Deciding whether to put a company car through your business is a common dilemma for business owners. This blog explores the benefits and considerations of using company cars, with a focus on commercial vehicles and electric vehicles (EVs). Both options offer unique advantages, but it’s crucial to weigh the tax implications and costs involved.
When you put a car through your company, it means the business owns or leases the vehicle, rather than you personally. This setup can offer several benefits, but understanding the financial and tax implications is key. These include the potential for tax savings, how the vehicle is used, and the associated costs. Petrol and Diesel cars (including hybrids) when put through a company and are available for personal use attract a tax called Benefits In Kind. The rate for these cars is pretty high and often means it's more tax-efficient and cost-effective for business owners to own such cars personally and charge the company for the use of the car based on business mileage done.
Commercial vehicles, such as vans or trucks, are typically used to transport goods or equipment. If your business involves deliveries or the need for work vehicles, this could be a great option for you. Let’s explore the benefits:
Tax Deductions: Commercial vehicles often qualify for generous tax deductions. In many cases, you can claim the full purchase price or lease payments as a business expense, which reduces your taxable profits and potentially lowers your tax bill.
VAT Recovery: If your business is VAT registered, you can reclaim VAT on the purchase or lease of a commercial vehicle, provided the vehicle is solely used for business purposes.
No Benefit-in-Kind Tax (BIK): Unlike vehicles used for both business and personal purposes, commercial vehicles generally don’t attract BIK tax if they’re used exclusively for work. This makes them a more cost-effective option, especially if your employees require vehicles solely for business activities.
Electric vehicles are gaining traction across many industries, and the benefits of choosing an EV for your company car can be substantial. Here’s why electric vehicles could be an ideal option for your business:
Lower Benefit-in-Kind (BIK) Rates: One of the biggest advantages of EVs is the significantly lower BIK tax rates. The UK government encourages the use of low-emission vehicles, making EVs an attractive option from a tax perspective.
Government Grants: There are various government grants available to reduce the upfront cost of purchasing an EV. Additionally, grants can cover the installation of EV charging points at your business premises.
Enhanced Capital Allowances: Electric vehicles qualify for 100% first-year capital allowances, meaning you can deduct the entire cost of the vehicle from your profits in the year it’s purchased. This can lead to considerable savings in the first year.
Reduced Running Costs: EVs are cheaper to run compared to traditional petrol or diesel vehicles, as electricity costs less than fuel. Maintenance costs are also lower, resulting in significant savings over the vehicle’s lifetime.
Positive Environmental Impact: EVs produce zero emissions, helping your business to reduce its carbon footprint. This can enhance your company’s green credentials, which is increasingly important for both clients and employees.
Before deciding to put a vehicle through your business, there are a few important factors to consider:
Personal Use and Tax Implications: If the vehicle is used for personal journeys by you or your employees, a Benefit-in-Kind (BIK) tax charge could apply. This would reduce the overall tax efficiency, so it’s essential to factor in how the vehicle will be used.
Cost vs. Benefit: Carefully assess whether the tax savings from owning or leasing a vehicle through your company outweigh the costs. In some cases, purchasing a vehicle personally and claiming a mileage allowance might be more cost-effective.
Business Needs: Think about what type of vehicle best suits your business. For tradespeople or businesses requiring regular deliveries, a commercial vehicle is likely the most practical choice. For businesses with a focus on sustainability or client-facing roles, an electric vehicle may be the better option.
In summary, putting a company car through your business can offer significant benefits, especially if you choose a commercial or electric vehicle. Tax advantages, lower running costs, and environmental benefits make these vehicles highly appealing. However, it’s vital to weigh these benefits against the potential costs and tax implications, considering your specific business needs and vehicle usage.
By carefully evaluating your options, you can make an informed decision that benefits both your business and your finances in the long run.
