go to the VCA website; to find out exempt congestion charge models go to the Tfl website; to look at the sort of tax breaks company cars attract go to the HMRC website.