As the Director of your own Limited Company, you might ask yourself; ‘Is it worth me buying a car through the company’?
The answer? No.
I guess I should explain…
First off, although the lines might seem blurred, your company is not you. It’s a completely separate legal entity. So, if you buy a car through your company, you do not own it, the company does.
And, like a lot of stuff, if the company owns it, you have to pay tax on the use of the car.
In all honesty, there is nothing ‘kind’ about it!
As the car is an asset (owned by) the company, you’ll be required to pay tax on the use of the car, under what’s known as a Benfit in Kind.
This is for any personal use of the car (including to and from your normal place of work).
But, the real punch in the gut for one-man (or woman) Limited Companies is that you don’t even need to use the car personally – if it’s available for personal use, you’ll get lumped with the additional tax.
The BIK (Benefit In Kind) is based on the list price of the car, and it’s CO2 emissions. So, even if you buy a beat up old banger, it’s still going to cost you. We’re not talking a small amount either, it’s in the thousands of additional tax per year.
First off, you can claim mileage. The first 10k miles can be claimed at 45p per mile and then 25p per mile thereafter. You can also use TripCatcher as a real nifty way of easily calculating/tracking it.
If you’re looking to buy a car however, it’s much cheaper to simply buy it personally, even if it means drawing more from the business to do so.
Well, that changes everything.
If you’re looking at buying an Electric Vehicle (EV) for your Limited Company, there are some pretty decent tax savings to make.
And that’s because there is no (or very little) BIK on electric vehicles.
The BIK on electric vehicles is 1% in the 2021-22 tax year, and increased to 2% in the 2022-23 tax year.
The reduced BIK isn’t the only thing, you’ll also look cool driving an EV – especially if paired with a decent pair of Oakleys.
Seriously though, another benefit is that you can offset the purchase price of the EV against your company profit by way of Capital Allowances.
From April 2021 it is possible to claim what’s called First Year Allowances on new or unused electric/zero emission cars. This means that the full cost of the car can be claimed against profits reducing corporation tax. Unfortunately, it isn’t possible to claim First Year Allowances on used vehicles, a bit tight I know.
However Write Down Allowances are available for used EV’s which basically means that a proportion of the car can be claimed. For cars with lower emissions the Main Pool can be used meaning that 18% of the car can be claimed for tax relief against profits. Higher emission vehicles fall under the Special Rate Pool so only a measly 6% of the cost is an allowable expense.
If you decide to lease an EV, rather than but it, these payments are classed as a cost, and it is possible to claim the cost of the lease as an expense against profit. For EVs 100% of the payments can be claimed as an expense.
OK, now you’re just being greedy.
As the EV will undoubtedly be used for personal use, you can’t claim the VAT.
Unless you lease it, then you claim 50% of the VAT on the lease payments each month.
And that’s the rundown on owning a car in your small Limited Company.
For more information on what you can claim in your small business, take a look here.