All you need to know about car expenses

Are you thinking of buying a new car or a van but you don’t know if you should buy it personally or through your limited company?

In this blog we will explain the different options available to  allow you to make an informed decision based on the tax liabilities and the tax relief.

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But first, you will need to consider if your car expenses will give rise to taxable benefits.

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If you put expenses through your limited company for a car which you are using personally, you might be seen as having the personal benefit of using a company car and pay additional income taxes (depending on the CO2 emission) and additional national insurance contributions.

As an example, for a car which has a list price of £30,000 and a CO2 emission of 99g/km a 24% tax rate will be used, which means you will pay additional tax of £1,440:

• £30,000 x 24% = £7,200
• £7,200 x 20% (assuming you are a basic tax payer) = £1,440 Annual Company Car tax

Electric cars on the other hand (registered before April 6, 2020), with emissions from1-50g/km and a pure electric mile range of 130 miles or more attract a 2% benefit in kind rate in 2022/23 and will  stay the same for the two subsequent tax years.

Are electric cars the solution?

While the tax rates are considerable lower the cars are far to expensive to justify the tax savings.

Ok, so what is the alternative?

If you buy it personally

Whether you are buying the car outright or through finance, the initial cost or finance costs are not tax deductible. Additionally you will not be able to claim tax relief on running costs such as road tax, insurance, fuel and servicing.

However, you can claim a tax free allowance from your company for any qualifying business mileage.

The mileage rates are approved by HMRC, not subject to Personal tax, and you can claim Corporation Tax relief on the amounts reimbursed.  These are calculated to include all costs  associated with the vehicle, including purchase and running costs.

• 45p for the first 10,000 miles for business-purposes
• 25p for each business mile after the threshold of 10,000 miles.

As an example, for a journey of 100 business miles the limited company pays you 100 (miles) x 45p = £45. You pay no tax on this and the limited company’s taxable profit is reduced by £45. At the current rate of Corporation Tax this results in a saving of £8.55.

These rates have been in place for at least a decade and the fast rising cost of petrol brings into question whether the current mileage rates are sufficient.

Also, the watch out here is that you can’t claim for personal journeys or journeys from your home to a permanent work place. You can only claim for journeys that have a business purpose.

For instance:

• An office location that isn’t your usual work place
• A customer’s workplace for a meeting
• An event, such as a work-related conference or seminar
• A training centre for a mandatory training course
• A temporary office if your usual workplace is out of action

And you will also need to record your mileage and details of the trip. I know, it is tedious task and you might think…is it worth it? The answer is yes and to make it easier, we can suggest to use an app called Tripcatcher. You can download it as an app on your phone and it allows you to track your qualifying business mileage plus add any details. It calculates the VAT as well, so it is pretty smart.  

As long as you reimburse the approved mileage as per the above table, you won’t have a taxable benefit and no additional income tax or national insurance will need to be paid.

If you buy it through your Limited Company

If you take out a loan or purchase it via Hire Purchase

• only the interest payments are an allowable company expense
• your company is also able to claim Capital Allowances (CA) to gain relief for the cost of the vehicle
• the CA again depends on the CO2 emission levels with electric cars obtaining 100% tax relief in the first year.
• running costs of the vehicle such as insurance and tax paid by your company are also  deductible expenses for Corporation Tax.

Watch out here is regardless of how the vehicle is purchased the use, or availability to use the vehicle, will create a taxable Benefit in Kind on you as an individual.

Also there will be an additional taxable Benefit in Kind if your limited company pays for your private fuel costs. This is calculated as £25,300 in 2022/23 which is the percentage used to calculate the taxable benefit of the car for which the fuel is provided.

Your limited company must then pay additional National Insurance on these benefits at a rate of 13.8%  and a P11D form must be completed.

How about Vans?

Vans are classified as plant and machinery, which means you can deduct 100% of the cost.  

You will need to consider if there is any private use as it might give rise to a taxable benefit.

If it is used regularly for private use the assessable benefit value is £3,600 in  2022/23 and the relevant fuel benefit is £688 in 2022/23.

If there is “insignificant” level of private use HMRC acknowledge that there is no benefit arising and these amounts do not apply.  Insignificant private use could be, for example calling at the dentist on the way home from an assignment.

However, using a van to do the weekly shopping would not qualify as insignificant private use. If there is an insignificant level of private use clearly there are substantial tax benefits in utilising accompany van compared to a vehicle with high CO2 emissions.

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