What car purchase options are available to limited company directors?
Directorships in limited companies come with some decent perks in the UK, such as tax breaks and car benefits.
Limited company directors in the UK have several options for acquiring cars, including business contract hire, business contract purchase, and outright purchase. You can find the ideal solution for your needs by understanding the differences.
Through the business, you can unlock several tax efficiencies and benefits. All finance options, however, have their own advantages, and there are many to choose from.
This article will help you make an informed decision about car purchase options for company directors. Zyla accountants can provide you with professional advice if you're considering buying or leasing a vehicle on behalf of your company, so get in touch with us today.
What Types of Cars Can You Purchase Through a Limited Company?
The choice between luxury or more economical cars can significantly affect tax liabilities and company image for limited companies.
A company's choice of vehicle often depends on whether it is intended for purely business use or mixed personal and business use, as well as its image.
If you are deciding on what type of car to purchase, consider its emissions. In general, cars with low emissions qualify for a higher capital allowance and a lower benefit in kind charge. Therefore, using low-emission vehicles for company purposes is much more tax-efficient and worthwhile.
How to Purchase a Car for Your Limited Company
Your limited company has the option of leasing or purchasing a car. As a first step, determine what type of vehicle best suits your business needs, as this will help you narrow your options.
If you decide to hire, lease or purchase outright, you should consider the different financing options as well. You may want to consider any potential tax implications of your choice here as well.
Business Contract Purchase
A Business Contract Purchase (BCP) involves the company making monthly payments towards the eventual purchase of the vehicle. An outright purchase often involves a final balloon payment. A BCP offers the flexibility of lower monthly costs along with the option to purchase the car at the end of the contract.
Business Contract Hire
In Business Contract Hire (BCH), the vehicle is leased for a fixed period of time while a regular monthly payment is made. Due to the lack of ownership, this option is ideal for companies that want to switch cars every few years without the hassle of selling old ones.
Buying outright
In the case of an outright purchase, the company pays the entire amount upfront or arranges for financing. The company does not have to pay ongoing monthly expenses with this method, but it is initially expensive.
Company Car Tax Relief: What Is Available?
A company car's tax relief depends on its CO2 emissions, the way it was acquired, and its usage. Furthermore, lower-emission cars can offer more significant tax savings.
Benefit in Kind
BIKs are considered when a company car is used for personal reasons. As a result, both individual and employer tax contributions are impacted by the car's value and CO2 emissions.
Corporation Tax
Corporation Tax can be deducted from profits by claiming capital allowances on cars. Depending on the car's CO2 emissions, the deductible percentage varies.
Business Mileage
Companies may pay tax-free mileage allowances to employees who use their own vehicles for business purposes. Despite owning the car, the company can still record and claim business mileage.
Is it Worth Buying a Car Through a Limited Company?
Tax reliefs can be significant when purchasing high-value or low-emission cars through a limited company. The decision should, however, be weighed against BIK tax charges and administrative responsibilities.
Limited companies are a good option for purchasing a car if your circumstances allow it.
The benefits of buying a car through a limited company
Limited companies can unlock several noteworthy benefits that make purchasing a car worthwhile. Capital allowances can potentially lower your tax liability based on your circumstances.
You can also improve cash flow management by using a leasing option. Additionally, purchasing a new vehicle will demonstrate that your company is able to afford newer vehicles, enhancing your brand image.
The disadvantages of buying a car through a limited company
A limited company can be beneficial in some cases, but not always. You may be charged more tax if your car emits high CO2 emissions.
Buying through the company can also make tax reporting more complicated. The use of the vehicle for personal purposes may be restricted or subject to conditions if you intend to use the car for other purposes than business.
Contact Zyla Accountants
The tax efficiency and compliance can be optimised for company directors contemplating the purchase or lease of a vehicle through their business by seeking professional advice. Contact the team at Zyla Accountants for support with your purchase.