Over a series of articles we’re going to take a look at the whole area of companies and cars.  From basic questions of whether to purchase a car through the company or privately, how to account for the expenses and what to do about VAT.  It is a particularly long and winding road that needs to be travelled with quite a few HMRC potholes that can lead to the need for AA assistance; and by AA I mean ‘accurate accounting’!!  It is important to understand the tax implications of the decisions that you take right from the start of your journey; the right choice will mean that you turn straight onto the super highway rather than getting stuck in the country lanes or even worse, stopped by the police!
A question I am so often asked by company owners is whether they should buy their car through the company.  This may sound attractive with promises of lower corporation tax and VAT breaks but, to be honest, Sat Nav says no!!  Once a car is purchased through the company you will straight away hit a diversion and be directed to the dead end town of P11D.  If purchased through the company the availability to use the vehicle will create a taxable benefit in kind on you as the individual.  The amount of tax you will bear is dependent on the market list price of the car, based on CO2 emissions.  And it is important to note that this list price is when the car was new, which may not be the price you paid for it, together with any extras added to the car.  There will also be an additional taxable benefit in kind if your limited company pays for any of your private fuel costs.

Your limited company must then pay additional National Insurance on these benefits at a rate of 13.8% for 2014/15 and a P11D Form must be completed. This discloses the car details and the value of the benefit(s). Taxable benefits are treated as income and are therefore included in your total earnings for the tax year. In most instances this can mean that you are paying tax at 40% on benefits you receive if you are a higher rate taxpayer.

If you buy a car through your business then only a proportion of this will be available for tax relief and remember, even if you are VAT registered you cannot claim VAT on the purchase of a car if there is any private use whatsoever.

Have I put you off buying a car through the company yet?! There’s more but, as with any long journey, it’s time to take a break before we fall asleep at the wheel. Perhaps we’ve hit the end of the road on this one so we will look at the alternatives next time.