When you run your own limited company, generally speaking, you are better off purchasing a car personally rather than through the business. This is because it will be treated as a benefit in kind, and as such, both the employee and employer will have additional tax/NI to pay on both the car (based on its CO2emissions) and any fuel purchased by the company. However, since April 2020 there is now an exception that may be worth looking into if you are looking to purchase a new car, and also reduce your climate footprint at the same time.
Going Electric
For the 2020-2021 tax year, the benefit in kind tax rate for fully electric cars is dropping to 0%, meaning that both the employee in receipt of the car, and the employer will have no additional tax to pay. It is worth noting that in 21/22 this will increase to 1% and 2% in 22/23, which will also have a knock on effect on the amount of basic rate dividends that can be taken in these years (as the benefit in kind cost will effectively be added to your salary income).
If the car is purchased outright from new, then it will qualify for enhanced capital allowances, meaning that the company can deduct the entire cost of the car from the company’s profits before tax. It can also claim the normal annual investment allowance. And any charging point installed at work can also qualify for a first year allowance.
If the car is leased, then there are two ways it can be treated for corporation tax purposes. If the car will be owned by the company at the end of the lease, then 100% capital allowance is due on the cost of the car. If, however, the company will not own the car, then the full monthly lease cost can be deducted as an expense from the company profits (and corporation tax relief received that way).
If the company is VAT registered, they are also able to claim an element of the VAT back. The company can only claim 100% of the VAT back if the car is solely for business use and never available for personal use. If the car is available for any amount of personal use, then 50% of the VAT cost can be reclaimed.
It is worth noting that if you do go ahead and purchase a car through your company then it is owned by the company, not by you. This means that if you were to close the company down, you would need to effectively purchase the car from the company (or sell it on) at the current market value.
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