An article by Sue Keane, Fuller Spurling
“How can I get my business to pay for my car and motor expenses?”
This is one of the most common questions Accountants get asked. The answer is, as with so many things in business – “it depends”. However, I will try in a short article to summarise business vehicle ownership in a simple way.
Owning a car through a small business is rarely worth doing. A taxable benefit arises on the Director/employee which is calculated as a percentage of the car’s list price, and based on its CO2 emissions. The usual minimum rate is 15% and the maximum 35%. There is an additional tax if the company pays for any private fuel.
For most small businesses and cars, the best alternative is for the director to buy their own car, financing it from the company via dividends if necessary and claiming the approved mileage rate (now 45p for the first 10,000 miles, 25p thereafter) for all business travel.
The main exception to this rule is with very environmentally friendly cars such as hybrids. In fact you can claim 100% capital allowances (the whole cost of your vehicle in one year) where emissions are less than 110g/km.
Owning a car through a sole trade or partnership is different and although one can still use the approved mileage rate to keep things simple – many businesses prefer to put their car into the business.
A proportion of the car cost will be allowed each year against tax on a 20% writing down allowance basis, and all fuel, insurance etc. can be claimed. However, businesses must still remember to keep a record of business and private usage as only the business proportion of the total costs can be claimed for both expenses & capital allowances.
Vans are more straightforward and the whole cost of a van and the running expenses can be put through a business. For companies no benefit arises on the directors/employees provided that private usage of the van, other than commuting, is insignificant.