Is buying a car through my business more tax-efficient?

Whether you are running a small business or are self-employed, you may consider the need for a company car.

A company car can be beneficial for your business’s professional image, especially where branding or client-facing travel is important.

However, you must consider whether it is the most tax-efficient option or if buying the car personally is a better option.

Why should I buy a car through my company?

Buying a car through your company is favourable for its tax relief, but you must consider how the car is used, the vehicle’s CO2 emissions, overall costs and the tax consequences.

A benefit of buying it through your company is that you can claim allowances on the cost of the vehicle, with the rate depending on CO2 emissions.

Zero-emission cars may qualify for a 100 per cent first-year allowance, while higher-emission cars generally lead to higher Benefit in Kind (BiK) charges, which make them less tax efficient.

If they relate to your business, your company can deduct the running costs of your vehicle, such as insurance and repairs.

However, if the car is used for any private use, including commuting, a BiK tax charge will arise and VAT recovery is restricted.

Accurate mileage records are crucial when using a company car to avoid any HMRC challenges.

Should I buy my car personally instead?

Purchasing a car through your company can bring an administrative burden and purchasing it personally allows you to keep it as your own asset and eliminates BiK rules and P11D reporting.

You can still use your vehicle for business journeys and claim mileage allowances instead of actual costs.

Business owners may choose simplified mileage to claim tax relief, in which you claim a fixed pence-per-mile rate for business journeys and this covers all running costs.

In addition, you can choose actual cost methods where you track all vehicle costs and claim certain parts that relate to business use based on mileage or usage records.

If you do decide to buy a car personally, you will lose out on claiming capital allowances through your company and all running costs must be paid personally.

Mileage claims can also be less generous if the business use is high or if the vehicle is expensive to run.

Is there a better option?

Buying a company car is different for everyone and you must consider the pros and cons of each option.

Buying a car through your company is better if:

• Business mileage is high
• The car has low or zero CO2 emissions
• You want to benefit from Corporation Tax relief on the purchase and running costs
• You have an electric vehicle, as BiK tax is lower and the personal tax cost is reduced

Buying a car personally is better if:

• It is mainly used for private use
• Business mileage is lower
• You want to lower the administrative burden

How do I know what is the right decision for me?

The recent Autumn Budget is set to introduce new mileage charges for electric vehicles from 2028 and revised thresholds for the Expensive Car Supplement (ECS) may alter the long-term cost of company cars.

These measures could reduce some of the previous tax advantages of electric and company vehicles and it is crucial that you seek financial advice to review your decision and the tax implications.

We can help review the current tax rates and advise you on how capital allowances, VAT recovery and BiK calculations will affect your purchase.

Our expert team can help ensure you meet HMRC requirements and make the most tax-efficient and compliant decision.

For expert financial advice and support, contact our team today.