Is it worthwhile of buying a car through my limited company?

At first this can seem like a great tax saving idea, but there are many variables to consider before deciding whether to buy your car through your company or as an individual.

Firstly, it is important to determine whether the car will be used for business purposes only or will it serve for private rides too. This question will mostly impact the VAT implications as you can only reclaim VAT on a car if it is used exclusively for business, and you can prove to HMRC that it is not available for private use by yourself or your employees. It is crucial to be aware that driving to and from your regular place of work is known as your regular commute and is not considered to be business use by HMRC.
If the car does have a private use element this will lead to a benefit in kind on which you may be required to pay Income Tax. The company will also be required to pay Class 1A National Insurance on this benefit.

In addition, you will need to consider the level of CO² emission that the car produces. As the world in turning green, so is HMRC. The greater the amount of CO² emissions of the car, the higher the deemed benefit in kind, which is calculated by multiplying the list price of the car by the CO²emissions percentage of the car. The list price used for the calculation should include any accessories fitted before the car was first made available and also any fitted after costing more than £100. The CO2 emissions percentage can be found on: https://www.fleetnews.co.uk/fleet-faq/what-are-the-current-bik-bands-/3/.

Furthermore, it is important to note that when a company buys an asset (including a car) it is not treated as an expense that can be deducted from profit for tax purposes. Tax relief is obtained through Capital Allowances, which have specific rules as to how much can be claimed. In relation to cars, as mentioned previously, the amount of Capital Allowances that can be claimed directly correlates to the level of CO² emissions the car produces. It follows the same logic as with the benefit in kind calculation in that the more CO²the car produces, the less tax relief you can claim. However, Capital Allowances are somewhat simpler as there are just 3 bands to consider rather that a whole scale of percentages:

• If the car’s CO² emissions are 95g/km or less, 100% of the price of the car can be claimed (i.e. deducted from profit) in the first year, provided that it is a new car.
• If the CO² emissions are between 96g/km and 130g/km the rate at which capital allowances can be claimed is 18% per annum
• For CO² emission levels above 130g/km the capital allowance rate is 8% per annum.

From the above it is clear, from a benefit in kind and Capital Allowance point of view, it is more sensible to buy a more environmentally friendly vehicle in order to save the greatest amount of tax.

When considering capital allowances only the proportion of business use is allowed to be deducted from taxable profits, whereas the private use would be disallowed. There are more factors to consider, such as fuel surcharge to the company from a VAT perspective and a benefit in kind for the employee, if private fuel consumption is provided for by the company.

Clearly, weighing up the costs and benefits of buying a car and paying for travel through your business is not always as  straight forward as it seems.