What's the best way to run my car through the business?

This is a question we get asked a lot here. The answer as with most things in tax is, it depends!

It depends on what kind of car you have for a start. The tax rules these days are based on the CO2 emissions of the car i.e the higher the CO2 emissions, the greater the potential tax charge. By contrast, there are tax incentives available for cleaner electric and hybrid cars such as being able to write off 100% of the cost of the car against profits if Co2 emissions are less than 75g/km e.g Tesla etc.

So let's look at the four main ways of running your car through the business:

1. Company owns the car - this route has become less favourable in recent times due to the changes in tax rules linked to CO2 emissions. If your company owns the car, you pay a 'benefit in kind' tax based on a %age which is linked to the car's CO2 emissions. For example, if you drive a Range Rover the CO2 emissions of the car are over 185g/km meaning that you would pay tax based on receiving a benefit equal to 37% of the car's list price every year. By contrast, if you drive a hybrid or electric car the benefit can be reduced to 13% of the car's list price. However, the company can potentially write off 100% of the car's value where the CO2 emissions are less than 50g/km so when looking at it on a holistic basis, it can beneficial for your company to buy the car if you're looking at an electric model. Otherwise, more often than not, it won't make sense to pay the hefty benefit in kind tax bill every year given that it is always based on the car's list price when new and does not decrease over time even though the value of the car will.
2. Charge mileage - you own and pay for your own car privately (through drawings from your company) and charge the company for any business miles that you do. HMRC allows you to charge 45p per mile up top 10,000 miles and 25p mile after that which you can take out tax free. There are very useful apps out there such as www.mileiQ.com which track every journey in the background and when you get a moment you just swipe one way or other to tag it as personal or business.
3. Lease the car - this is becoming more and more common with manufacturers offering better deals to essentially 'rent' a car for a fixed period. It also means that you don't carry the risk of owning a car and therefore don't have to worry about depreciation, mechanical faults etc. If the company leases the car then you still suffer a benefit in kind as per route 1 above. In addition the company can only claim 85% of the lease cost if the Co2 emissions are over 130g/km. With leases VAT is chargeable on the rental however 50% of the VAT can be claimed back if you are registered.
4. Run the car through a partnership / LLP - this is probably the most tax efficient to run a car as you can offset the capital or lease costs WITHOUT suffering a benefit in kind tax charge. If you are running some of your trade or business through a partnership or LLP then you can claim a %age of all your car costs against your business profits. Typically this could be up to 80%-85% of car running costs including lease costs, fuel, insurance, servicing etc against your profits. Clearly you need to have some business substance to operate a trading partnership and justify the proportion of car costs claimed but it does - more often than not - give the best result of the four options described.

Have you thought about whether you are running your cars most tax efficiently?

Hope that helps.

Happy tax saving!

Reza