Who should buy a car, me or my business?

So you run your own business and you have decided that you need a new car, but before you pay or it have you thought about who should pay for it you or your Limited Company?

Option 1 – You buy it or lease it personally

Believe it or not in most cases this is the most tax efficient option, you draw the money out of your company as a Dividend or a Director Loan Repayment and then pay for the car personally and charge your company mileage. See our blog as to how you recover VAT on your business mileage.

Option 2 – Your Limited Company Buys the Car

 

Yes this will save you corporation tax as you will get capital allowances on the vehicle, but unless your new car has really low emissions you will probably pay more in National Insurance and personal tax. 

 

This is because your company has provided you with a car to use for personal use, this is seen as a substitute for a wage and so you are taxed on it based on the CO2 emissions.

 

Option 3 – Your Limited Company Leases the Car

Yes this means that as well as the corporation tax you will also save VAT, but even then you still have the benefit in kind taxes which normally outweigh the VAT & Coporation Tax savings.

A Real Life Example

A client came to us a few weeks ago who is a higher rate tax payer and was looking at getting a new Audi A6, the saving by not paying for the car through the business is £6,667, below are the results:

 

Ltd Leased Car

Client Leased the car

Total Lease cost over 3 years

£25,946

£25,946

VAT recovered

£2,162

£ nil

Class 1A National Insurance

£5,427

£ nil

Corporation Tax Saved

£5,842

£ nil

Benefit In Kind Tax (3yrs)

£15,731

£ nil

Higher Rate Tax on Dividends

£ nil

£6,486

Total Cost

£39,100

£32,432

 

Note if the client was not a higher rate tax payer the saving by paying for the car personally would be £5,288.

Summary

So normally it is best to purchase a car personally and claim mileage, if you are looking at changing your car contact us and we will work out your best tax option.