Buying a car through a limited company

If you’re a company director in the UK, you might be thinking about buying a car through a limited company.

Well, we’ve got some good news. You can get a new set of wheels and take advantage of some tax benefits at the same time. But, there are a few things you’ll need to know first.

So, let’s explore the ins and outs of buying a car through your limited company

Can I buy a car through my limited company?

In short, yes! You can buy a car through your limited company.

When you do, the car is in your company’s name. And this makes it a company asset. This means it should mostly (if not entirely) be used for business purposes. 

So, whether you’re heading to an important meeting or to visit a customer, buying a company car makes perfect sense.

And here’s the best part – there are some great benefits of buying a car through a limited company. Let’s take a closer look.

The benefits of buying a car through a limited company

1. Reduce your tax bill

When buying a car through your limited company, you can enjoy some great tax perks. Any costs associated with the car can be deducted from your company’s profits, which reduces your corporation tax bill.

Here are some allowable expenses for limited company directors you can include in your next company tax return:

• The cost of the car
• Fuel
• Insurance and road tax
• Maintenance costs
• Any other running costs

2. Claim capital allowances

You can also claim a capital allowance for the cost of a car bought for business use.

The rate of these allowances depends on whether the car is new or used, and its CO2 emissions. 

Here’s how this works for cars purchased since 2021:

New electric cars with 0g/km CO2 emissions:

• Claim back 100% of the car’s value in the first year

Used electric cars with 0g/km CO2 emissions; or low-emission cars with 1-50g/km CO2 emissions:

• Claim back 18% of the car’s value each year – this is known as the main rate allowance

High-emission cars with over 50g/km CO2 emissions:

• Claim back 6% of the car’s value each year – this is known as the special rate allowance

There’s more on this on the HMRC website.

3. Get your VAT back

Is your company VAT-registered? If so, you can also reclaim any VAT on the purchase price and running costs of the car.

4. Improve your company image

Depending on the industry you’re in, a branded company car could boost your image!  Add your logo and company colours to the car and you’ll have an advertisement for your business on 4 wheels!

5. It’s sometimes more practical

If you travel often, a company car helps to simplify your expense tracking. This makes it easier to separate your business and personal spending.

Remember…

Like for every other car, you need to stay up to date with the upkeep of your car. This includes regular maintenance like getting your MOT and service annually, making sure you’re paying your road tax and having valid car insurance. 

Road tax is sometimes also called vehicle tax, Vehicle Exercise Duty (VED), or car tax.

But wait, is there a catch?

There are a few things you’ll need to be aware of before purchasing a company car:

You could pay benefit-in-kind (BIK) tax

If you also use your car in your personal life, you’ll need to pay BIK tax. This is calculated based on:

• Your car’s value
• Fuel use
• CO2 emissions

This can sometimes outweigh any tax savings. BIK rates are a little more complex than tax deductions, but you can learn more about this here. If your vehicle is for company use only, you’re off the hook when it comes to BIK tax.

Insurance costs are often higher

Usually, insurance premiums for company cars are higher than for personal cars. So it’s worth checking insurance rates before you buy the car.

Depreciation can play a part

The depreciation of your car could affect your company’s financial statements. Depreciation is a tax-deductible expense (woo), but it can also reduce the value of your company’s assets (boo).

How to buy a car through your limited company

If you’re ready to buy a car through your limited company, here are a few simple steps to follow:

1. Make sure it’s the right decision

Before you dive right in, it’s really important to make sure you’ve weighed up the tax benefits and costs we’ve touched on above. You’ll also need to think about the type of car you’re going to buy.

2. Get your documents in order

Make sure you register the car in the company’s name and keep a record of everything. You’ll need this for your corporate tax return. You’ll also need to keep a record of any associated costs, like insurance and fuel. And don’t forget your MOT or vehicle tax!

3. Let HMRC know

Last but not least, HMRC would like to stay in the loop. So don’t forget to notify them about your new company car.