ASK THE ACCOUNTANT – a weekly guide to the world of business finance with Warings Accountants
Q. Is it better if I buy my car personally or through my company?
A. There’s a big difference in the tax consequences of owning a car personally or buying through the business.
If you own your car personally, you’re able to make a mileage claim for business miles. This is to compensate you not only for fuel but also the general wear and tear of the car, vehicle insurance, car tax etc.
The current allowances approved by HMRC are 45p per mile for the first 10,000 miles a year and then 25p for each additional mile. A further 5p is allowable for carrying fellow employees on work-related journeys. Any amounts received above this are subject to income tax and National Insurance.
Owing a car through your business has more complicated tax implications. Provision of a car by a business where the individual uses the vehicle for any non-work related journeys results in a benefit in kind for the employee, meaning additional personal tax to pay.
The benefit is calculated by taking the list price of the car and multiplying by a percentage which is based on the car’s fuel type and level of CO2 emissions. The percentage generally varies between 10% and 35% with less environmentally friendly cars resulting in a higher benefit in kind. However, for zero emission cars, the percentage is 0%!
A further benefit in kind arises for any fuel provided which is used for non-working driving. This is calculated at £21,100 multiplied by the percentage used for the car benefit.
From the company’s perspective, there are even further tax implications. Any VAT on the purchase of the car is irrecoverable and Class 1A NICs are also payable at 13.8% of the taxable benefits. Tax relief in terms of capital allowances are limited by the CO2 emissions of the car, although tax relief is available for expenditure on services, repairs, insurance, car tax etc.
So, if the car you plan to buy is environmentally friendly – or if you do a high number of miles per year – then it may be beneficial to buy your car through your business. For everyone else, owning your car privately would be more tax-efficient both individually and for the company.
* For more help with finances go to www.warings.co.uk or call 01204 534031 or email PAL@Warings.co.uk
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