Considering buying a car through a limited company? At first, it may seem an appealing idea for saving a great amount of tax, however, there are many complications and business tax implications that you need to be aware of.
Buying a car through a business would only be beneficial to you as per your circumstance. So whilst buying a car for your business, you need to consider the vehicle type, its CO2 emission, purchase method and many other factors to find the best option for you and your limited company.
In this blog, we’ll discuss a few important points before buying a car through your company. Let’s delve in!
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Is your Car going to be Used 100% for Business?
You first need to consider whether the car you are purchasing through your business is going to be used solely for business purposes or not. Bear in mind that business purpose only means the use of a car for work or work-related commute, it doesn’t include your personal commute to and from the office.
As if you use your vehicle for personal use, it will be classed as a taxable benefit, where you need to pay tax on the fuels which are paid for by the company. And this taxable benefit will also depend on the cost of a car when it was new (not the price you paid). In this regard, you also need to submit a form P11D to register the benefit with HMRC.
Leasing Car Through Your Company
Secondly, you also need to consider how you pay for the car whilst purchasing it via a business. There are multiple options to buy a car, like asset financing, leasing the car, or getting it outright. So you need to decide the most advantageous option for your limited company.
When you get a car on a lease, you are unable to claim capital allowance as your company won’t be the owner of the car. But, you have the opportunity to claim it as a business expense that will allow you to pay for the total monthly leasing cost via your business’s profits (if its emission is under 130g/km). In case if its emission is over this threshold, you can still claim 85% as a business expense.
In addition, if you have taken out a business loan to buy the car, then interest payment can be the business expense, same as like hire purchase arrangements.
What Type of Vehicle Do you Want to Buy?
You can’t overlook the kind of vehicle you are buying through your company as there are strict rules for purchasing a car that can cost you more and make your investment a failure. However, getting a truck or van will prove to be advantageous. HMRC allows you to use your van or truck for a small level of private use. It means that you can drive them home, provided that it’s solely used for commercial purposes.
In this way, claiming 100% of the cost of a vehicle is a better option. However, buying a van through your business is a far better option than getting it for personal use.
Capital Allowances & CO2 Emission
Buying a car through a limited comapny outright is a great way to claim capital allowances. As it is classified as a fixed asset, you can get many tax exemptions through asset financing. Although rules are rigid regarding how much amount to be claimed, and the amount of capital allowance will significantly depend on the level of CO2 a car emits.
In simple words, the more the car’s emission, the less tax relief you can get. You need to know that most of the vehicles emit over 130g/km, where 6% of the price at which a car is bought can be deducted from your annual profits. But if a vehicle emits under 130g/km, you can claim 18% annually. Additionally, if a car has CO2 emission under 50g/km, then you can deduct 100% of its price in the first year.
Quick Sum Up
We hope you have got a basic understanding of the factors to consider whilst buying a car through a limited company. Buying a vehicle through your business can be effective, however, getting a van or truck through your business can be a more tax-efficient option. Therefore, you need to weigh up different options available. Bear in mind that your decision will be totally based on your circumstances, however, we have discussed some general concerns regarding the topic to help you out.
We are a team of certified chartered accountants in London. Our mission is to help individuals, small businesses, and landowners to achieve their financial goals. So, don’t hesitate to get in touch with our team for queries and support. Let’s discuss the ways to reduce and save taxes!
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Disclaimer: This blog is just for your general information on the above topic.