New business and company cars

Decide how long you'll have the car, get a few quotes for buying and hiring, then compare the total cost of buying a car (if it's brand new you cannot reclaim the VAT), with the cost of contract hire over the period (you could reclaim the VAT on rental payments).

Rental payments can be deducted from company profit before calculating tax, but you can't do that for a car bought on finance. You can, however, claim capital allowances for owned cars, so the corporation tax difference may be negligible.

If you buy a car, you'll have an asset to sell or part-ex, and if you hire one you may have to pay to make it good before handing back.

Also, if yours is a limited company, whether you buy or hire, the company and you (or your employee) will have to pay NIC and personal tax on the car benefit. If fuel is provided for personal use there will be another tax charge on the car's user, and the company will have to pay VAT on the scale charge.

Many people now avoid company cars because of the high tax involved.

My preference would be to run a personal car and charge the company 45p per mile for business use (limited company - first 10,000 miles), or a proportion of the running costs (if it's not a limited company).

I hope that hasn't created more confusion. Good luck with your business.

First question is why do you want to buy a car through the business. As deborahc has pointed out there are all sorts of tax implications - it certainly isn't a straight-forward question.

Furthermore, you will be saddling your business with debt from day one - assuming that you can get credit (which is likely to be at non-prime finance rates).

Deborahc has covered most of the bases but is slightly incorrect in some of what she says - you can reclaim half of the VAT on lease rentals, also there are limitations on how much of of the rental or capital you can offset against tax - you really need to talk to a specialist about this (I expect one will crop up shortly)

Remember, a good used Mondeo or similar will set you back £4k and will do a pretty good job for a year or so.

i think you may be jumping in, is this purchase going to affect the cash flow of the business if not then great but i would advise you have a long think about it, if you have unpaid invoices and the car payments become a drain would you be able to get additional finance ?

This blog may be some help to you.

elvis24 said:

Hi,
I need some advise, I have just started out in business and am looking at getting a company car and Im finding the differing options confusing.
Is it best to buy a car(it would be on some finance) or is contract hire a good way to go.
I have registered for VAT although not yet required to.
Any help would be great.
Thanks

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No one has actually asked you whether you trade as a soletrader or limited company - that actually makes quite a bit of difference.

jannet said:

I will agree with this statement that The Rental payments can be deducted from company profit before calculating tax, but you can't do that for a car bought on finance. You can, however, claim capital allowances for owned cars, so the corporation tax difference may be negligible.

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If the OP is trading via a limited company its so important though to look at the entire picture - benefits in kind on the car and fuel make such a difference.

jannet said:

I will agree with this statement that The Rental payments can be deducted from company profit before calculating tax, but you can't do that for a car bought on finance. You can, however, claim capital allowances for owned cars, so the corporation tax difference may be negligible.

Click to expand...

That is correct, make sure you do your homework first and what's best suited to your cash flow...

I use a company van as a Ltd company, the benefits of all the costs going through the company far out weigh the tax implication.

I know its different from a car, But I purchased a double cab top spec van, 6 seats and all mod cons. Even intimidates 4x4 drivers which is an extra bonus

I think this is why the double cab pick ups are doing so well at the moment, Almost as good as a car, and a lot less tax burden, But how long before the government close this grey area