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Should I Purchase A Car Personally or Through My Limited Company?

As tax advisors, one of the most common questions we are asked is whether it is more tax-efficient for business owners to purchase/lease a car personally or through their Limited Company.

Unfortunately, there is no easy answer to this question. There are many factors to consider, and both options have pros and cons. The key differences between the two options are detailed below.

Owning Personally

  • You are responsible for covering all costs such as the purchase price/lease costs
  • You can claim mileage for business journeys at 45p per mile for the first 10,000 business miles, and 25p per mile thereafter
  • You won’t have to pay any company car P11D tax
  • You cannot reclaim VAT on lease costs

Own through Limited Company

  • Company pays purchase price/lease costs
  • Company will get corporation tax relief on costs (a 15% restriction will apply to lease costs for cars with CO2 emissions in excess of 110g/km)
  • Company will pay NIC at 13.8% on value of car benefit under P11D rules
  • If company pays for all fuel, the company will pay NIC at 13.8% on fuel benefit too
  • Individual will pay income tax at marginal rate on value of car benefit under P11D rules, and on value of fuel benefit if applicable
  • If individual pays for fuel personally, business miles can be reclaimed at advisory fuel rates which are lower than the approved mileage rates when using your own car
  • If company is VAT registered, 50% of VAT on lease costs can be reclaimed (no VAT reclaim on purchase of car unless it is used for business purposes only)

In light of the company car tax rules, the best option will largely depend on the type of car you want to drive.

If you opt for an economical car with low CO2 emissions, the chances are it will be beneficial to own it through your Limited Company. If, on the other hand, you decide to go for a high value car with high CO2 emissions, owning personally is likely to be more tax-efficient.

It is worth noting that no benefit-in-kind tax will be due on electric vehicles in tax year 2020/21. This is a one year measure only, with the benefit-in-kind tax charge being 1% of the list price in 2021/22.

Choosing the wrong option could be a costly mistake for you and your business. Therefore, before committing to purchasing or leasing either personally or through your Limited Company, please get in touch with our EQ Taxperts who will advise on the most tax-efficient route for you.

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