Should you buy a company vehicle?
2 main scenarios:
• An employee who has the need for a vehicle due to the nature of their work.
• An employee who does not need a work vehicle only occasionally accumulates business mileage but would be interested in having a vehicle if tax beneficial.
Some general principles
• Employees that use their own vehicle for the company journeys can be reimbursed at up to 45p per mile
• VAT can only be recovered on the purchase of a car
• The block on VAT recovery for leased cars is 50% of the lease costs.
• Vans are beneficial this is due to there being no benefit in kind charge where the vehicle is only used for home to work commuting or for qualifying business travel
Electric car schemes
Electrical Vehicles (EV) currently have a 2% benefit in kind (expected to be in place until April 2025). Therefore, when an employee exchanges taxable pay for an EV they will benefit from higher net pay overall, compared to taking out a personal lease for the same car, personally given the sacrifice is taken before tax and NIC is calculated.
“what is the best way for me to buy a new car?”
Usually followed by: “should I have a company car?”, and “should I buy, hire purchase or lease?”, this question can raise a number of important issues relating to tax, remuneration and practical viability.
The factors to consider
Owning the vehicle personally
• For petrol/diesel vehicles, generally it would be better to keep the car outside of the company and run a personal car paid for through extracting dividends.
• Unless the annual personal mileage is expected to be significantly higher than the norm, the provision of fuel by a company will usually cost far more than paying personally.
• In the rare case that a vehicle would have very heavy use, depreciate significantly, with a very low residual value over a couple of years use, it could be worth having as a company vehicle
• The SME owner may be able to pay for the vehicle out of dividends. There will be no impact from a VAT or Corporate Tax perspective for the company to consider on a personally funded vehicle.
• For an individual’s own vehicle, there are no benefit in kind P11D impacts to consider, and there is the availability of reimbursing 45p per mile (for the first 10,000 miles, 25p per mile thereafter), income tax and NIC free for business mileage for a vehicle. This reimbursement would be deductible for Corporation Tax purposes.