06 May

Company car or no company car?

Whether you or your company should buy your next car depends on many factors including the cost of the car, its CO2 emissions rating and the level of your business and personal mileage. When you own the car personally, the company can pay you a tax free mileage allowance of 40p per mile for the first 10,000 business miles per tax year, and 25p per mile for additional journeys, but this allowance may not cover the vehicle's running costs and so you may be tempted to put the car into your company.

If the company owns the car it can claim a tax deduction for all the running costs, and annual capital allowances to provide tax relief for the purchase cost. Currently the capital allowance is 25% of the cost of the car, restricted to £3,000 per year for cars that cost £12,000 or more. From April 2008 the allowance is 20% of the cost for cars with a CO2 emissions rating of 160g/k or less, but come April 2009 it will only be 10% for more polluting cars with a CO2 emissions rating of above 160g/k.  Cars with CO2 emissions of 110g/k or less qualify for a 100% first year allowance and will continue to do so. These changes mean it will take longer to get full tax relief for the cost of cars that have higher CO2 emissions ratings. The cost of leasing more polluting cars will also be affected from next year.

You can use the HMRC calculator here to find out your company car benefit.

For cars costing more than £12,000, you can claim a maximum of £3,000 a year per car. If the car has low CO2 emissions there is no restriction of the allowances. If you use the car partly for private use and partly for business use, only the business proportion of the allowance can be claimed.
For example, you buy a car for £15,000 and drive it 12,000 miles, of which 8,000 miles is private use. Based on the cost of the car, you're eligible for the maximum allowance of £3,000, but as your mileage was only one-third for business, you can only claim £1,000, one third of the allowance.
You should make a separate calculation for each car and not "pool" them with your other purchases.

You are also required to pay Class 1A National Insurance Contributions on company car and fuel benefits; this however can be reduced along with the primary tax depending on the car's efficiency.

However, when the company owns the car you pay a tax charge for using the car privately. When you buy your own fuel the company can pay you a fuel rate for business miles driven, which also changes with the petrol prices. If you give us all the facts we can help you calculate what is best for you.

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