If you run a limited company, you may be considering whether to buy a car through the business rather than personally.

The answer depends on your circumstances, but understanding the tax implications is key before making a decision.

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The Pros

1. Corporation Tax Relief

If your company purchases a car, it can usually claim tax relief on the cost.

Electric cars may qualify for 100% first-year allowances, meaning the full cost can be deducted from profits.
Petrol and diesel cars receive relief based on their CO₂ emissions.

This reduces your company’s taxable profits.

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2. Running Costs Are Deductible

Your company can cover costs such as:

• Fuel for business use
• Insurance
• Servicing and repairs
• Road tax

These are allowable expenses and reduce Corporation Tax.

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3. Tax Efficiency for Electric Cars

Electric vehicles are currently the most tax-efficient option through a company.

They benefit from:

• Low Benefit in Kind rates
• Potential 100% tax relief on purchase

This can result in significant overall savings for directors.

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The Cons

1. Benefit in Kind Tax

If the car is available for personal use, you will be taxed on it.

This is calculated based on the car’s list price and emissions.
Higher emission vehicles attract higher tax charges.

In addition:

• You pay personal tax
• The company pays Class 1A National Insurance

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2. Not Always Efficient for Petrol or Diesel Cars

For non-electric vehicles:

• Tax relief is lower
• Benefit in Kind charges are higher

In many cases, it is more tax-efficient to own the car personally and claim mileage from the company.

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3. Ownership and Flexibility

The car is owned by the company, not you.

This can create complications if:

• You want to sell or transfer the car
• The company stops trading

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4. Additional Administration

You may need to:

• Report Benefit in Kind
• Complete P11D reporting (if applicable)
• Account for Class 1A National Insurance

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What Is Usually Best?

Electric cars are often the most tax-efficient choice when purchased through a limited company.

For petrol or diesel cars, personal ownership with mileage claims is often more beneficial.

The right option depends on your profits, usage, and long-term plans.

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Summary

• Electric cars can be highly tax-efficient through a company
• Petrol and diesel cars often result in higher tax costs
• Running costs are deductible through the company
• Personal use creates additional tax charges

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Need Advice?

If you are considering buying a car and want to structure it in the most tax-efficient way, we can help you review your options.

Call: 0161 710 1901
Email: Tax@TaxesDoneRight.co.uk
DM us:
www.taxesdoneright.co.uk