If you need to replace your vehicle because of all the business miles that you are doing and wondered what your options are. Should you:
1. Lease a car through your limited company.
2. Lease purchase a car through your limited company or
3. Buy a car using personal funds and continue to submit mileage claims for the business use.
Tax Implications
In terms of convenience of ownership and administration there really isn't a difference between owning the car personally and owning in the name of the company. However there is a very big difference in terms of taxation. If you own the car personally you would usually buy it from money drawn from your business (usually by dividend) or from personal savings. You would then reclaim 45p per business mile with those journeys logged on the Expenses Claim form. Once you exceed 10,000 miles in the tax year then your rate reduces to 25p per business mile. Each new tax year you restart from zero miles. All mileage claimed is free from tax and this is the simplest way of running the car.
If the car is owned by the company there are a number of tax implications. Expenses are tax deductible but if you lease purchase the car the maximum amount allowed against profit is £3,000 pa rather than the full amount paid for the car but any HP interest is claimable. No VAT is reclaimable.
If you lease hire the car you will be charged VAT. If your company is on the Flat Rate VAT scheme you will not be able to reclaim any VAT. If you come out of the Flat Rate VAT scheme you can only reclaim 50% of the VAT charged but you will lose the profit you make currently from the Flat Rate VAT scheme.
Extra taxes are:
1. Personal tax - you will be taxed at your highest tax rate on the car as a benefit in kind. A diesel 4 x 4 could easily attract a benefit of 35% of the retail price of the car every year (even if you bought it second hand or at a discounted price). So a £30,000 car could have a benefit assessed of £10,500 to add to your income each year. If you kept the car for four years you would be taxed at 140% of the manufacturer's retail value even if you had bought the car when it was two years old for a much lower price.
2. If private fuel is also paid for you, you would have another benefit assessed of 35% of £18,800 every year, again taxed at your highest rate of tax.
3. Employers NI - your company will be charged at 13.8% NI on the combined amount of the two benefits above.
In general our view is that only very environmentally friendly cars work as company cars as they have much lower rates for the benefit in kind charge. Claiming mileage and owning the car personally is therefore very likely to be the best way forward.