This is not a simple topic and is dependent on a number of factors, such as the type of vehicle you wish to buy.
As a sole trader, I would recommend buying the car yourself. The benefits of buying a car through your business are limited.
If your company buys a car, and a loan is taken out to purchase the vehicle or if it’s on Hire Purchase, only the interest payments are an allowable company expense.
If you buy a van, buy it through your company. Vans are classified as plant and machinery for tax purposes. As such, they qualify for 100 per allowances under the Annual Investment Allowance regime. This means you get a deduction for 100 per cent of the cost to reduce your company’s taxable profits.
>See also: 8 business van financing tips for your SME
Quirky as it might sound, motorbikes are also not a car, so get the same regime as vans.
Either way, if you’re going to buy, consider buying electric.
With cars and vans, you can charge your company a reimbursement expense of 45p a mile for the first 10,000 business miles that you travel in each tax year and 25p per business mile thereafter. So that will usually be more beneficial than buying the car through the company, as that becomes a company expenses, which reduces your tax bill.
Also, a car will create a taxable Benefit in Kind on you as an individual. This is calculated as a percentage of the market list price of the car, based on the CO2 emissions. These rates are not beneficial.
If your company buys a car, and a loan is taken out to purchase the vehicle or if it’s on Hire Purchase, only the interest payments are an allowable company expense.
If it’s a van or motorbike, the company can claim Capital Allowances to gain relief for the cost of the vehicle, which reduces the company’s taxable profit. Those allowances depend on the CO2 emission levels:
- For electric cars or if CO2 emissions are 0g/km or lower 100%WDA (writing down allowance)
- If CO2 emissions are between 1-50g/km 18%WDA
- If CO2 emissions exceed 110g/km 6%WDA
As you can see, buying an electric vehicle could be a cheaper option in the longer term.
John Miller is the chief operating officer of Addition.
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