There are many things to consider when purchasing a company car from a limited company. We will briefly address some of the major issues, but it is important that you do thorough research and consider all options.
Tax treatment of the purchase depends on how the car was financed.
Capital allowances will allow you to get tax relief by purchasing a company car. Capital allowances can only be claimed for the following three categories:
- 100% First Year Allowance. Capital allowances of 100% for new and unutilized electric cars or zero emission cars. The car’s cost can be deducted 100% in the first year.
- Main rate allowances: 18% of the car’s value This means that 18% can be taken from your profits each year, before you have to pay tax.
- Special rate allowances: 6% of car’s worth This means that you can deduct 6% from your profits each year, before you pay taxes.
The percentages shown above clearly show that the government encourages employers to use more fuel-efficient vehicles through a tax incentive.
In addition, the company will be responsible for paying Class 1ANICs for the provision of company cars based on car benefit charges. Class 1ANICs are currently paid by employers at 13.8%. This will rise to 15.05% in 2022-23. Additional Class 1A NICs will be due if the company uses private fuel.
Employees who use company cars will be subject to additional tax. It all depends on how much tax they pay, what the car is worth and how many C02 emissions it emits.
If you have any questions, please don’t hesitate to contact me.