Often your local car dealership can do a very good job, trying to persuade you that it’s a tax efficient option to purchase your car through your Limited Company – however, they often don’t tell you the full story! Here are some key things that you need to consider:
Will the car be 100% for business, or will there be some private use?
In our experience cars are rarely 100% for business use (don’t forget: travel from work to home counts as private use). You can only reclaim the VAT on the purchase of the car if it’s 100% for business use.
If the Company purchases a car, and it is available for private use, then there will be a taxable benefit in kind. This benefit in kind is calculated by multiplying the list price of the car by the C02 emission percentage of the car. The benefit will need to be declared on a P11D form and Class 1A NIC will be due for payment by the Limited Company to HMRC by the 22 July after the end of the tax year.
Could the Limited Company lease a car?
Where your company car is leased (as opposed to purchased outright), unless there is exclusive business use then the company will only be able to recover 50% of the VAT charged on any lease payments. The rules for you personally are exactly the same as if your company purchased the car outright. This means that if there is any personal use then you will be subject to a benefit in kind.
What happens if the Limited Company pays for my personal fuel?
If the Limited Company only pays for fuel for business journeys there is no cash benefit. However, if the company does pay for any of your private fuel costs then there will be an additional benefit in kind which will need to be declared on your P11D.
You should ensure that you keep mileage records so you can clearly show HMRC which mileage was business and which was private.
What’s the alternative to a company car?
Instead of purchasing a car through your Limited company you can use your own car, and have the company reimburse you for business travel. If you use HMRC’s approved mileage rates there will be no tax to pay. HMRC’s rates are currently 45p per mile up to 10,000 miles and 25p per mile over 10,000 miles per annum.
This payment is to cover both the fuel cost of any business mileage you do together with the wear and tear on your personal car. However, you must keep accurate mileage records showing the business mileage which you have done during the year.