When it comes to company cars, we often are asked ‘can my limited company pay for my car’? The answer is usually, YES…
But it is usually not tax efficient.
This is because you (as the owner) end up being personally taxed on the price of the vehicle each year as a ‘benefit in kind’, as if it were new, AND the company also pays tax on this value.
How much tax depends on it’s Co2 emissions, value and HMRC rates each tax year.
Historically therefore we’ve often tended to steer clients away from doing this and claim a mileage allowance at the HMRC approved rates, and claimed back from the company for using a private car for business journeys.
Where this has changed is the use of very low emission cars and/or electric powered vehicles. From 6th April 2020 the new rules mean that depending on the emissions from your car, the ‘benefit in kind’ rates can be as low as ZERO, with electric not counting as fuel, further reducing your benefit.
Couple this with a ‘capital allowance’ that can allow you to offset 100% of your new vehicle against your corporation tax in the first year. That new Tesla is looking more favourable all the time….
If you are thinking of changing car and looking for tax efficiency – consider electric and chat to your accountant.
Important note: Hybrids are slightly more complex on the fuel benefit issue – have a chat to us.
This situation changes if you have a Van, although it’s best to check that your vehicle counts as a van…. as the tax law definition can actually vary from what you may call a Van (as Coca-Cola found out in a recent tax court!).
Additional note: For the self-employed the capital allowances still apply, so still worth considering.