How it works
To qualify the vehicle must have emissions under 50g Co2.
You would purchase the car in the name of your company. All documentation with regards to the car, e.g. V5 document must be in the company name as the car will be an asset of your company.
You can fund the purchase of the car from the reserves you have built up in your company or by finance, or by a mix of both. Finance can be in the company name or, if necessary, yours.
Different tax relief options are available depending on the type of finance you take, please refer to the Finance section.
If the vehicle is available for private use, you as director would have an amount of “benefit in kind” which you would pay tax on The company also pays National Insurance on the benefit in kind.
e.g. – if the BIK was £2500 and you were a basic rate taxpayer you would pay 20% tax = £500 in personal tax, if you were a higher rate taxpayer you would pay 40% tax = £1000.
It is effectively impossible to demonstrate that you do not have availability for private use of the vehicle.
If your vehicle is a company van or pickup or the likes, the company can claim back the Vat on the purchase price of the vehicle. The company cannot claim back vat on any company car.
You would pay for fuel personally and claim it back at a rate per mile set each month by HMRC. The company can recover costs of repairs, insurance etc. If you have purchased an all electric car, you can also put in a claim, properly prepared, for the use of home electricity to recharge the battery.
You have three finance options.
- Business or personal hire purchase.
- Business or personal PCP.
- Business contract hire.
Under Business hire purchase and business PCP your company will own the vehicle. This means that we can claim 100% tax relief of the purchase price against your profit for the year in which you purchase the vehicle.
e.g. if your company’s profit at its year end is £50,000 and your car was £50,000 this would mean you would have NO corporation tax to pay in the year.
With Business contract hire is different as this is effectively a “lease” meaning your company does NOT own the asset so different tax relief applies. You only get tax relief on your monthly payments, you can recover Vat on the payment element if your company operates standard rate vat.
e.g. 12 monthly lease payments of £1000pm in the year at the corporation tax rate of 20% = £2400 of tax relief in the year.
As you can imagine the first two options are more expensive in cash flow terms as the company owns the vehicle, compared to the leasing option. But the additional tax relief upfront offsets this.
PCP is cheaper each month than hire purchase due to a balloon payment required at the end of the financial agreement to take full ownership of the vehicle. Overall it works out more expensive.
There is also help from the Scottish Government where they will currently lend your company up to £35,000 interest free to purchase an all electric vehicle – see www.energysavingtrust.org.uk/scotland/grants-loans/low-carbon-transport-business-loan
100% tax relief is currently available on cars below 50grams Co2 if meeting the above conditions and ion pickups, vans etc.
All associated costs of running the vehicle, e.g. car insurance, tyres, repairs and road tax can be put through your company and tax relief can be claimed on these expenses, and vat likewise.
More than one car can be put through your company if you are purchasing a car for an employee to use as well. But one car for your wife and not for you will not avoid the tax charges you would have incurred.
If you are purchasing a vehicle and it’s not on a contract hire i.e. a “lease”, you will be able to claim 100% tax relief if meeting the above conditions. So bear in mind that when the vehicle is sold, tax will be paid on the entire proceeds, and the proceeds of a van or pickup or the likes will include vat to be paid as well.
In the 2020/21 tax year to qualify for 100% tax relief for a car the Co2 emissions have to be 50 grams or below.
- Our number one tip is do all your own research.
- Shop around to compare deals.
- Test drive a few.
- Make sure all documentation is in your company’s name.