If you are thinking of buying a car, van or motorcycle, you have a choice of purchasing the vehicle personally or through your limited company. You should understand the available options so you can make an informed choice based on the tax liabilities and tax relief available with both.
PURCHASING A VEHICLE PERSONALLY
Regardless of the method used to purchase the vehicle, the initial cost or finance costs are not tax deductible when you acquire a vehicle personally. Additionally you will not be able to claim tax relief on running costs such as road tax, insurance, fuel and servicing.
You are entitled to claim a tax-free allowance from your company for any qualifying business mileage. The mileage rates below are calculated to include all costs associated with the vehicle, including purchase and running costs.
For a car or van you can charge your company a reimbursement expense of 45p a mile for the first 10,000 business miles that you travel in each tax year and 25p per business mile thereafter. These are the HMRC approved rates and are not subject to Personal Tax. The limited company claims Corporation Tax relief on the amounts reimbursed. This is discussed in further detail in the Business Travel Expenses section in Reimbursed Expenses.
As an example, for a journey of 100 business miles the limited company pays you 100 x 45p = £45. You pay no tax on this and the limited company’s taxable profit is reduced by £45. At the current rate of Corporation Tax this results in a saving of £8.55.
When calculating whether you have exceeded 10,000 business miles, therefore having to use the 25p rate, you need to look at the business mileage done in the 12 months from 6 April to 5 April of each year. The mileage clock starts again at 6 April each year.
The mileage rate for a motorcycle is 24p per mile for all business miles travelled.
If the limited company pays more than the approved mileage rates as shown above, tax and NI will need to paid on the excess as this will be classed as income. Only excess mileage paid will be shown on the form P11D, with the relevant tax due being calculated on the preparation of your tax return.
PURCHASING A CAR THROUGH YOUR LIMITED COMPANY
The tax treatment of the purchase costs depends on how the vehicle is financed. If a loan is taken out to purchase the vehicle or the vehicle is purchased on Hire Purchase, only the interest payments are an allowable company expense. Your company is also able to claim Capital Allowances to gain relief for the cost of the vehicle , which reduce the company’s taxable profit.
The Capital Allowance available for cars is dependent on the CO2 emission levels for 2018/19 and for 2017/2018 as follows (see section below for vans):
Vehicles with CO2 emissions of 110g/km (2018/19) or 130g/km (2017/18) or below are entitled to an annual 18% allowance.
Vehicles with CO2 emissions above 110g/km (2018/19) or 130g/km ( 2017/18) are entitled to an annual 8% allowance.
First Year Allowances for electric cars are available at 100% if CO2 emissions are 50g/km ( 2018/19) or 75g/km (2017/18) or lower.
If the vehicle is leased so your limited company does not own it, the monthly lease payments can be claimed by your limited company as a business expense. However, there is a flat rate disallowance of 15% of relevant payments and applies only to cars with CO2 emissions above 110g/km (2018/19) or 130g/km for 2017/18. This means 15% of the expense is not allowable for tax purposes.
Your limited company will also pay for the running costs of the vehicle such as insurance and tax . These will be deductible expenses for Corporation Tax.
Regardless of how the vehicle is purchased the use, or availability to use the vehicle, will create a taxable Benefit in Kind on you as an individual. This is calculated as a percentage of the market list price of the car, based on the CO2 emissions. The list price is calculated as the market list price of the car when new, not the price you pay for the car, together with any extras added to the car. Some dealers sell new cars for less than the nationally recognised list price so you should be aware of this when making the purchase.
There will be an additional taxable Benefit in Kind if your limited company pays for your private fuel costs. This is calculated as £23,400 in 2018/19 (£22,600 2017/18). The percentage used to calculate the taxable benefit of the car for which the fuel is provided. The charge does not apply to certain environmentally friendly cars.
Your limited company must then pay additional National Insurance on these benefits at a rate of 13.8% for 2018/19 and 2017/18 and a P11D form must be completed. This discloses the car details and the value of the benefit(s). Taxable benefits are treated as income and are therefore included in your total earnings for the tax year. In most instances this can mean that you are paying tax at 40% on benefits you receive if you are a higher rate taxpayer.
PURCHASING A VAN THROUGH YOUR LIMITED COMPANY
Vans are classified as plant and machinery for tax purposes. As such they qualify for 100% allowances under the Annual Investment Allowance regime. This means you get a deduction for 100% of the cost to reduce your company’s taxable profits.
The assessable van benefit if it is used regularly for private use is £3,350 in 2018/19 (2017/18 :£3,230) and the relevant fuel benefit is £633 in 2018/19 (£610 for 2017/18). The van benefit exemption for zero emission vans has now been phased out and represents 40% of the van benefit charge for 2018/19 and 20% for 2017/18. Where there is an “insignificant” level of private use HMRC acknowledge that there is no benefit arising and these amounts do not apply.
Insignificant private use would be classed as, for example, calling at the dentist on the way home from an assignment. Using a van to do the weekly shopping would not qualify as insignificant private use. If there is an insignificant level of private use clearly there are substantial tax benefits in utilising a company van compared to a vehicle with high CO2 emissions.
PURCHASING A MOTORCYCLE THROUGH YOUR COMPANY
As with vans, motorcycles are excluded from the definition of cars and will qualify for 100% allowances under the Annual Investment Allowance Scheme.
If there is a significant level of private use there is an annual benefit amounting to 20% of the motorcycle’s market value when it was first made available to you as an employee of your limited company.