This article is for directors considering buying a car for private and business use via their Ltd company. If you’re considering purchasing a van or commercial vehicle that’s wholly and exclusively for business use then this guide (click here) may be more appropriate.
Using the money in your Ltd company to buy a company car sounds like a good way to save tax. However, in most cases it’s more tax-efficient, and simpler, to buy the car privately and claim business mileage from the Ltd company. In this article I will be explaining why this is, what considerations there could be for you, and what the tax implications are.
Buying via the Ltd company
The problem with this route is that directors are viewed as employees of the company and as such are subject to a benefit-in-kind (BIK) tax for their private use of any vehicle owned by the company. HMRC provide a calculator to give an approximation of what the BIK tax liability to the individual might be. An additional impact is the company will also have to pay employer’s NI on the value of the BIK.
To use the calculator (click here) you will need some details about the car such as list price, fuel type and CO2 emissions. In general the higher the emissions, the higher the BIK. As an example, for the 24/25 tax year a petrol car with a greater than 2000cc engine, a list price of £100,000, an approved CO2 emissions figure of 250, available for private use all year, results in a BIK figure of £37,000. The Ltd company is liable to employer’s NI on this figure, totalling £5,106 (13.8%), and the individual is liable to income tax on this value depending on what tax bracket they are in. If they were a 40% tax payer in this instance then £14,800 would be the personal tax incurred.
The Ltd company can claim some of the running costs of the car, as well as a portion of the purchase price, reducing its corporation tax liability. However, the BIK personal tax liability and the Ltd company’s additional NI BIK liability means it’s often more tax-efficient for a director to purchase the car privately and claim business mileage where applicable.
It’s worth noting that the BIK and additional employer’s NI still applies to cars the Ltd company leases rather than purchases outright as well, so privately purchasing the car and claiming legitimate business mileage is still likely to be the best route in this instance.
What about electric cars?
The government are incentivising low or zero CO2 emission vehicles as they push towards the current target of all new cars produced from 2030 being electric only. New pure electric cars qualify for the first year allowance, which means 100% of the cost of the vehicle can be offset against the profits of the Ltd company. The BIK calculations are also significantly less as in 24/25 this is just 2%. Using a similar example to before on the HMRC calculator, a pure electric car with a £100,000 list price warrants a £2,000 BIK in 24/25. The Ltd company therefore incurs employer’s NI of £276 and the individual incurs personal tax of £800 assuming they’re a higher rate 40% tax payer. That’s a tax saving of over £18,000 combined for the Ltd company and individual compared to the petrol example above.
Additionally 100% of the first year allowance is also available for the cost of installing a charging point at the workplace extending the incentives further.
Buy the car privately and claim for business mileage
If you’re purchasing a petrol car it may well be simpler and cheaper to buy it privately and claim business mileage from the Ltd company. To do this you need to keep a log of your business travel, which is essentially the number of miles you drive in your car for business purposes. I will happily share a template but a simple spreadsheet will suffice, capturing the date, miles driven and purpose. Trips to suppliers, conferences, clients, training days or to your accountant all would be classed as business travel. However, it’s worth noting that driving to and from your regular place of work is regarded as ordinary commuting and therefore not claimable.
The total business miles are then multiplied by HMRC’s business mileage claim rates. These are currently 45p per mile for the first 10,000 business miles in the tax year, reducing to 25p per mile for any mileage in excess of 10,000 business miles. For pure electric cars 9p per mile is the current rate that can be claimed.
Once calculated the Ltd company reimburses you for the amount and it’s classed as a business expense, reducing its corporation tax bill. There will also be no BIK liability for yourself or the Ltd company, which is why it’s a lot simpler, and often cheaper, to own the car privately and claim business mileage, rather than having a company car.
Summary
Overall company cars are often a greater cost than a benefit, unless you utilise the current electric incentives, and so owning the car as a personal asset and claiming business mileage at HMRC’s approved rates is often the simplest solution. This article is designed as a brief introduction to the topic and everyone’s situation is always unique. If you have any questions or would like some advice on your own situation, please submit a message on the contact page (click here) and I will be happy to help.
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