Personal Vehicle or Company Car?

If you’re a business owner, a reliable vehicle is often a necessity. And having the newest model makes a good impression on clients, too. But should you buy or lease a car for yourself, or through your company?

At first sight, the benefits of a company car – writing off the purchase/lease, repair and fuel costs against tax, reclaiming VAT – do look very attractive. However, the reality is a lot more complex. Here are just a few of the questions you should ask when making this decision.

Do I really need a new car?

If you’re reading this article, you probably want a new car. But that’s not the same as needing it. A new car is a big investment, and it’s only worth making if it will offer concrete benefits for your business: for example, if your current car is unreliable, or you can’t use it as much as you want to for family reasons. The potential tax benefits are simply not big enough to be a factor in this decision.

If you’re sure that you need a new car in order to run your business effectively, it’s time for the next question.

Is this car purely for business use?

The key term here is “Benefit in Kind”. A company vehicle is defined as a benefit in kind if owning it benefits you personally; if it’s a “perk of the job”. So if you buy or lease a new BMW and use it to commute to work and run errands, you’ll pay Benefit in Kind Tax (BIK) for the privilege.

BIK is calculated on the basis of your vehicle’s CO2 emissions. For a fully electric car, it’s 1% of the list/lease price, rising to 2% from 2022. Hybrid and petrol/diesel cars are more expensive. Emissions levels also affect how much of the car’s cost your company can reclaim against tax.

If the car runs entirely or partly on fuel paid for by the company, and you also benefit from the use of that fuel, there will be BIK to pay there, too. The deemed cash benefit will also be subject to Class 1A National Insurance. The only way to avoid these extra tax burdens is never to use your car for any personal reason, ever. And how feasible is that?

Do I actually need a car? Or do I need a van?

This is a very important question, because commercial vehicles are taxed differently. If the vehicle you want is actually classified as a van – and it’s important to check this before going ahead, because appearances can be deceptive – then it’s subject to a simpler and more favourable tax regime. This can be a good option if a van would suit your needs.

If it absolutely has to be a car, then you have some decisions to make. The best way to head off unwanted costs is to speak to a tax advisor before taking any action. If you are thinking about buying or leasing a company car, we’re happy to help you figure it out. Just get in touch for a free, bespoke quotation.