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Company Car: Ruling Change April 2020
When considering whether or not to purchase a car through your limited company. Many factors should be considered; although it could be deemed a tax saving method, it is important to consider all associated costs and tax implications.
We’re shedding light on the frequently asked question regarding the best way to hold cars within a client’s own limited company.
Benefit in kind
If supplying a member of staff with the use of a car, then a taxable benefit in kind arises. This is based on the list price and CO2 emissions of the vehicle, however can prove expensive. For this reason, it is often advisable to hold a car outside of the company.
It was common place for companies to lease vehicles for Directors and for the lease cost to be put to the Director’s loan account. Since April 2016 this still constitutes a benefit in kind.
From April 2020, the rules are changing. Pure electric vehicles will attract no benefit in kind. Thus, holding them in the company will be seen as attractive. The company will be eligible for capital allowances on the cost and will be able to claim tax relief on all running costs.
Where vehicles are held outside of a limited company the owner can charge the company a mileage rate for business use. This is at 45p for the first 10,000 miles and 25p thereafter.
VAT
When a car is owned within the company, it is possible to claim the VAT back on running costs (services, repairs and fuel). However, the VAT cannot be reclaimed on the purchase price and if the company vehicle is leased, the VAT reclaim on the lease payments are restricted to 50%.
More often than not, company vehicles are often used for private use also. If this is the case, an adjustment needs to be made for private use, using the fuel scale charge. This is a fixed add back of VAT based on the CO2 emissions of the vehicle.
Where mileage is charged to a company, VAT can be reclaimed on the petrol element of the mileage claim. This amount is based on engine size and fuel type of the vehicle.
Should you need assistance and have further questions regarding company vehicles, contact us today.
