How to Buy a Car through your Limited Company

Many people have this question in their mind when starting up a limited company that either they can buy a car under the company name or not. Yes, you can buy a car under your company name but this option is a lot more complicated in terms of paying taxes than you think. You may have to look for possible and definite expenses while claiming for corporation tax return and benefits. In this blog, you can learn good and bad things related to buying a car for your company.

Business or Personal use of the Car

This should be the most critical concern for you when buying a company car as it will detail the tax rules over the car. You must determine that if you are going to use the car for business purposes or you are going to use it personally. If the car you buy indulges in company-related journeys, then you can claim the tax of benefit from HMRC by the help from professional accountants. If you are using the car for personal use, even the journey from home to work and vice versa or a trip home for an employee, then you might not get allowed to claim for the tax of benefit, and also you and your car becomes liable for the annual charge.

If you have purchased a company car, you get an advantage to reclaim 50% of the VAT you paid with the price. This relief is not valid for you if the car is second-hand. Your company must show VAT registration proof to avail of the relief.

Payment Method is Important

The method of payment defines the authority to the asset, and every method may appear different in tax efficiency. There are three methods that are most common for directors to choose from.

• One-off car purchase: When you purchase a car in a single payment, you are entitled to get a reduction in the tax relief against your asset as its value depreciates every year. By buying a car in the outright amount, you may need to show a lot of amount in your statutory accounts.
• Personal Car Purchase: This method is by far the best if you have plans to change your car every year. This method can let you receive tax relief from HMRC as well. Company formation in UK becomes the most flexible choice in related to a car purchase. You can buy a car with an upfront amount and pay the rest of the money in monthly installments.
• Business Car Hire: This scheme mostly used by small businesses or sole trader accountants in London who do not wish to spend a lot of capital on car purchases and complicate their company accounts.

Expected Claim for Mileage and Expenses

Owning a car by a company makes the company bear more expenses every year.

There is a specific set of amounts that can claim back from HMRC over the mileage and fuel a car uses. Business accountants in London that best deal in the mileage tax controls can define the rules and rates for the per-mile tax relief. Generally, its 45p per mile for 10,000 miles per year.