The Cost of Being Behind The Wheel
Clients regularly ask us about the tax implications of buying a vehicle through their business. The first question we’d ask is around what type of vehicle you are looking at purchasing and there is a difference between vans and cars. Generally, vans (lorries or trucks) are treated in the same way as plant and machinery, while cars are not. The rationale being that there are many jobs which can’t be done efficiently without a van. You can claim the full value of the van through your limited company accounts.
Compared with a company car, vans also have lower benefits in kind – which is what you pay if you use your vehicle for miles which are for your personal use (and this also include commuting to your place of work).
If you are a sole trader, you can’t purchase a car through your business, as there is no legal difference between you and your business. The question regarding buying a car under your limited company is trickier to answer and, here at Lewis & Co, we look at each individual situation – although our advice is generally to keep a car outside of a limited company, unless it’s electric or has very low emissions.
If you do decide to buy your car through your limited company, you will pay tax and National Insurance on it, which is based on its value. If your car is a fairly expensive one, then this could be a fair amount of additional tax to pay. There are also financial implications based on its CO2 emissions.
You may decide to buy a car personally – not through your limited company – or continue using the car you’ve already got. In which case, you can’t claim the purchase of the vehicle through the company (and thus save tax). Clients then ask us if they can simply save up all their fuel receipts and add them to their expenses? You can’t do this, as included in those will likely be plenty of times you used your car for personal use.
As the owner – and an employee of your limited company – you can currently claim 45p per mile for each trip taken for business. This is also the way sole traders account for their business miles. This essentially covers your fuel and any wear and tear on your vehicle. If you drive a lot for work, then you can claim 45p for the first 10,000 miles and then, after that, the allowance drops to 25p per mile.
If you do opt to buy your car through your limited company, then it is treated as it would be as any asset you buy and you can claim the cost of the car against your business through Capital Allowances. However, as an asset, you can’t use it to reduce net profit (and, at the same time, save tax).
The more expensive your car is and the higher its CO2 emissions, the more tax you will pay. The HMRC has various tax calculators on its site, but here at Lewis & Co, we can talk through your options with you.
If you use your company car for personal use – and everyone does – then you will have to pay a fixed amount of car benefit in kind. This is calculated on the market list price of your car when new (even if you bought it for a ‘bargain’ price and its CO2 emissions. This is fixed fee because it’s very difficult to work out exactly how many miles are for your business and how many are for your personal use.
You may decide to lease a car through your limited company. In which case, you can put down your lease payments through your business as an expense – which will save you tax. However, CO2 emissions again play their part. If the car you lease is over 50g/km in CO2 emissions, you can only claim 85% of the lease payments.
If you are unsure how to account for your vehicle within your limited company, then do call our team at Lewis & Co on 01892 513515.