VAT on company cars
As a general rule, a VAT registered business can only claim VAT on a car if it is used exclusively for business purposes. The business shall be able to prove that there is no private use of the car. Also note that driving to and from your regular place of work is not a business usage.
There are some exceptions to the above general rule. These include situations where the car is used as a taxi/cab business, motor training business, self-drive hire business and pool cars. A car may be considered as a pool car that is kept on offices/sites (not at home) and readily available for any employee to use for business purposes. So, full VAT can be claimed in these specific cases.
What about leasing (not hire purchase) a car in your company name?
We are often asked this question by owner directors of limited companies. With regards to VAT, normally you can claim 50% of the VAT if there is a business lease. Many owners are attracted to the business lease as there appears to be better lease deals for businesses. Please note you will not be able to claim the VAT on Hire Purchase with private usage of the car.
Taxes on private use of the company car
It is also essential for you to understand that any private use of the car will attract a tax under ‘benefit in Kind’. The private usage of the car is considered as the company is providing you free of cost deemed benefit. This is the same as receiving salary from your company in the form of a benefit instead of salary. Therefore, you have to pay income tax and the company to pay Class 1A National Insurance on the car benefit. The company will also need to annually file a form called P11d to reflect the car benefit. The benefit is calculated by multiplying the list price of the car by the CO2 emissions % of the car. The list price used for the calculation should include any accessories fitted before the car was first made available and also any fitted afterwards costing more than £100.
Although, you only pay a small proportion of the value of the car when leasing but benefit in kind tax calculations are still based on the full list price as explained above. This is irrespective of the financing arrangements.
Car running costs
Your company can pay for all car insurance, repairs, servicing etc if you are paying the above benefit in kind tax. For fuel, the company can pay all but it will trigger another benefit in kind tax for the private travel. Therefore, it would be wise that the company only pays fuel for the business travel.
VAT on vehicle repair and maintenance costs can also be claimed as long as the business pays for the work and the vehicle is used for business to some extent. Note that there are special rules to claim VAT on the fuel used for business.
If your business usage of the car is expected to be less, then you may consider buying a hybrid or even electric car to reduce the benefit in kind to the lowest level. You then pay all of the private fuel costs personally to avoid the fuel scale charge. Some of the tax efficient vehicles are Tesla, BMW i3 and i8.
If you and employees use personal cars for business as well
You can reimburse yourself and employees up to 45p/mile for the first 10,000 business miles and 25p/mile thereafter in a tax year. These payments are free of any taxes but you need to keep appropriate mileage records.
The above article is intended to provide guidance on the most common questions raised by the business owners. Please Contact Us for a detailed explanation or if you need help with any of the points discussed in this article.