Which vehicles can I use for work?
For travel, you can either use your own vehicle or a company vehicle for work. You can use vehicles such as a car, van, motorcycle or a bicycle for work.
Using your own vehicle for work
If you use your own vehicle you may be able to claim tax relief on the approved mileage rate. This covers the cost of owning and running your vehicle. Note, you cannot claim separately for things like:
- Road tax
You also cannot claim for journeys to and from your work, unless it is a temporary place of work.
Mileage and fuel rates and allowances
If you use your own vehicle for work, HMRC lets you claim based on mileage rather than fuel costs. The approved mileage rates are:
- 45p per business mile for cars and vans for the first 10,000 business miles in the tax year and 25p per business mile over 10,000 business miles in the tax year.
- 24p per business mile for motorcycles in the tax year.
- 20p per business mile for bicycles in the tax year.
Using a company vehicle for business
If you use a company vehicle for work, you can claim tax relief on the money you have spent on fuel and electricity and for business trips. Keep records to show the actual cost of the fuel. If your employer reimburses some of the money, you can claim relief on the difference.
Can I purchase a vehicle solely for company use through my company?
If you are thinking of buying a vehicle solely for company use, you can either purchase a vehicle personally or through your limited company.
Purchasing a vehicle personally
If you have purchased a vehicle such as a car, van, motorcycle or bicycle personally for business use only, the initial cost or finance costs are not tax deductible. You also will not be able to claim tax relief on running costs such as road tax, insurance, fuel and servicing.
You may, however, be able to claim tax relief on the approved mileage rate (detailed above).
Purchasing a vehicle through your limited company
If you have purchased a vehicle through your limited company, the tax treatment of the purchase costs depends on how the vehicle is financed. For example, if a loan is taken out to purchase the vehicle or the vehicle is purchased on Hire Purchase, only the interest payments are an allowable company expense. You can also claim capital allowances on cars, vans, lorries, trucks, motorcycles or bicycles you buy and use in your business. This means you can deduct part of the value from your profits before you pay tax.
What are the tax implications of purchasing a car through my limited company?
If you drive a car that has been provided by your employer, and you use that vehicle for personal transport outside of work, then it is considered a ‘Benefit in Kind‘ (BIK). In other words, your vehicle is considered a taxable perk by HMRC. Due to this, tax will need to be paid.
Is it tax efficient to purchase a car through my limited company?
It will be tax efficient to purchase a car through your limited company if:
- You have bought an electric car with no CO2 emissions or a hybrid car with very low emissions (this rule will be in place from April 2020).
- You use a ‘pool’ car that is shared by employees for business purposes and kept on your work premises.
Get in touch with us if either of the above conditions would apply.
What are the rules for company car use?
For a car to be recognised as a company car, the car must only be used for business purposes. An example of a business purpose could be using the company car to make a business journey to a business meeting from your office.
Commuting to and from work qualifies as personal use (not business use), so even if you only use the car to get to work and back you will not be able to claim VAT.
Even if there is no actual private use, if the car is potentially available for private use then you cannot claim VAT and the vehicle would be considered a ‘Benefit in Kind’.
The only cars which are likely to be recognised as a company car are those which are parked permanently on business premises and are only used for business journeys.
Can I recover VAT on my company car?
As a general rule, you can recover the VAT if the vehicle:
- Will be used exclusively for the purposes of your business and would not be made available for the private use of anyone.
- Is a stock in trade of a motor manufacturer or dealer.
- Is intended to be used primarily as a taxi, driving instructor car, or self-drive hire.
You can claim capital allowances on cars, vans, lorries, trucks, motorcycles or bicycles you buy and use in your business. The rate you can claim depends on the CO2 emissions of your car and the date you bought it. The main rate (18%) and special rate (6%) apply from 1 April for limited companies, and 6 April for sole traders and partners. The first year allowances rate applies from 1 April for all businesses. See the full HMRC Allowances list.
Annual Investment Allowance (AIA) cannot be claimed for cars.
AIA, however, can be claimed for:
- Motorcycles – apart from those bought before 6 April 2009
- Lorries, vans and trucks
If you are a Sole Trader or Partnership, use the simplified mileage approach
If you are a sole trader or a partner you can claim simplified mileage expenses on business vehicles instead – as long as you have not already claimed for them in another way.
You can claim:
- 45p per business mile for cars and goods vehicles for the first 10,000 business miles in the tax year and 25p per business mile over 10,000 in the tax year.
- 24p per business mile for motorcycles in the tax year.
So should I purchase a car through my limited company, purchase a new car, or use my existing car?
There is no one size-fits-all answer to this question as the answer will depend on you and your businesses specific circumstances. The above gives you guidance on the treatment that would apply in each scenario so that you can begin to work out which is most beneficial to you.
We hope this blog post has been helpful and you have found all the answers you were looking for. If not, please do get in touch with us. We are always looking to improve our content, so if anything is not clear or you have any other questions, please get in touch with us today.