Buying a vehicle to use for business purposes may seem like a practical and simple idea when you plan to use it primarily for business. However, there are several tax implications to consider in the process of buying/leasing and maintaining the vehicle, as well as any additional costs. To reap the real benefits of buying a vehicle for business purposes, several factors will need to be considered, such as the type of vehicle, method of payment and CO2 emissions.
Before considering purchasing a vehicle through a limited company, the purpose of the purchase should be considered. You will be able to recover the VAT paid on vehicles used exclusively for business. Note that business expenses do not include the daily commute to and from the office, only travel. Therefore, any vehicle used for private purposes will generate a taxable benefit in kind, which will be assessed on the value of the vehicle when new, not on the purchase price. The company will then need to notify HMRC of the company vehicle by submitting a P11D. The alternative to purchasing the vehicle for business purposes is to take out a lease, which has different accounting and tax implications to the purchase.
Since the company does not own the vehicle, no capital allowance can be claimed, but it can be considered as a business expense, thus allowing the company to discharge 100% of the leasing expenses by reducing the profit in the profit and loss account, if the CO2 emissions of the vehicle in question are below 130g/km. When the emissions exceed the threshold, only 85% can be considered as an eligible business expense. When financing is chosen as the form of vehicle purchase, only the interest payment can be considered as a business expense. When you choose to opt for the purchase of the vehicle you can claim tax relief through the Capital Allowance, as it will be classified as a tangible fixed asset. However, the rules for claiming tax relief are quite strict, as it depends mainly on the CO2 emissions of the vehicle:
– If emissions are above 130g/km, only 8% of the purchase price can be claimed as a business expense.
– Any vehicle with emissions below 130g/km can deduct 18% for each fiscal year.
– If emissions are less than 50g/km, 100% of the vehicle price is deductible in the first year.
The choice of the type of company car to buy will depend on its purpose: although buying a company car may seem attractive from a tax benefit point of view, the rules for obtaining tax relief are strict and the risk that it may turn out to be a bad investment is high. Unlike a car, the purchase of a van or truck through a limited company is simpler because of the absence of the limitations that may apply when buying a car for business purposes. HMRC also allows “private” use of the vehicle, meaning that the van or truck can be parked at home but only used for business purposes. Therefore, buying a van for business purposes facilitates a 100% deduction of business costs compared to a car and is a better option than buying it privately. The purchase of a company vehicle certainly depends on the circumstances and the type of business and due consideration must be given to each vehicle.
Domenico Santomasi
Photo by Maksym Kaharlytskyi on Unsplash
