Company Car vs Private Car

Almost every director and family business owner faces this question; is it more tax efficient for me to buy a car for business through my Ltd company or not. Lets examine merits of buying a car through a Ltd company and compare this with a private car scenario.

Private car

If you own a car and use it for your business, you can claim 45p per mile from your business for any business travel you make. The 45p is for the first 10k miles and 25p is the rate for every additional mile.

There are no income tax implications for claiming the mileage. If your business is VAT registered, it can claim VAT relating to the fuel element.

Company car

A company car leads to income tax implications in the shape of benefit in kind (BIK) relating to the car purchase coupled with the fuel element (if your company provides the fuel). If you paid for the fuel personally, there would be no extra benefit in kind and you would claim the applicable mileage rate for the company car. If the company pays for all fuel you would need to reimburse the company for private miles done to avoid the high benefit in kind on fuel.

Your business can claim a writing down allowance (WDA) until the car is fully written down.

Summary

On balance, it is best to buy the company privately to avoid the income tax implications. If you do not have the cash to buy it privately, it is recommended that you buy a very energy efficient car to keep the tax bill as small as possible.

 

 

 

 

 

 

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