Updated – June 2018

Almost every business owner needs one, but it can be really difficult to figure out whether your car should belong to the company or to you personally. As always we’re here to help, so here’s our simple guide to understanding the rules around business mileage and company cars.

Generally speaking, as a limited company director it’s better to own the car personally and claim your business mileage as an expense, but this does depend on how polluting your car is and how many business miles you do.

We hope this blog is useful, but you don’t need to be an expert – that’s what we’re here for! So if you’re thinking about buying a new car or just want to check that you’re already doing the right thing, just give us a call.

What’s your company structure?

If you’re a sole trader (or partnership) you are your business so your choice isn’t about who owns the car, but whether you put the car on your balance sheet as a business asset and, based on the business use percentage, claim a proportion of the car and its running costs or whether you simply claim the HMRC rate for business mileage – currently 45p a mile for the first 10,000 and 25p a mile after.

If you want to claim a proportion of the costs you have to keep a log of both personal and private mileage so if you want the simplest option you may not want to opt for this.

Of course, we’ll run through the numbers with you when you’re buying a car and help you make the right decision for you.

If you run a limited company the situation is much more complicated, so read on to find out a little more.

The main things to consider

The first choice you need to make is whether you should buy or lease the car. Each comes with its own pros and cons. Lease car payments can be made by a company and you can sometimes reclaim some of the VAT you pay – the proportion depends on a number of factors, so give us a call and we can crunch the numbers for you.

If you’re thinking of buying outright, whether or not you’d be better off owning your car personally or making it an asset of the business depends on a few key factors:

• CO2 emissions – perhaps the most important factor. They need to be <50g/kg to make a company car worthwhile
• List price, plus the value of any optional extras
• Fuel type
• The proportion of the use for business versus personal use
• Who pays for fuel

How many business miles you do each year is also a critical factor as you could be better off claiming the personal mileage amount than suffering the personal tax impact of the company owning the vehicle.

Personal tax implications

If the business provides you with a company car you will incur a Benefit in Kind.  This is something that needs reporting on a Return of expenses and Benefits (form P11D).   Generally, this will result in an adjustment in your tax code which takes account of the benefit you get from having the company car, so technically you earn less before paying tax.  Or, you will pay more tax through self-assessment.

The least polluting cars will create the smallest Benefit in Kind and vice versa, so if your business owns a high-value gas-guzzling vehicle that you drive around in, expect a bigger slice off your tax code (we really would not recommend that type of car as a company car however).

Although being green is good, even electric vehicles, which were once exempt from prompting a Benefit in Kind, will now result in a reduction in your potential personal tax-free earnings.

Business benefits

If your company is buying the car it can write off a certain proportion of the cost against profits – technically it’s a Capital Allowance, not an expense. How and when this can be done depends on the car and, in particular, its emissions.

If you want to make the most of that allowance (which is great if you want to be green), here’s a list of some of the best low emission car options for 2018.

We can advise about your particular situation, but the bottom line is if you are looking at low CO2 emission car (>50g/CO2) it makes sense for it to be owned by the company – do run it past us first though.

When a company provides a company car to an employee or director it also attracts additional National Insurance contributions based on the Benefit in Kind, so bear in mind there will be this extra cost to you. Again, we’ll go through these numbers with you when looking at your situation.

Business mileage

Business mileage in your own car is paid at 45p/mile for the first 10,000 miles and 25p/mile after (2018/19) and claimed as a director’s expense.

If the company owns the car HMRC sets the rates at which you can claim mileage (if you opt not to have a fuel benefit –  so where the company does not pick up the fuel tab).  We can advise on a car by car basis, just give us a call.

If the company pays for your fuel you will incur a benefit in kind, based on the CO2 emissions again – the greener the car the more attractive this is too.  Speak to us about your personal situation.

What’s best for you?

As usual with money issues, the answer is “it depends”, so feel free to give us a call and we can check your current situation and talk through your future plans to make sure you’re making the best decision for your circumstances. Call one of the friendly TLC team on 01937 547109.