If you are thinking of buying a new car, you have the choice of buying it personally or through your company.
We take a look at the tax implications and costs of each option to help you decide how to purchase your new car.
Buying or leasing a car – The Company’s Perspective
Buying a car – the company owns the car
- The cost of the vehicle, whether it’s bought outright or on hire purchase does not reduce accounting profit. The car will be a capital asset and will sit on the balance sheet.
- If the car is bought on hire purchase, the interest is an expense for the company. This will reduce profit both for accounting and corporation tax purposes.
- All the running costs of the car, i.e. insurance, fuel and maintenance, will reduce accounting profit and are allowable expenses for corporation tax purposes
- The car will depreciate over a time. This depreciation will reduce accounting profit.
- The depreciation is not an allowable expense for corporation tax purposes but is replaced by capital allowances.
Leasing a car – the company never owns the car
- The lease payments are an expense for the company and reduce profit both for accounting and corporation tax purposes.
- All the running costs of the car, i.e. insurance, fuel and maintenance, will reduce accounting profit and are allowable expenses for corporation tax purposes.
Buying or leasing a car – The Director’s/Employee’s Perspective
A company car is considered to be a benefit which employees receive from employment but is not included in their salary. This means, that unless the car is a genuine pool car (i.e. left at the company’s premises and is available for use by all employees), the employee who uses the car on a daily basis will have to pay a benefit-in-kind tax. The rate of this tax depends on several factors:
- The list price of the vehicle
- The CO2 emissions of the vehicle – the higher the CO2 emissions the higher the tax
- Whether the car is petrol or diesel.
- Whether the company pays for the fuel for the car.
Having a company vehicle needs to be reported to HMRC annually on a P11D and the tax due will usually be claimed via the PAYE code of the employee.
Using a personal car for business purposes – The Director’s/Employee’s Perspective
- The employee/director is responsible for the purchase of the car and all the associated running costs
- The employee/director can claim back mileage expenses from the company for any business miles that they do on behalf of the company.
- The rates for claiming back the mileage cover both the fuel and wear and tear on the car.
- The rates for claiming mileage back from the company are: 45p per mile for the first 10,000 miles and 25p per mile thereafter.
- The additional cost of having business car insurance can be claimed back from the company.
Using a personal car for business purposes- The Company’s Perspective
- It is the company’s responsibility to ensure that employees/directors have relevant business car insurance to cover them using their personal cars for business purposes.
- The cost of reimbursing employees/directors for mileage and insurance is an expense to the company and will reduce profit both from an accounting and corporation tax perspective.
Hopefully this will have given you an idea of whether you want to buy your next car through your company.
The rules for company vans are slightly different, so if you want to know more about this, please get in touch.