Purchasing A Car Through A Limited Company

In light of the increase to corporation tax rates, effective 1 April 2023, you may be considering how to reduce your corporation tax liabilities. One option is purchasing a car through your limited company – the key points to consider in your decision are as follows.

Investment allowances on purchases of motor cars:

• First Year Allowance (FYA): 100% of the value of the asset can be written down in year 1. Applicable to new electric cars and electric charging points.

• • New cars are ‘unused and not second hand’. The HMRC guidance is that you should accept a car is unused and not second hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser, or used as a demonstration car.

• Main Pool Allowance: 18% of the value of the asset can be written down each year. Applicable to cars that produce 1 – 50 g/km of CO2 and second-hand electric vehicles

• Special Rate Pool: 6% of the value of the asset can be written down each year. Applicable to cars that produce more than 50 g/km of CO2

Electric cars – key scenarios tax treatment assuming car is owned by employer:

• Employer allows cars to be recharged from a vehicle charging point at work: No taxable benefit to employee

• Employer pays for a vehicle charging point to be installed at the employee’s home: No taxable benefit to employee

• Employer pays for charge card of £100 per year to allow individuals unlimited access to local authority vehicle charging point: No taxable benefit to employee

• Employee charges car at home & the employer reimburses the electricity costs: reimbursement is taxed as earnings where private mileage is performed. A deduction is allowed for the cost of business miles travelled by the employee.

• Employee charges car at home & the employee pays for their own electricity: no tax implications to the employee.

• Employee charges car at work: no additional benefit to the employee.

• Mileage allowances follow Advisory Electricity Rate

• Employers may be able to apply for a grant to support the cost of the purchase and installation of electric vehicle (EV) charge points under the Workplace Charging Scheme – eligibility criteria applies

All other cars – key scenarios tax treatment assuming car is owned by employer

• Taxable benefit in kind charged based on CO2 emissions of car, taxed on employee & employer

• Mileage allowances follow Advisory Rates

• If private fuel is provided, fuel benefit also applies

Contact your local Whitings Office for advice surrounding this, other capital expenditure plans and to find out how the purchase of a company vehicle will impact your corporation tax liabilities.

Disclaimer - All information in this post was correct at time of writing.