top of page
  • Writer's pictureSara Moores

Buying a car through a Limited Company

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.


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.

12 views0 comments

Recent Posts

See All

Car buying as a sole trader

For the most part, buying a car as a sole trader can be a unique and sometimes confusing experience, too. Unlike purchasing a vehicle for personal use, there are extra considerations and potential ben

FreeAgent Mobile App

At Diamond Bookkeeping Ltd we’ve chosen FreeAgent as our preferred accounting software for our small business, freelance and contractor clients. The FreeAgent mobile app lets you check your business f


bottom of page