If you did want to make some personal journeys in your company van, you could still recover VAT on the purchase, but not all of it. Whether it’s a good idea to have your car through your business depends on two main factors, your business structure and the amount of business versus personal use. Even if there is no actual private use, if the car is potentially available for private use then it fails the test. You can claim the lease costs as an expense of the business.
They do not apply to sole traders or partnerships (but would apply to any payroll employees that you have). Cars receive lower capital allowances and you are also unlikely to be able to recover VAT on the purchase. Alternatively it can be added to the main rate pool and then 18% of the remaining value is claimed against the profit each year.
If you need to use your car for work, is it a better option to buy the car through your business? Are there tax benefits? Will it save you money?
A limited company is a separate legal entity to its shareholders and/or directors. You could park your work truck on your drive and as long as you were only using it for business, you could recover the full VAT on the purchase. The truck still has to only be used for the business, but there isn’t the same issue about “available for personal use”. There are two conditions: You’ll have to weigh up which elements apply to your personal circumstances, considering your business structure, whether you are VAT registered, the amount of personal use, whether there is a real business need and how long you intend to keep the vehicle.
Again if there is an element of personal use than an appropriate deduction should be made. However, if you don’t want a commercial vehicle and your personal use element is going to be low, then a car could be worthwhile. There is also a cost to the company. This means you can claim capital allowances on its purchase value to reduce the taxable profit in your tax return.
Benefits in Kind can be an important consideration if you operate through a limited company as a company director is considered to be an employee of the business. The VAT that you can claim on the purchase of a car is very restricted. There are a number of different areas to consider which may be different for each person and each business. There is a flip side to the tax benefits of capital allowances.
There is no particular difference between a car and a commercial vehicle in terms of claiming for the running costs or mileage. It’s not generally worth bringing a car into the business unless it will be a genuine pool car. 1. Another less objective consideration is the “hassle factor”.
In terms of capital allowances a commercial vehicle, such as a van, is a much better option as this does qualify for annual investment allowance, so you can have the whole value of the van against the taxable profit in the year that you buy it. There is no risk of benefits in kind for sole traders so overall it’s easier to bring vehicles into the business. For company vans the situation is more straightforward as there is a standard benefit for all types of van. Another factor in the equation is your business. If you are trying to decide whether to buy a vehicle through the company and perhaps what type of vehicle to buy, then you have a lot of different factors to consider.
For a lease car there are no capital allowances available because you don’t own the vehicle. HMRC have a car benefits calculator that you can use. The only cars which are likely to pass the test are those which are parked permanently on business premises (not outside someone’s home) and are only used for business journeys. If you buy a vehicle through your limited company, then the vehicle does not belong to you, it belongs to the company as a “company” vehicle.
There is time and effort involved with this and if there’s going to be a lot of personal use, it may just be easier to record and charge the business miles. There are some differences in what you can claim for motor expenses depending on whether you run your business as a sole trader / partnership or through a limited company. Through the business or personal?
Dream car or maybe https://cars45.co.ke/listing/bmw/318i/2008 dream van? What’s your decision……? You can also claim VAT on the fuel element of these journeys if you are VAT registered. 2. If you as an employee of the company make personal use of a company vehicle then this is classed as a benefit in kind which is liable for tax and NIC.
If there’s an element of personal use, then this needs to deducted from the capital allowances e.g. if you had a car worth £10,000 in the main rate pool, but used it for personal journeys for 50% of the time, then the capital allowances in the first year would not be £1,800 (18%) but £900 (50% of £1,800). It must be a car that has never had any private use, (known as an excepted car), for example a brand new car or previously a pool car / lease car. This is more likely for a commercial vehicle (rather than a car) where the full value of capital allowances have been claimed. Are you thinking about getting a new car?
Maybe the old one has given up the ghost and it’s time for an upgrade? If a new set of wheels is on the cards there lots of options to consider, buy outright, buy on finance, new or second-hand. It’s not just related to the cost of the car but also to the fuel type and level of CO2 emissions.
It’s a complex decision and there’s no single right answer. This is currently £3,230 for use of the van and £610 for fuel for private journeys. If you buy a car through your business it’s counted as a business fixed asset, a type of plant and machinery. Cars are judged on the amount of CO2 emissions . There are no capital allowances on hire or lease vehicles. It could also be a second hand vehicle as long as the sales invoices showed VAT on the purchase.
Even if you can’t claim VAT on the purchase, you can recover the VAT on the business related running costs such as fuel, repairs etc. Remember, this only applies to VAT on the purchase of commercial vehicles, not to cars. You can also claim 50% of the VAT on the lease payments.
You can still claim capital allowances even if you bought the vehicle on finance as long as the business does (or will) actually own it. It’s better to track business mileage and claim 45p per mile. However, the capital allowances for cars are a lot less generous than those for other types of plant and machinery.
Should I buy a car through my business?
p> Vans receive more generous capital allowances and it’s easier to recover VAT on the purchase. For van and fuel at the basic rate tax you would be looking at an extra £768 in tax. It will be used exclusively for the purposes of the business and is not available for any private use, for example an company pool car.
Benefits in kind need to be reported via the company payroll on the P11D. HMRC’s Advisory fuel rate is based on engine size and fuel type and is updated every quarter. This article gives more detail (claiming for business motor expenses). And after all that, it’s probably still as clear as mud.
You can claim 100% of the value against your taxable profits in the Corporation tax return (annual investment allowance) and if you are VAT registered you may be able to recover VAT on the purchase. Whether it’s a company car or a company van there is Class 1A (Employers) National Insurance to pay at 13.8% on the value of the benefit. Any personal use of company vehicles will result in a benefit in kind and extra tax / NIC for both the driver and the company.
Ideally if the business is a limited company, the employee contract should specify that they should not make personal use of the company car. The benefits in kind are also generally lower for commercial vehicles than for cars. This does not apply to a sole trader or partnership business as you and the business are the same legal entity. A genuine pool car, fulfilling similar conditions to those for VAT would not cause a benefit in kind for the employees using it.
HMRC expect full record keeping, so having a business vehicle comes with the requirement to save all the necessary documents and record all the relevant expenses. As with capital allowances, the VAT situation is less restrictive for commercial vehicles such as trucks and vans. If you do need a vehicle for 100% business use, then a van or commercial vehicle is often a better option than a car.
It’s not all bad news for cars however. For a new computer, the whole value can be claimed in the year of purchase (via annual investment allowance). You would need to deduct a percentage to represent the personal use element.
If you decide to use the mileage method for your motor costs, you can claim VAT on the fuel element of the mileage. Unless the vehicle is only going to be used for business, you probably need to think twice. They will either fall into the 18% main rate pool or more frequently into the special rate pool, getting only 8% of the remaining value against the taxable profit each year. If a commercial vehicle is a good fit for your business then it’s certainly the more tax-efficient option.
The amount of benefit for a car varies depending on the particular make, model and age. Personal use includes commuting to and from work, so even if you only use the car to get to work and back you can’t claim the VAT. If you do buy a vehicle through the business, there might be balancing charge which increase your tax bill when you come to sell.