Buying a company car - is it worth it?

IR35 Test

Should you buy your own car and charge it to the company, or purchase it as a company car through the company? This article explains the issue.

Company car taxation

Tax rates on company owned vehicles have increased as successive governments have sought to discourage the practice of company car ownership.

The present tax charges are based on CO2 emission, generating taxable benefits in kind of up to 35% of the car’s original list price!

If the company pays for your petrol, you will have to pay the relevant percentage (of up to 35%) on a car fuel benefit figure of £14,400 for 2004/05.

Also your company will have to pay Class 1A National Insurance Contributions on the total car and fuel benefit in kind figures at the rate of 12.8%.

Should contractors purchase company cars?

the answer in most cases will be that you would be better off owning the car privately

PlatinumUmbrella.com

If you are operating a “one man” service company, then the answer in most cases will be that you would be better off owning the car privately. You would then charge your company tax free mileage of 40p per mile for the first 10,000 business miles and 25p per business mile thereafter.

As director and 100% shareholder of your own company, you are effectively financing the car yourself, so if your own company takes ownership of the car, you are not only spending your own money on the vehicle (unlike an employee of a large organisation) but you are also suffering not only the employee benefit in kind charges but also the employer Class 1A National Insurance charges.

When are company cars advantageous?

   
David Colom

David Colom

Principal

D J Colom & Co Chartered Accountants

David Colom qualified as a Chartered Accountant in the City of London in 1981 and is the founder and principal of D J Colom & Co Chartered Accountants established in 1989.

Started specialising in serving IT contractors in 1993 and is now one of the longest standing suoppliers of accountancy services to computer contractors. Read Full Profile...

View all our experts

   

There are a few exceptions to the general rule above:

  • If the car is a highly depreciating vehicle, it may pay to own it for a period of six months, following which the director can purchase the car for it’s much reduced market value. In these circumstances, the company would bear the substantial loss arising in the short period of ownership, which may well be greater than the tax and Class 1A charges arising.
  • If the car costs more than average to maintain and service, the running costs may be greater than the tax and national insurance charges.
  • If the car is a “classic car” as defined by HMRC, then special rules apply which may make company car ownership attractive, particularly if the maintenance costs are high.

Alliance Accountants

Updated: Thursday, January 06, 2011

© 2014 All rights reserved. Reproduction in whole or in part without permission is prohibited. Please see our copyright notice. If you want to use any content you have seen on this site then please request our media pack and ask for details of our Content Licencing Service.

Inni Accounts


Readers Comments...


  
Bookmark and Share
  
     
  

Latest Site Updates

Contractors may see simpler expenses rules from consultation, but not until post-2015 Contractors may see simpler expenses rules from consultation, but not until post-2015

Contractors can anticipate simpler rules on expenses and subsistence following a new Treasury consultation, but changes won’t happen until after 2015.

Contractors may benefit from OTS employment status review, which could affect IR35 Contractors may benefit from OTS employment status review, which could affect IR35

Contractors could benefit from the findings of a review of employment status initiated by the Office of Tax Simplification, due out for Budget 2015.

Extracting profits tax efficiently from a limited company Extracting profits tax efficiently from a limited company

Contractors can choose from a range of strategies to extract profits tax efficiently from their limited company, explains Abbott Moore’s James Abbott.

IR35 Odds - The chances of being caught are about 60,000 to 1 IR35 Odds - The chances of being caught are about 60,000 to 1

Contractors are more likely to find a valuable object on the Antiques Roadshow than to lose an IR35 case to HMRC.


  
  

Twitter

  • Contractors may see simpler expenses rules from consultation, but not until post-2015 http://t.co/WqBuhPYL7b

    9 hours ago

  • HMRC wins another tribunal case against NT Advisers over tax avoidance schemes https://t.co/tddUzew3Ye

    10 hours ago

  • HM Treasury releases Travel & subsistence review consultation, proposing simpler rules for employees & employers https://t.co/uut6sGnHsO

    10 hours ago

  • Contractors may benefit from OTS employment status review, which could affect IR35 http://t.co/a7CVfCKn1A

    13 hours ago

Follow Us On Twitter


  
     

  
  

Contractor solutions

Contractor Angels Orange and Gold Accountancy Limited IR35 Test Clever Accounts Accountants Checklist Alliance Accountants
  
  

Contractor solutions

Contractor Angels

More than just an Umbrella. Retain up to 90% of your earnings.

InTouch Accounting

Perfect mix of technology & personal service for only £92 per month.

Parasol

The UK’s largest employment organisation - 0% risk, 100% compliance

Clever Accounts

Complete contractor accounting service. 24/7 online access. £69 pm!

Need an accountant?

Comprehensive service for £59 per month. Call now for a FREE consultation.

Contractor Accountant

Free consultation, incorporation and IR35 reviews. Find out more…

NA Bedouin Group D J Colom Accountants Contractor Financials NewsNow
  
Caprica Accountants Contractor Angels Contractor Insurance Life Insurance

  

The UK's leading contractor site. Independently audited traffic (ABC) – 131,456 monthly unique visitors.