Company Cars: Pros & Cons
Can I put a car through my Ltd Company?
Well, yes… there’s quite a few considerations to be made here as outlined below. We have made the assumption that there will be private use on the car in question, as let’s be honest most businesses can’t afford to have a car floating around for purely business travel and unfortunately your commute from home to the office is not classed as business travel!
Should I buy or lease?
Let’s start by talking tax relief, if you’re planning on buying the vehicle; the cars with the ‘greatest iceberg melting’ emissions (CO2 emissions to the rest of us) are the least tax efficient.
To offset an element of the car’s cost against tax profits we need to claim Capital allowances. There are basically 3 bands to consider:
If CO2 emissions are 75g/km or less - then you get a big eco friendly pat on the back from HMRC and you can deduct 100% of the cost of the car from the company's profits in the year that you buy the car assuming the car you are buying is new.
If the CO2 emissions are between 76g/km and 130g/km then 18% of the price of the car can be deducted from your company’s profit each year. Note the deduction here is on a reducing balance basis so 18% of the balance each year.
For CO2 emission levels above 130g/km then 8% of the price of the car can be deducted from your company’s profit each year. The 8% deduction is also on a reducing balance basis (like the above)
If the vehicle is leased, i.e. the company doesn’t own it, the monthly lease payments can be claimed as a business expense. CO2 emissions above 110g/km have 15% of the expense are (annoyingly) disallowed for tax purposes.
The company should also pay for the running costs of the vehicle such as insurance and tax and claim the relevant tax relief.
OK but what’s the catch?
We’re glad you asked… HMRC have seen the above and smelt a ‘work perk’ which they are hardwired to attempt to tax, so… unfortunately a P11D is going to have to be submitted.
To work out the benefit of having your car paid by the company you must multiply the list price of the car (very rarely the same as the purchase price) against the CO2 emissions percentage for the car.
This ‘Deemed Cash Benefit’ is then subject to Employer’s NI at 13.8% payable by the company and unfortunately you, as the employee don’t escape either paying tax at your highest rate of tax (no employee’s NI to pay though).
Oh, and just in case you were planning on trying to claw some of this back by letting the company pay for your fuel there’s an additional benefit to be taxed if your company pays for your private fuel costs.
This is calculated as the % used to calculate the benefit of the car times £23,400 in 2018/19. Certain environmentally friendly cars get away with paying this additional benefit so do bear this in mind.
Maybe I could claim some VAT back?
Unless your car is exclusively used for business or a pool car (note, your commute to the office doesn’t count as business use) then unfortunately the VAT news isn’t brilliant.
As a general guide you can’t claim any VAT on the purchase of the car but if you lease you may be able to claim up to 50% of the VAT charged on the monthly payments if there is private use.
Hmmm… This doesn’t sound great overall?
Honestly, we don’t often find that a company car is particularly tax efficient, but it does really depend on the type of vehicle the company is planning on buying and how the vehicle is used. Please feel free to contact one of the Change Team to discuss this further.
You can claim a tax-free allowance from your company for any business mileage travelled in your personal car. The boffins at HMRC have calculated an allowable figure for you to charge to your company to take into account all of the costs associated with owning a vehicle personally (tax, insurance, repairs).
For a car you can charge your company expenses of 45p a mile for the first 10,000 business miles in a tax year and 25p per business mile after that.
Good news, if you follow these rates there is no Personal Tax consequence and the company is able to claim Corporation tax relief on these claims.
Just remember the 10,000 miles is based on tax year’s not company accounting years and if you pay over and above the approved rates the excess will need to appear on the dreaded P11D and tax and NI paid over to HMRC.
Remember that tax rates and rules change. This article was correct at the time of publication but the rules could have been completely re-written by the time you read this. Always take up to date advice from your accountant before making a decision on a car.