Chat with us, powered by LiveChat How to get a car through your limited company

What Car Purchase Options Do Limited Company Directors Have?

Car options for limited company directors
Table of Contents
    Add a header to begin generating the table of contents

    Working as a director of a limited company in the UK comes with a few decent perks, including tax benefits and the ability to enjoy a company car.

    Limited company directors in the UK can acquire cars through business contract hire, business contract purchase, or outright purchase, each offering different benefits and tax implications. Learning about the differences can help you find the ideal solution for your circumstances.

    By purchasing a car through the business, you can unlock several financial benefits and tax efficiencies. There are many different finance options available though, and they all come with their unique advantages.

    So, in this article, we’ll look at what car purchase options company directors have to help you make an informed decision. If you’re a company director looking to buy or lease a vehicle through your business, it’s a great idea to get professional advice from our limited company accountants so get in touch with us today.

    What Cars Can You Put Through a Limited Company?

    Limited companies can typically purchase or lease any type of car, although the choice between luxury or more economical vehicles can significantly impact tax liabilities and company image.

    The decision often depends on the intended use of the vehicle – whether for purely business use or mixed personal and business use – and the image the company wishes to project.

    When it comes to actually deciding on the type of car to purchase, try to consider the emissions. Low-emission cars typically qualify for higher capital allowances and lower Benefit in Kind charges. This makes low-emission vehicles much more tax-efficient and worthwhile to use as company cars.

    How to Get a Car Through Your Limited Company

    Acquiring a car through your limited company involves choosing between leasing and buying. You’ll want to determine the type of vehicle that will best suit your business needs first, as this will help guide your vehicle options.

    Then, consider the different financing options such as hiring, leasing or purchasing outright. It can be helpful to assess the financial impact of your choice here, including any potential tax implications.

    Business Contract Purchase

    Business Contract Purchase (BCP) is a popular option where the company makes monthly payments towards the eventual purchase of the vehicle. This method often includes a final balloon payment to own the car outright. BCP is attractive because it offers the flexibility of lower monthly costs with the option to purchase the car at the end of the agreement.

    Business Contract Hire

    Business Contract Hire (BCH) involves leasing the vehicle for a fixed period while paying a regular monthly amount. This option does not usually end in ownership of the car, making it ideal for companies that prefer to switch cars every few years without the hassle of selling old vehicles.

    Outright Purchase

    Purchasing a vehicle outright involves the company paying the full amount for the vehicle upfront or through a finance agreement. This method frees the company from ongoing monthly payments but requires a significant initial expenditure.

    What Tax Relief Is Available for a Company Car?

    The tax relief on company cars depends on the CO2 emissions of the vehicle, the method of acquisition, and its use. As touched on earlier, lower-emission cars can also attract more significant tax savings.

    Benefit in Kind

    When a company car is used for personal purposes, it’s considered a Benefit in Kind (BIK). The tax payable is calculated based on the car’s value and its CO2 emissions, affecting both the employee and the employer in terms of personal and National Insurance tax contributions.

    Corporation Tax

    Companies can claim capital allowances on cars, deducting a part of the vehicle’s value from profits before paying Corporation Tax. The percentage deductible depends on the car’s CO2 emissions.

    Business Mileage

    If employees use their own vehicles for business travel, companies can pay a mileage allowance tax-free up to HMRC’s approved rates. If the company owns the car, business mileage can still be recorded and claimed, reducing overall business expenses.

    Is it Worth Buying a Car Through a Limited Company?

    Purchasing a car through a limited company can be financially beneficial, especially with high-value or low-emission cars that attract significant tax reliefs. However, the decision should be weighed against potential BIK tax charges and administrative responsibilities.

    Ultimately, the decision to purchase a car through a limited company will depend on your circumstances. Enlisting the help of tax professionals, such as our team at WIS Accountancy, can ensure you make the right financial choice.

    Benefits of Buying a Car Through a Limited Company

    Opting to purchase a car through a limited company can unlock several notable benefits that make it worthwhile. Depending on your circumstances, you could potentially lower your tax liabilities thanks to capital allowances.

    If you decide to utilise a leasing option, then your business could also enjoy improved cash flow management. Another benefit that is often overlooked is that if you purchase a new car, it will enhance your company’s brand image as it shows that your company can afford newer vehicles.

    Drawbacks of Buying a Car Through a Limited Company

    Although, in some cases, purchasing a car through a limited company is beneficial, it isn’t always the case. Depending on the car you choose, you may have higher tax charges if the vehicle has high CO2 emissions.

    It can also add to the complexity of tax reporting if you buy through the company. If you want to use the car for other things beyond the business, then you might have problems as there will likely be restrictions or conditions on the personal use of the vehicle.

    Looking at Making a Tax Efficient Vehicle Purchase? Contact WIS Accountancy

    For company directors considering purchasing or leasing a vehicle through their business, seeking professional advice can help you optimise tax efficiency and compliance.

    Our team at WIS Accountancy specialises in helping businesses make informed decisions about their vehicle needs while maximising financial and tax advantages.

    So, if you have any questions or would like assistance in finding the most tax-efficient way to buy a car through a limited company, please contact us today for more information.

    Further reading:

    Share This Post

    Request a Callback

    Request a Free Accounting Quote

    Would you like an accounting quote based on your requirements and business? Click on the button below and complete the form to get an accounting quote sent through to you.

    We’re available Monday to Friday (9am – 5pm)