Buying your car through your business can be a smart tax planning decision, but it can also create company car tax, National Insurance and benefit-in-kind issues. If your limited company buys a car and you use it personally, the tax position depends on the car’s list price, CO2 emissions, fuel type and how the vehicle is used.
This episode helps business owners think through whether a company car makes sense, especially when comparing petrol, diesel, hybrid and electric cars. We also look at the alternative of buying the car personally and claiming business mileage from the company.
About this episode
Cars are a common business question, especially for directors and limited company owners. Should the company buy the vehicle? Should you buy it personally? What happens if you use it for both business and private journeys?
In this episode, we look at how company car tax works for the individual and the business. We cover company car benefits, electric and hybrid cars, CO2 emissions, capital contributions, and mileage claims.
This follows on from our episode on Saving Tax with Company Benefits, where we looked at tax-free and trivial benefits.
Why company car tax matters
Company car tax matters because a car used personally is normally treated as a benefit. That can create a tax charge for the person using the car and a National Insurance cost for the company.
Travel between home and work is normally treated as private use, not business use. Therefore, even a car used mainly for work can still create a taxable benefit if there is personal use.
The decision is not just about whether the company can afford the car. It is about the overall tax cost, running costs, cash flow, business mileage and whether the vehicle supports the business properly.
Key points from this episode
What is a company car?
A company car is a car bought or provided by your limited company and made available for your use.
This episode focuses on cars used to carry people, not vans designed mainly to carry goods. Vans can have different tax treatment, so it is important not to mix the two.
If the company car is available for private use, a benefit-in-kind charge may arise. That means you may pay tax personally, and the company may have National Insurance to pay.
How company car benefit is worked out
There are three key numbers to consider when looking at company car tax:
- How the car is powered, such as petrol, diesel, hybrid or electric.
- The manufacturer’s list price of the car.
- The CO2 emissions of the car.
The benefit value is broadly based on the car’s list price multiplied by a percentage. That percentage depends on the vehicle’s emissions and fuel type.
The lower the CO2 emissions, the lower the percentage tends to be. The higher the emissions, the higher the benefit charge can become.
Why electric and hybrid cars can be attractive
Electric and low-emission cars can be attractive because the benefit-in-kind percentage is usually lower than for higher-emission petrol or diesel cars.
That can reduce the personal tax charge for the driver and the National Insurance cost for the company.
Hybrid cars can also receive favourable treatment, but the tax position can depend on emissions and electric range. Because rates change by tax year, always check the current figures before making a decision.
CO2 emissions and list price
The list price matters because company car tax is not based simply on the deal you negotiated or the amount the company paid.
The calculation usually starts with the manufacturer’s list price, including VAT and relevant accessories. Then the appropriate percentage is applied.
That means a discount at the dealership may help cash flow, but it may not reduce the taxable benefit in the way business owners expect.
Making a contribution towards the car
You may decide to make a capital contribution towards the car. This could happen if you want a more expensive vehicle than the company is prepared to fund.
A capital contribution can reduce the benefit value, subject to the relevant rules and limits. That can create tax savings for the individual and National Insurance savings for the company.
However, this needs proper calculation. The tax saving must be compared with the cash contribution you make.
Buying the car personally and claiming mileage
Buying through the company is not the only option. You may decide to buy the car personally and charge the company for business miles.
This can be simpler in some cases, especially if the car has significant private use or if the company car benefit would be high.
Approved mileage rates can allow tax-free reimbursement for genuine business mileage. However, these rates can change by tax year, so check the current mileage allowance before relying on old figures.
Example company car calculations
Company car calculations can help show how the benefit affects both the individual and the company. However, the rates and percentages change by tax year, so check the current figures before relying on any example.
The main idea is to compare the company car route with personal ownership and mileage claims before making a decision.
What to check before deciding
- Is the car being bought by a limited company?
- Will there be any private use?
- What is the manufacturer’s list price?
- What are the car’s CO2 emissions?
- Is the car petrol, diesel, hybrid or electric?
- Will you make a capital contribution?
- Will the company pay for fuel?
- Would personal ownership plus mileage claims be simpler?
- What are the current benefit-in-kind rates?
- What will the company need to report to HMRC?
If VAT recovery is part of your decision, our episode on Claiming back VAT on cars is a useful next step.
FAQs about buying your car through your business
Can my business buy my car?
A limited company can buy or provide a car, but if you use it personally, a company car benefit may arise. That can create tax for you and National Insurance for the company.
Is travelling from home to work business mileage?
Travel between home and your normal workplace is usually treated as private travel. That means it can count as personal use for company car purposes.
Are electric company cars tax efficient?
Electric company cars can be tax efficient because lower-emission vehicles usually have lower benefit-in-kind percentages. However, rates change, so always check the current tax year before deciding.
Is it better to buy the car personally and claim mileage?
It can be better in some cases. If the company car tax cost is high, personal ownership plus business mileage claims may be simpler and more tax efficient.
Episode Timecodes
- 00:00 – Introduction to company cars and tax
- 00:28 – Should you buy your car through your business?
- 00:52 – Link with company benefits and tax planning
- 01:19 – Electric and hybrid cars
- 01:36 – What counts as a company car?
- 02:02 – Private use and company car benefits
- 02:27 – Tax for the individual and National Insurance for the company
- 02:47 – The three key numbers in company car tax
- 03:26 – List price, CO2 emissions and the benefit calculation
- 04:17 – Personal contributions towards the car
- 05:02 – CO2 emissions and tax treatment
- 06:39 – Example company car benefit calculation
- 07:24 – Company National Insurance and running costs
- 08:08 – Electric cars and tax treatment
- 08:28 – Hybrid cars and electric range
- 09:45 – Capital contributions and tax savings
- 10:49 – Buying personally and claiming business mileage
- 11:31 – Final thoughts before deciding
Related episodes
- Saving Tax with Company Benefits
- Claiming back VAT on cars
- Sole Trader or Limited Company: Which Is Best for You?
Key takeaway
Buying your car through your business can be tax efficient, especially where the vehicle has low emissions, but it is not automatically the best option.
The right answer depends on the car, the list price, emissions, private use, business mileage, company costs and your wider tax position. Compare the company car route with personal ownership and mileage claims before deciding.
Plan it, Do it, Profit.
“A company car can save tax, but only when the numbers, the vehicle and the business use all make sense together.”
Further Support
The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.
You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.
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