Thinking about buying a new car?

If you are considering purchasing a new car, you have worked diligently throughout the year and your profit demonstrates your financial capacity.

Your best strategy may be to buy the car yourself via finance or outright.

For example, consider a standard Tesla Model 3 priced at £39,990.

The VAT is £6,665.

The gross earnings for a basic-rate taxpayer on £50,270 per annum would need to be £46,788 to fund £39'990. Of this £13,463 goes to the chancellor.

By purchasing the car yourself, you are liable for all running costs and depreciation but can claim mileage for business usage.

You can legitimately claim mileage for personal vehicle use for business purposes at HMRC rates (45p per mile for the first 10,000 miles). This can be simpler and avoids Benefit-in-Kind (BiK) charges.

Alternatively, you could consider a company car.

Purchasing a company car as a director can provide several benefits, including tax relief through capital allowances and potential VAT recovery if the car is used exclusively for business.

For instance, electric vehicles offer significant tax advantages, such as a low Benefit-in-Kind (BiK) rate, allowing for substantial savings on personal tax liabilities.

Benefits of Buying a Company Car as a Director

Tax Advantages

• Capital Allowances: Directors can claim capital allowances to offset the cost of the car against taxable profits. For example, if a company purchases a new electric vehicle (EV), it can claim 100% of the cost in the first year, significantly reducing the tax bill.

• VAT Reclaim: If the car is used exclusively for business, the company can reclaim VAT on the purchase. For mixed-use vehicles, 50% of the VAT on lease payments may still be recoverable.

Benefit-in-Kind (BiK) Rates

• Lower BiK for Electric Vehicles: The BiK rate for electric cars is significantly lower than for petrol or diesel vehicles. For instance, in the 2025/26 tax year, the BiK rate for a fully electric car is just 3%. This means a £40,000 electric car results in a taxable benefit of only £1,200, leading to lower personal tax liabilities.

Ongoing Costs Covered

• Business Expenses: The company can cover ongoing costs such as insurance, maintenance and fuel which are treated as allowable business expenses. This can result in substantial savings compared to personal ownership.

Flexibility in Usage

• Business and Personal Use: While the car is primarily for business use personal use is permitted. However, this incurs additional tax implications such as the BiK tax. For example, if a director uses the car for personal trips they must report this for tax purposes.

Summary of Key Benefits

* Ongoing costs such as insurance maintenance and fuel are covered as allowable business expenses.

* Personal use is permitted but incurs additional tax implications such as the BiK tax.

These benefits make purchasing a company car an attractive option for directors, particularly when considering electric vehicles.