Wondering whether you should buy a car through your company or buy it personally? Lets look at the options and what their benefits and cons are.
Buying a car personally
The vehicle cost is non-deductible from tax.
Business trip fuel paid for by the company is tax-free as long as it remains under 45p/mile for the first 10,000 miles annually, then 25p/mile thereafter. A company paying for private fuel use creates a Benefit in Kind, described below, and is often not tax efficient.
Buying a car through a company
The company can deduct a portion of the car’s value from their taxable profit as a kind of Capital Allowance.
However, this only applies if the vehicle is used ONLY for business trips. This does NOT include commuting to and from work, which is considered private use. Company ‘pool’ cars are a valid business use. In these cases, the car is kept on site and used by multiple employees.
The amount deductible depends on the CO2 emissions for the vehicle. For electric vehicles (or any vehicle with CO2 emissions under 96g/km) you can claim 100% of the vehicle’s value immediately in the first year.
For other vehicles, you can claim either 8% (for cars with CO2 emissions above above 130g/km) or 18% (for cars with CO2 emissions between between 96g/km and 130g/km) of the vehicle’s value every year the company still owns the vehicle.
This means that you can eventually deduct the full value of the vehicle from the company’s taxable income, but it would take either 6 or 12 full years to eventually do so.
Company cars for personal use
However, if the car is used for ANY non-business reasons, this will create a taxable benefit for the employee (which may be you, in this case). This is called a Benefit in Kind, and like other employee benefits, are added to your total income when considering how much Income Tax must be paid.
This BiK is calculated by taking the car’s value (its full list price, this does not change even if you bought second hand), and multiplying it by the “appropriate percentage”, which depends on the car’s CO2 emissions. You can find the full table here. Then reduce this amount by your income tax percentage (usually either 20% or 40%) to find how much extra tax you will have to pay.
Another factor to take into consideration, is what percentage of time the vehicle is used for business purposes, and what percentage is used for personal use. This information can be supplied by the company as you will only pay additional tax on the percentage of time you used the vehicle for personal use.
If you buy a car through a company and use it for personal use 100% of the time the following example applies:
If your BIK percentage was 26%, as your petrol vehicle falls into the 105-109 CO2 bracket, then you’d multiply 26% by the list price of your car. For this example, we’ll use £20,000. This comes to a BiK value of £5,200. Assuming your income tax bracket is 20%, this would mean paying an extra £1,040 per year.
However, if this use was split 40% (personal use) and 60% (business use), that means that you will only be paying an additional £416 (40% of the total £1,040) tax.
In addition, just as a company must pay National Insurance according to an employee’s income, the company will now also have to pay 13.8% of this new BiK value in Employers Class 1A National Insurance.
Fuel costs for personal use
If the company pays for private fuel expenses, this will create a separate Fuel BiK. This is calculated by taking the fixed amount of £24,500 and multiplying it by the “appropriate percentage”. Just like Car BiK, this depends on the vehicle’s C02 emissions. You can find the full tables below or view it on the HMRC website here. This Fuel BiK is then also added to your personal taxable income.
| CO2 emissions (grams per km) | Electric mileage range | NEDC % | WLTP % |
|---|---|---|---|
| 0 | — | 2 | 2 |
| 1 to 50 | 130 and above | 2 | 2 |
| 1 to 50 | 70 to 129 | 5 | 5 |
| 1 to 50 | 40 to 69 | 8 | 8 |
| 1 to 50 | 30 to 39 | 12 | 12 |
| 1 to 50 | less than 30 | 14 | 14 |
| 51 to 54 | — | 15 | 15 |
| 55 to 59 | — | 16 | 16 |
| 60 to 64 | — | 17 | 17 |
| 65 to 69 | — | 18 | 18 |
| 70 to 74 | — | 19 | 19 |
| 75 to 79 | — | 20 | 20 |
| 80 to 84 | — | 21 | 21 |
| 85 to 89 | — | 22 | 22 |
| 90 to 94 | — | 23 | 23 |
| 95 to 99 | — | 24 | 24 |
| 100 to 104 | — | 25 | 25 |
| 105 to 109 | — | 26 | 26 |
| 110 to 114 | — | 27 | 27 |
| 115 to 119 | — | 28 | 28 |
| 120 to 124 | — | 29 | 29 |
| 125 to 129 | — | 30 | 30 |
| 130 to 134 | — | 31 | 31 |
| 135 to 139 | — | 32 | 32 |
| 140 to 144 | — | 33 | 33 |
| 145 to 149 | — | 34 | 34 |
| 150 to 154 | — | 35 | 35 |
| 155 to 159 | — | 36 | 36 |
| 160 to 164 | — | 37 | 37 |
| 165 to 169 | — | 37 | 37 |
| 170 and above | — | 37 | 37 |
| CO2 emissions (grams per km) | Electric mileage range | NEDC % | WLTP % |
|---|---|---|---|
| 0 | — | 1 | 1 |
| 1 to 50 | 130 and above | 2 | 1 |
| 1 to 50 | 70 to 129 | 5 | 4 |
| 1 to 50 | 40 to 69 | 8 | 7 |
| 1 to 50 | 30 to 39 | 12 | 11 |
| 1 to 50 | less than 30 | 14 | 13 |
| 51 to 54 | — | 15 | 14 |
| 55 to 59 | — | 16 | 15 |
| 60 to 64 | — | 17 | 16 |
| 65 to 69 | — | 18 | 17 |
| 70 to 74 | — | 19 | 18 |
| 75 to 79 | — | 20 | 19 |
| 80 to 84 | — | 21 | 20 |
| 85 to 89 | — | 22 | 21 |
| 90 to 94 | — | 23 | 22 |
| 95 to 99 | — | 24 | 23 |
| 100 to 104 | — | 25 | 24 |
| 105 to 109 | — | 26 | 25 |
| 110 to 114 | — | 27 | 26 |
| 115 to 119 | — | 28 | 27 |
| 120 to 124 | — | 29 | 28 |
| 125 to 129 | — | 30 | 29 |
| 130 to 134 | — | 31 | 30 |
| 135 to 139 | — | 32 | 31 |
| 140 to 144 | — | 33 | 32 |
| 145 to 149 | — | 34 | 33 |
| 150 to 154 | — | 35 | 34 |
| 155 to 159 | — | 36 | 35 |
| 160 to 164 | — | 37 | 36 |
| 165 to 169 | — | 37 | 37 |
| 170 and above | — | 37 | 37 |
| CO2 emissions (grams per km) | Electric mileage range | NEDC % | WLTP % |
|---|---|---|---|
| 0 to 0 | — | 0 | 0 |
| 1 to 50 | 130 and above | 2 | 0 |
| 1 to 50 | 70 to 129 | 5 | 3 |
| 1 to 50 | 40 to 69 | 8 | 6 |
| 1 to 50 | 30 to 39 | 12 | 10 |
| 1 to 50 | less than 30 | 14 | 12 |
| 51 to 54 | — | 15 | 13 |
| 55 to 59 | — | 16 | 14 |
| 60 to 64 | — | 17 | 15 |
| 65 to 69 | — | 18 | 16 |
| 70 to 74 | — | 19 | 17 |
| 75 to 79 | — | 20 | 18 |
| 80 to 84 | — | 21 | 19 |
| 85 to 89 | — | 22 | 20 |
| 90 to 94 | — | 23 | 21 |
| 95 | — | 24 | 22 |
| 100 | — | 25 | 23 |
| 105 | — | 26 | 24 |
| 110 | — | 27 | 25 |
| 115 | — | 28 | 26 |
| 120 | — | 29 | 27 |
| 125 | — | 30 | 28 |
| 130 | — | 31 | 29 |
| 135 | — | 32 | 30 |
| 140 | — | 33 | 31 |
| 145 | — | 34 | 32 |
| 150 | — | 35 | 33 |
| 155 | — | 36 | 34 |
| 160 | — | 37 | 35 |
| 165 | — | 37 | 36 |
| 170 and above | — | 37 | 37 |
| CO2 emissions (grams per km) | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 |
|---|---|---|---|
| Zero | 9% | 13% | 16% |
| 1 to 50 | 9% | 13% | 16% |
| 51 to 75 | 13% | 16% | 19% |
| 76 to 94 | 17% | 19% | 22% |
| 95 | 18% | 20% | 23% |
| 100 | 19% | 21% | 24% |
| 105 | 20% | 22% | 25% |
| 110 | 21% | 23% | 26% |
| 115 | 22% | 24% | 27% |
| 120 | 23% | 25% | 28% |
| 125 | 24% | 26% | 29% |
| 130 | 25% | 27% | 30% |
| 135 | 26% | 28% | 31% |
| 140 | 27% | 29% | 32% |
| 145 | 28% | 30% | 33% |
| 150 | 29% | 31% | 34% |
| 155 | 30% | 32% | 35% |
| 160 | 31% | 33% | 36% |
| 165 | 32% | 34% | 37% |
| 170 | 33% | 35% | 37% |
| 175 | 34% | 36% | 37% |
| 180 | 35% | 37% | 37% |
| 185 | 36% | 37% | 37% |
| 190 | 37% | 37% | 37% |
| 195 | 37% | 37% | 37% |
| 200 | 37% | 37% | 37% |
| 205 | 37% | 37% | 37% |
| 210 | 37% | 37% | 37% |
| 215 | 37% | 37% | 37% |
| 220 and above | 37% | 37% | 37% |
If your BIK percentage was 26%, as your petrol vehicle falls into the 105-109 CO2 bracket, then you’d multiply 26% by 24,500 to reach £6,370.
Reduce the £6,370 figure by multiplying it by your tax margin, which is typically either 20% or 40%.
£6,370 x 20% = £1274 tax payable.
If you are spending under £1170 a year on fuel then the car fuel benefit is not worth it, as you’d still have to pay the calculated amount. This is even worse if you are also the company owner, as you have to pay for this fuel, and it is not tax deductible. It also means that the company cannot reclaim the full VAT amount on this fuel either.
Buying a van through a company
Vans purchased by a limited company are considered the same as equipment and machinery. This means the company can deduct the full value of the van from its taxable income in the year it was purchased.
In addition, vans have fixed BiK amounts, for both the vans themselves and the fuel they use. These amounts are £3,600 for the van BiK, and £688 for the fuel BiK. These can be reduced further if you can prove that the employee cannot use the van for 30 days in a row, and if more than one employee uses the van.
Do we recommend buying a car through your company?
It will not often be the case that buying a car for personal use through your company works out to be tax efficient.
As you are the director of the company you will also be considered an employee. Therefore, if the company buys the car for yourself then you will be subject to 20% tax and 13.8% employer National Insurance based on the car’s BiK value. If your income is over £50,000, this will increase to 40% tax.
This is especially inefficient for second-hand cars, whose BiK value is still calculated using its original list price.
We suggest you claim mileage instead, which will be tax efficient for you as this will reduce your corporation tax and not affect your Self-assessment if you only claim the fuel used for work purposes. Fuel reimbursements are tax-free assuming they stay under the limits of 45p/mile for the first 10,000 miles and 25p/mile thereafter.
Buying a car through your company can end up being tax efficient, but likely only if it is an electric car or one with very low CO2 emissions. If you are looking to buy a car through the company for personal use, the best option by far is to buy a van.
taking a loan from your company to purchase a car
You also have the option of taking out a loan through your company to purchase a car. These loans could also generate a taxable benefit which you will have to calculate the value of and pay appropirate Class 1A National Insurance.
However, some kinds of loans are exempt. Any loans with an outstanding value of under £10,000 are automatically exempt. There are other reasons a loan may be exempt, such as:
- in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee)
- with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year (£5,000 for 2013 to 2014)
- to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate (usually 2%) when the loan was taken out
- under identical terms and conditions to the general public as well (this mostly applies to commercial lenders)
- that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief – see the technical guidance for an explanation of this complex area
- using a director’s loan account as long as it’s not overdrawn at any time during the tax year
Need Assistance from an Accountant?
We’d be more than happy to help you with your accounting needs in London, or anywhere else in the UK!
Reach out to us by completing this form and one of our staff members will get in touch within one business day.