Is it worth running a company car?
Having a company car seems like an attractive proposition. But is it? Buying your own car privately or leasing could work out cheaper.
Explore all the options below before making your decision.
1. Privately owned car
You would own the car personally and then claim 45p per mile back from the company for any business trips you make. (45p per mile for the first 10,000 miles per tax year and then 25p per mile thereafter)
These mileage repayments would not impact your personal tax position. The mileage payments are an allowable expense for corporation tax, so this would reduce your corporation tax bill.
If you are a VAT registered business you can claim VAT on an element of the mileage claims dependant on the size of your engine. These rates are published quarterly and can change dependant on current fuel prices.For the latest rates please see our blog
If you are on the flat rate VAT scheme, you will not be able to reclaim any VAT.
2. Buying a car through the company
You would have to pay personal income tax on the benefit in kind. The benefit in kind is worked out by applying a % based on CO2 emissions and list price of the car.
e.g. if you purchased a diesel car with a list price of £20,000 and CO2 emissions of 95-99g/km you would pay 15%, so £3,000 for the tax year 2014/15 (20,000 x 15%)
If you paid for the fuel personally, there would be no extra benefit in kind and you would claim AMAP (advisory mileage allowance payments – these change quarterly. The latest rates can be found here.
If the company pays for all fuel you would need to reimburse the company for private miles done to avoid the high benefit in kind on fuel.
From a company point of view, the car would be treated as plant and machinery for corporation tax purposes and would attract a writing down allowance of 18% of the cost price (if CO2 is 130g/km or less, otherwise 8%), each year until fully written down. You would depreciate the car in the accounts until the asset had been fully written off.
The company would also pay class 1A (13.8%) on the benefit calculated, but this is treated as an allowable expense for corporation tax so in essence the company would pay 11.04% (13.8% x 80%).
If you are a VAT registered business and the car will be used some of the time for personal use, you will not be able to reclaim any VAT on the purchase price. If you pay for fuel personally you could reclaim VAT on an element of the mileage claims as per the above.
3. Leasing a car through the company
If you lease the car and the company owns the car at the end of the lease, the rules are the same as for buying the car both for you personally and for the company (see ‘Buying the car through the company’ above)
If you only lease the car for a certain number of years and then give it back, the car will not be an asset in the company. The monthly lease payments will be treated as any other company expense and will reduce your corporation tax by 20%.
The tax implications for you personally will be the same as above (benefit in kind).
If you are a VAT registered business and you take the car under an operating lease, you can reclaim 50% of the VAT charged.
On the whole it’s not generally worthwhile to have a company car unless it’s very energy efficient or the person doesn’t have the cash outside of the company to purchase the car personally.
The more CO2 efficient the car, the more worthwhile it is to have it as a company car but % benefit in kind is increasing significantly for more environmentally friendly cars each year (these are publicly available on HMRC website).
FreeAgent has a great mileage calculator which will deal with your mileage claims should you buy the car personally. Tripcatcher is also available as a simple and straightforward to use mileage expense app.
Click here to view HMRC’s Company car and car fuel benefit calculator
Click here to view HMRC’s changes to the car benefit rules
If you’re still unsure which option is the best for you, please don’t hesitate to give us a call.