Should I (can I?) buy a company car?
One of the joys of running your own business used to be driving the car of your dreams and claiming it all through your business. These days this is just a dream. Your options are:
- Do it the hard way - have a company car
- Lease one
- Do it the easy way - claim mileage from your business
Here’s an explanation…
The hard way - having a company car
Company cars are public enemy number 1 for the Chancellor. He sees them as an under-taxed perk and is now able to use an environmental justification for coming down hard on them. If you have a company car, then HMRC take the view that you have been given a gift or, as they call it, a taxable benefit and they want a piece of it.
Taxable benefit for cars is based on a percentage of their list price graduated according to their level of CO2 emissions.
Minimum benefit is 15% of list price where CO2 emissions does not exceed 140 g/km and this increases by 1% for each 5 g/km of extra emission subject to a maximum of 35% of list price. Most car manufacturers will supply the emission level in their brochure. Diesel cars get a 3% supplement to the same maximum of 35%.
If you supply fuel to yourself there is a further hit on your personal income tax and some employers NI to pay
| Pro’s | Con’s |
|---|---|
| You can put the entire cost of running the car through your business - tax, insurance, maintenance, servicing and fuel | You get hit every year through income tax and employers NI. If you are VAT registered you will have to pay for the VAT on the fuel you use for private motoring. |
Leasing a car
Unfortunately whether you buy it, lease it or just provide it, any situation where your company provide you with an asset creates a taxable benefit. See above!
The easy way - claim a mileage allowance - Limited Company employees ONLY
On balance, a much less complex way of claiming your motor expenses is to use a private vehicle (not supplied by your company) and submit a mileage claim to your business for the business miles you do.
You can claim any mileage rate you like but if you claim any more than the HMRC advisory rates then you run the risk of incurring a taxable benefit. Most business people stick to the rates below:
| Vehicle | Up to 10,000 miles | Over 10,000 miles |
|---|---|---|
| Car/Van | 45p | 25p |
| Motorcycle | 24p | 24p |
| Bicycle | 20p | 20p |
Look carefully at those figures. 10,000 x 45p is £4,500. This means that you can take £4,500 or more straight out of your business and pay it to yourself as free cash. Of course, you have to actually do the business mileage and keep a record to back up your claim!
| Advantages of mileage allowance | Disadvantages of mileage allowance |
|---|---|
Keep a record of your mileage in a book, diary or list. Add up the business miles monthly and multiply by the appropriate rate. Pay it to yourself. Keep your mileage records for 6 years. VAT registered? - you can also reclaim the VAT on the fuel used for business. |
You can only claim mileage. You bear the running costs and the replacement cost of the vehicle. |
Example mileage log
I have a simple spreadsheet with these headings which I print and keep in the car. At the end of every significant journey I fill it in. It’s a quick, accurate way of keeping a record. This is what it looks like:
| Date | Details of journey | End Reading | Miles | Business | Private |
|---|---|---|---|---|---|
| 10/9 | Braintree to Reading | 80627 | 113 | 113 | - |
| 11/9 | Private | 80677 | 50 | - | 50 |
| 12/9 | Home to station (1 day workshop in London) rtn. | 80705 | 8 | 8 | - |
| Totals: | 171 | 121 | 50 |
Even better - apportion the business use of all your motoring costs - Sole Traders ONLY
If you are a Sole Trader it is really important that you keep a complete mileage log of all your motoring - business and private. Why? Because this allows you to work out the relative percentage of your business mileage over the year. And once you have this, you can then apportion all your motoring costs and claim back the percentage attributable to business use.
Remember, you are not an employee and you are not working for a company. You are a private individual who is trading so it’s only fair that if you use your car for business, part of the cost of runing your car should be a business expense.
Phil Mcavity is a self-employed tree surgeon and by keeping a careful mileage log, he worked out that 77% of all his mileage last year was for his business. He was then able to claim 77% of all his motoring costs on his tax return as business expenses - insurance, repairs, servicing, fuel, parking, hire charges, licence fees, motoring organisation membership etc.
It’s quite a good deal
Running a company van
Vans enjoy a more relaxed tax treatment than company cars which are seen as something of a perk. Here’s how it works:
If the van is only used for business
If you can show that the van is only ever used for business then you can claim all the associated costs, including the original purchase price and fuel as business expenses.
This is easy in the case of a van that is locked in a compound overnight but if you take it home then HMRC may raise a suspicion that you are also using it as a private vehicle. Be scrupulous about your record keeping.
If you use the van for all your travel
Private use of a van is known as unrestricted use (because it is not restricted to business only) and you will be taxed as if you had received a significant personal benefit.
Fortunately, the benefit is fixed at £3,000 which means if you are a 20% tax payer then it will cost you £600 to enjoy private use of your van. The good news is you can continue to claim all the costs as business expenses. There is also a fixed benefit charge for the private use of fuel because you will be claiming all the fuel costs as business expenses.
If this appeals to you, talk to your accountant to help you work out whether it is worth paying this charge for the convenience of using your van as your personal transport as well.
Low emission vehicles
The situation constantly changes but there are some benefits in running a very low emission car - look out for new legislation and changing tax rates on very low emission vehicles.
Checklist for Transport: Car
- I understand the tax treatment of cars in a business
- (a) I am providing a company car
- (b) I am using my private vehicle and charging a mileage rate
- I have a mileage log in the car which I complete after each journey
- I know how to claim these mileage expenses from my business and maintain records of my claim
- Sole Trader: I am tracking my entire motoring costs so that I can apportion the business use on my tax return
Checklist for Company Van
- I have benefits led design for the livery on my van or commercial vehicle
- The decoration of my van reflects the image I want to project to my customers
- I have talked to my accountant about the tax I will pay
