When running a limited company, one question that often comes up is whether it is better to buy a car personally or through the company. At first glance it may seem like a good tax saving opportunity, but the reality can be more complex. The tax treatment depends heavily on the type of vehicle and how it is used.

Buying a Car Through Your Limited Company

If a company purchases a car, the business can usually claim capital allowances on the vehicle. The rate of relief depends mainly on the car’s CO₂ emissions.

Fully electric cars currently receive the most favourable treatment. Companies can usually claim 100 % first year allowances on new electric vehicles. This means the full cost of the car can often be deducted from profits for corporation tax purposes in the first year.

For petrol, diesel, or hybrid cars, the relief is usually slower. The car will typically go into a capital allowance pool, and only a percentage of the value can be claimed each year.

However, buying through the company introduces another important tax consideration.

Benefit in Kind Tax

If the director or employee uses the company car privately, HMRC treats this as a benefit in kind. This means the individual will pay personal tax on the benefit.

The taxable value depends on several factors including the list price of the car and its CO₂ emissions.

Electric cars again receive favourable treatment. Their benefit in kind rate is currently very low compared to petrol or diesel vehicles, which can make them very tax efficient if purchased through a company.

Petrol and diesel cars often carry high benefit in kind percentages. In many cases, this can make owning the vehicle personally more tax efficient.

Running Costs

When the car is owned by the company, the company can generally pay for running costs such as:

Fuel
Insurance
Repairs and maintenance
Servicing

However, if the company pays for private fuel, there may also be an additional fuel benefit charge which can significantly increase the tax cost.

Buying the Car Personally

If you buy the car personally and use it for business journeys, the company can reimburse you using HMRC approved mileage rates.

Currently the main rate is:

45 pence per mile for the first 10,000 business miles
25 pence per mile thereafter

These mileage payments are usually tax free and often simpler from an administration point of view.

For many directors using petrol or diesel cars, this option can sometimes be more tax efficient than purchasing through the company.

Electric Cars Are Often the Exception

Electric vehicles are one of the few cases where buying through a limited company can be extremely tax efficient.

This is due to:

Low benefit in kind rates
Potential 100 % first year capital allowances
Lower running costs compared with traditional vehicles

Because of these incentives, many company directors now choose to purchase electric vehicles through their limited company.

The Right Option Depends on Your Situation

There is no single answer that works for everyone. The best option depends on factors such as:

The type of vehicle
Private versus business use
Company profits
Personal tax position

Getting the structure wrong can lead to unnecessary tax costs.

Need Advice?

If you are considering buying a vehicle through your company and want to understand the tax implications first, it is always worth taking advice before making the purchase.

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