Deciding whether to buy a car through your business or privately needs careful thought. There are various cost and tax implications with both options and these need to be weighed up before you make your move.
The differences in your business set up should be considered.
Because you are effectively your business – even if you use a different trading name to your own – you can’t really buy a car ‘through your business’ and keep it separate as with a limited company.
You can claim expenses for using it for business, ideally your accountant should advise on the proportion of expenses that can be claimed for business use and which should be left as private use. Some of the allowable expenses include insurance, repairs, servicing and fuel. Travel to and from work can’t be claimed for, and neither can mileage for private use.
Because a limited company is a separate entity to its owner – even if they’re the only employee – the car can be ‘bought by the company’ to the point where the company name will appear on the registration document (V5).
Limited company car purchase opens up various options for purchase – outright purchase, contract hire, leasing and traditional loans.
You have to bear in mind the VAT implication and the ‘benefit in kind’ (BIK) aspect of business car ownership. For example, you can’t claim VAT back on the car if it’s used in any way for private use including travelling to and from the business premises. If it’s a car that stays on the premises overnight and is only used for company business then VAT would be reclaimable, but not otherwise.
Benefit in kind is a tax charged on the car – the ‘benefit’ – and treats it as if it’s part of your salary that requires taxing. The level of tax depends on the list price of the car and its CO2 emissions.
Capital allowances can be claimed against the car, but these are affected by its CO2 emissions – the higher the emissions, the lower the level of capital gains that can be claimed. Fuel for private use is also classed as a benefit in kind and taxed accordingly.
The general alternative is to buy a car privately and claim mileage expenses from your company at the latest HMRC permitted rates for tax purposes.
Aside from the financial, there are other reasons for considering buying a car for your business.
Image – like it or not, cars and brands do make an image statement. This helps to make a point to clients but also would-be employees too. From younger people fresh with enthusiasm for driving after passing their test to those who are more experienced behind the wheel – company cars can be an attractive pull factor and one that makes a business stand out from the crowd.
In general terms, buying a car for a business is often less expensive than doing so privately due to the way finance schemes are set up. Therefore, a more prestigious model may be within reach – meaning a business can woo people with an impressive vehicle.
Budgeting – if bought on a finance scheme, then monthly budgeting can be easier when buying through a business. Sometimes all the running costs, except fuel and insurance, can be included in one monthly payment making it an attractive prospect all round.
A lot depends on your specific business type and circumstances. Seek professional advice from your accountant or financial advisor before taking the plunge. Open your eyes to the pros and cons and make a decision on what is best for you.
Image: car keys via shutterstock