Should I purchase a car through my Limited company?

When buying a car, you have a choice of buying it personally or through your limited company. You should consider all of the associated costs and tax implications before investing. Most importantly, consider if you will be using the car entirely for business, as you can only reclaim VAT if you use it exclusively for business and can prove this to HMRC.

There are options on how to buy a car through your company which affect the tax allowances you are entitled to. If you buy the car through a loan or by Hire Purchase, the interest payments are an allowable company expense. You may also be able to claim Capital Allowances which reduce your company’s taxable profit. These are dependent on CO2 emission levels and the age of the vehicle. 

Alternatively, you could lease a vehicle through your company and claim the lease payments as a business expense. However, this has a flat rate disallowance of 15% of relevant payments that applies to cars with CO2 emissions above 110g/km. As such 15% of the expense may not be allowable for tax purposes.

Irrespective of the purchase method, if the vehicle has any element of private use, this will create taxable Benefit in Kind on you as an individual which is calculated as a percentage of the market value of the car based on CO2 emissions. Your limited company must also pay additional National Insurance contributions on these benefits at a rate of 13.8% and a P11D form must be completed. Taxable benefits are treated as income and included in your total earnings for the year. In most instances this can mean paying tax at 40% on benefits you receive as a higher rate tax payer.

To learn more about whether the purchase of a vehicle through your company is suitable for your needs, contact Woods Russell and we will be happy to talk you through your options.