Buying a vehicle through your Limited Company: What you need to know

Purchasing a vehicle through your limited company (Ltd) can be tax-efficient, but it's not always straightforward. Here's a practical guide to help you understand the tax implications, key considerations, and whether it's the right move for your business.

Who should own the vehicle?

Firstly, you'll need to decide whether the vehicle will be:

• Company owned: Used for business and possibly private use, or
• Personally owned: With mileage claimed for business journeys.

Both options have pros and cons, and the most efficient route depends on how the vehicle will be used. As your accountant, we'll help you assess the options and choose the most tax-efficient route for your business.

Company ownership considerations

When your company purchases a vehicle, it's treated as a business expense for accounting and tax purposes, and several factors come into play.

Capital Allowances

The company can claim capital allowances on the cost of the vehicle. The amount and timing depend on whether the car is new or used, and its CO2 emissions:

• Electric cars (of Co2 emissions are 0g/km or lower): 100% First Year Allowance (FYA), full relief in year one.
• Low emissions (up to 50g/km): 18% writing down allowance (WDA).
• All other cars: 6% WDA.
• Commercial & other vehicles (e.g. vans, pickups, motorbikes): Usually qualify for full relief under Annual Investment Allowance (AIA), regardless of emissions.

VAT considerations

If your company is VAT-registered:

• You can reclaim VAT in full only if the car is used 100% for business (this tends to only be for taxis or driving instructors as use of the car is integral to the business's primary operations)
• For commercial vehicles, partial or full VAT recovery is usually allowed.
• If there's any private use, VAT on the car's purchase cost cannot be reclaimed.

Leased vehicles have different rules, typically, 50% of the VAT on lease payments can be recovered if there's private use.

Benefit in Kind (BIK) for directors and employees

When a company vehicle is available for private use (including commuting), it becomes a Benefit in Kind, which leads to extra tax costs for both:

• The employee/director pays income tax on the benefit.
• The company pays Class 1A National Insurance Contributions on the BIK value.

BIK is calculated using:

• The list price of the car when new.
• The CO2 emissions rating.

For example, petrol or diesel cars can attract BIK rates of 20–37%, while electric cars currently enjoy rates as low as 3%.

Tip: Electric vehicles remain the most tax-efficient option for company cars.

Running costs

If the car is company-owned, the business can also claim expenses on:

• Insurance
• Servicing and repairs
• Road tax
• Fuel (if paying for business travel only)

An alternative: Mileage Allowance

In some cases, where a vehicle is used both personally and for business, it can be more efficient for the director/employee to own the vehicle and claim mileage allowance instead.

• Paid at 45p per mile for the first 10,000 miles and 25p thereafter (for cars).
• No BIK arises.
• Simpler admin, no company car rules to navigate.

This works particularly well for businesses with lower mileage requirements or when a car is already owned personally.

What's best for you?

There's no one-size-fits-all answer when it comes to purchasing a company vehicle. Before deciding, consider:

• What kind of vehicle does the business require? A car, van or lorry?
• Will the vehicle be used mainly for business purposes or will there be regular personal travel?
• Is it an electric or low-emission vehicle?
• What are the VAT and capital allowance implications?

How we can help

We regularly advise clients on the best approach for vehicles, from electric car purchases to company van allowances and everything in between.

If you're considering purchasing a vehicle through your company, let us run the numbers and talk you through the best tax-efficient option for your situation.