Small Businesses – Should I buy a car on my company?

I am asked many times should I buy/ Lease a car on my company or pay for it personally.

The answer as always is never as simple as the question and depends on whether it is a car or van, whether it is electric or not and whether you use is personally or ONLY for business purposes. Incidentally it is VERY hard to prove that a vehicle is not used personally if you leave it at your home.

Generally, if you personally use a company vehicle even though the cost of that vehicle is paid for by the company you will be charged additional income tax based on something called a benefit in kind.

A “benefit in kind” (BIK) refers to the value of any non-cash benefits or perks an employee receives from their employer in addition to their salary. In the case of company cars, it specifically relates to the personal use of a vehicle provided by an employer.

When an employee is given access to a company car for personal use, the value of this benefit is considered taxable. The employee is required to pay tax on the value of the benefit in kind they receive, as it is treated as additional income. The employer is also responsible for paying National Insurance contributions on the taxable value.

To calculate the taxable value of a company car, the UK government applies specific rules based on factors such as the car’s list price (including optional extras), its CO2 emissions, and the type of fuel it uses. These factors determine the car’s “car benefit charge,” which is a percentage of its list price used to calculate the taxable value. The employee’s personal tax rate is then applied to the taxable value to determine the amount of tax owed.

In addition to the above there are different VAT treatments that need to be considered.

Benefits in kind can mean additional income tax of thousands of pounds, so it’s important to consider all factors when making a decision on the best option.

Disclaimer: Paul Stankiewicz is the owner and principal at Paul Marks & Co Chartered Accountants which is the trading name of Paul Marks Ltd a Limited Company registered in England and Wales (registered number 4487645).This article is designed for the information of readers only and is the opinion of the author only. Readers should not act on any of the information contained in this article without seeking professional advice. Nothing in this article constitutes advice, nor does the transmission, downloading or sending of any information or the Material create any contractual relationship. Links to third party websites are provided as a convenience to the reader, Paul Marks Ltd does not control and is not responsible for any of those websites or their content. Paul Stankiewicz and Paul Marks Ltd accepts no liability or responsibility whatsoever for any loss or damage suffered by any user of the information contained on or accessed through this article or the Material downloaded.