You might be wondering whether you can buy a car through your business if you’re running a Limited Company and the answer is a resounding yes. You can, but there are specific considerations.
Here’s a short guide on what to think about:
Capital allowances
When you buy a car for your business, you can gain certain tax advantages to reduce your company’s taxable profits. What you can claim will depend on the car’s CO2 emissions.
Car tax
You’ll still have to pay tax on your business vehicle but if you use it personally, you’ll be subject to the BIK tax - Benefit in Kind. The amount you pay depends on the value of the car. You’ll also have to pay Class 1A National Insurance contributions on the value of that BIK.
VAT
You can reclaim the VAT on the purchase price of the car but only if the car is used for business reasons and nothing else. You can’t reclaim VAT if you use the car for personal purposes.
Running costs
You can claim tax relief on fuel, maintenance and insurance but make sure to account for personal use to avoid penalties.
Car depreciation
Cars will always depreciate in value but when it comes to tax, this is handled through capital allowances.
Car leasing
It’s often more favourable to lease a car rather than buy a company vehicle. You can only reclaim 50% of the VAT paid if there is personal and business use of the car. If there's just business use, and that can be proven, then 100% of the VAT for the lease can be reclaimed..
It’s important to weigh those pros and cons, considering the administrative responsibilities and ongoing costs before committing to the purchase. If you consult with a professional bookkeeper, you can ensure you optimise your tax benefits and adhere to compliance.
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