Tuesday, July 13th, 2021
Believe it or not, this is not as straightforward a question as it may seem. There are many factors to consider when deciding whether to put your car through your Limited Company.
Here is a summary of some of the key factors:
- If you use the vehicle privately, you will pay tax on the company car
- A company vehicle is classed as a benefit in kind and taxed both on the company and personally.
- The value of the benefit is a percentage of the list price of the vehicle. The percentage is based on the CO2 emissions. The higher the emissions, the higher the benefit.
- Your company will pay 13.8% National insurance on the benefit.
- The value of the benefit will be treated as additional income on you personally. You will be taxed on this based on the tax bracket that your income falls into.
- Is the cost of the vehicle tax deductible?
- This is dependent on whether you will be leasing the car or buying it.
- If you are leasing the car, then the monthly lease costs are an allowable tax expense, and so you will get tax relief on these costs. However, this will be limited to 85% of the cost if the car has CO2 emissions above 50g/km.
- If you are purchasing the car, then you get tax relief by claiming capital allowances. The rates of capital allowances on cars are as follows:
- Electric cars or CO2 emissions of 0g/km – 100% relief in the year of purchase
- CO2 emissions of 1-50 g/km – 18% relief per year
- CO2 emissions above 50g/km – 6% per year
- Can you claim the VAT?
- Again, this is dependent on whether you are leasing or purchasing the car.
- If you are leasing, then you can claim all of the VAT back if the car is used 100% for business. If you use the car privately, then you can claim 50% of the VAT back on your monthly lease payments.
- If you purchase a car and use it 100% for business, you can claim the VAT back. However, if you use the car privately, you cannot claim any VAT back on the car’s purchase price.
- In both instances, to be classed as 100% business use, the vehicle must not be made available for private use, and you must be able to show that this is the case (i.e. in an employment contract). Travelling from home to your place of work would class as personal use.
- What about the running costs?
- Insurance, car tax and general repair costs are all tax allowable costs if your car goes through your Limited Company
- Fuel is also an allowable cost but is a taxable benefit in kind and will be taxed in a similar way to the cost of the car (as mentioned in point 1) unless only fuel for business use is claimed.
- What can you claim if you don’t put your car through the company?
- You can claim business mileage for any business miles you do in your personal vehicle.
- The rates for business miles are 45p per mile for the first 10,000 miles and 25p per mile after that.
- Insurance, tax, repairs and fuel are all covered by the mileage rate, so you cannot claim these costs on top of the mileage.
- What about vans?
- If you buy a commercial vehicle, such as a van, then different rules apply.
- You can claim the full cost of the van (or monthly leasing payments) in the year of purchase by claiming AIA.
- You can claim the VAT back
- If you use the van personally, you will be charged a benefit in kind, but this is a set amount each year and is not based on the vehicle’s list price. For 2021/22 this amount is £3,500.
As you can see, there are many things to consider when deciding whether to put your vehicle through your Limited Company.
As a general guide, then it is not usually beneficial to put a vehicle through the company unless it is a commercial vehicle or has very low CO2 emissions, but each case is different.
Please get in touch with your client manager if you are considering purchasing a new vehicle, and they can advise you on whether you should purchase through your Limited Company or not.