If you are investing in a car for your business, it’s important to make sure to do your research first – are you going to get a car on finance or buy outright? What are the tax implications of buying a car for your business?
There are a number of options to consider before making the purchase. Here we have broken it all down for you, so you can make sure you have everything covered…
Should you buy the car personally or through your business?
If you buy the car personally rather than through your business, the initial cost or finance costs are not tax deductible. You can’t claim tax relief on the costs of running the car such as road tax, insurance, fuel and servicing, but you can claim a tax-free allowance from your company for any qualifying business mileage.
When purchasing the car through your business, how you are taxed on the purchase depends on how you paid for the car. Your company will also pay for the running costs of the vehicle such as insurance and tax and these can be classed as deductible expenses for Corporation Tax.
What type of finance is available?
Types of finance include:
- Contract hire – your business hires a vehicle from the finance company for a set period of time. You pay a fixed amount and may have to stick to an agreed mileage limit.
- Standard loan – your business borrows the cash and uses it to buy the vehicle upfront, with no mileage restrictions or other conditions.
- Higher Purchase (HP) – You pay a deposit upfront followed by a number of monthly payments. Once the car is paid off it’s yours.
- Leasing – You pay fixed monthly repayments over a set period of time to hire the car.
Whichever option you go for, make sure you get several quotes to compare to ensure you are getting a good deal.
How will you be taxed for the vehicle?
If you buy the car outright it will be an asset on your balance sheet, but will as the car’s value depreciates over the years this will also reduce your profits. For tax purposes, the depreciation will get added back to your profits however, capital allowances can be claimed which will reduce your taxable profits and therefore reduce the amount of tax payable.
When buying a car on HP the vehicle is usually classed as fully-paid and the usual depreciation allowances would still apply. You will own the vehicle once all the payments have been made and also have tax relief on the interest you’ve incurred.
If you lease the vehicle the regular payments would be included in your profit and loss account and therefore would reduce the profits subject to tax. If you are VAT registered you can recover 50% of the input VAT you’re charged.
Vehicles you can buy on finance
You can get finance to buy a wide range of vehicles for your business, including:
If you have any questions on financing a car for your business, feel free to get in touch with us at Magpie Accountancy.