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Operating a business vehicle

Should I buy a car through my business or is it more beneficial to use my own vehicle? Here we offer some practical knowledge on the implications of using a either a personally owned car within your business or buying a car through a company.

Can I use my own vehicle for business?

Yes, for privately owned businesses (both sole traders and partnerships) the cars will be owned personally by the owners. They will show as assets in the business accounts but they are owned personally. You will be allowed a deduction each year for the business portion of running costs and capital allowances.

For companies, directors can choose to buy assets themselves and then charge mileage to the company for the business element (up to 45p per mile for the first 10,000 miles and 25p thereafter). This reimbursement is deemed to be sufficient to cover the cost of the fuel and maintenance, which have both been paid personally by the director. Reimbursements up to these limits are tax free.

Can I reclaim expenses for my own vehicle?

If you are a sole trader or a partner in a partnership, then all of the running costs of your vehicle can be paid for by the business but you will only be allowed a tax deduction for the business portion. This should be calculated on a reasonable basis; a mileage split between business and private miles is recommended.

If you are claiming 45p per mile from your employer (or you are a director charging this rate to the company) you are not allowed any further deduction for actual expenses to your own vehicle.

Should I buy or lease?

This is a personal choice. With some leases, all risks of ownership remain with the company that has leased you the vehicle, which is obviously an attractive option in terms of things going wrong with the vehicle.

When choosing a vehicle and deciding whether to lease, buy outright, or purchase through hire purchase you should ascertain all costs over the life of the vehicle, not just initial costs. The accounting treatment varies as well. It is best to speak to your accountant to ensure you get the best outcome for you.

How should I choose a business vehicle?

You first of all need to consider:

  • how much you want to spend
  • the features of the vehicle
  • miles per gallon
  • and your split between business and private miles.

For capital allowance purposes, the writing down allowance (WDA) the business will be entitled to is dependent on the car’s emissions.

Should I buy a vehicle through the company?

This is a common question. In order to answer this question, we need to look at both the position of the company and of the director/employee himself.

The company

The company purchasing the vehicle will be able to treat the initial cost of the vehicle and all of the maintenance and running costs whilst it is used as business expenses.

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This means that it will be tax deductible for the company. The initial car cost will not be deducted all in one go (unless it is purchased brand new and has carbon dioxide emissions of 75gm/km or less or is electric). Instead it will attract capital allowances each year.

The company will not need to make any adjustment for private use. Instead the users of the vehicle who are being allowed to use the car privately will be assessed with a benefit in kind each year (which the individuals will pay tax on). The company will have to pay national insurance on the value of the benefit at a rate of 13.8%; making it an expensive benefit.

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The director/employee

The director is receiving a benefit in kind from his employer, as his employer has provided him with a vehicle which he can use for private use.

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The benefit will be valued each year and he will be provided with this on a form called the P11D.

The director will pay tax on this benefit. In terms of mileage, he will be reimbursed a lower rate for business miles as the wear and tear of the vehicle is a cost to the company, not to him personally.

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