One of the most common questions we are asked by directors of their own limited company is, ‘Should I buy a company car?’ If you choose to purchase a company car you will enjoy a number of financial benefits. For example, you could put the running costs of the car through the company. You could also claim capital allowances on the purchase of the car. However, there are also several drawbacks.
HMRC will treat your company car as a ‘benefit in kind’. This means that they will calculate a cash value for this benefit and look to tax you accordingly. Tax rates on company owned vehicles have increased significantly over recent years. The benefits of owning a company car are now often outweighed by the costs of ownership. HMRC calculate the cash benefit by multiplying the list price of the car by a percentage based on the CO2 emissions of the vehicle. Because the list price is used instead of the purchase price, the benefit in kind can run into thousands of pounds. This means even a modestly priced second hand vehicle can become expensive.
Unfortunately there is more. If you pay for your fuel through your limited company, your benefit in kind will increase by even more. Your fuel benefit is calculated by multiplying your appropriate CO2 percentage by £21,100 in 2013/14. Your company will also have to pay Class 1A National Insurance Contributions on the total car and fuel benefit in kind figures. This is at a rate of 13.8%.
So as you can see, there are lots of additional costs associated with purchasing a company car. In most cases, you are much better off owning a vehicle privately. You could then charge your company for the mileage giving you 45p for the first 10,000 miles and 25p per mile afterwards.
Simplyco are expert contractor accountants and give the best advice around to their clients. To see how we could help you as a limited company owner, please give us a call on 01900 898 440 or email firstname.lastname@example.org.
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