We are often asked if it is beneficial to purchase a car through the business - We've answered your follow-up questions.
An article we published back in July, Buying an electric car through your company – What you need to know, has proven very popular, so we have decided to follow it up with your questions answered.
Q: In terms of buying the car, do I need profit in the business? I.e do I need actual profit in the business or can I treat this as an expense and buy it outright, and then declare the purchase through the business as a normal expense?
A: No, the company does not need to have retained profits in order to buy the car. It just needs to have the cash resources, so if the director/shareholder is happy to lend the money to the company, the company can buy the car. The car will be treated as a company asset in the accounts with the cost being spread over a number of years as depreciation. The benefit in terms of corporation tax relief is all received against the year in which it is purchased though.
Q: What if I close the business after buying the car? Do I need to repay anything? I wouldn’t want to sell the car but I was curious how this would work if the business that bought the car no longer exists.
A: The thing to remember is that it is the company that owns the car. If you want to close the company, the car must be sold but if you personally want to keep it then you can buy it from the company. You would need to research the market value of the car but it would be acceptable to buy at the low end of the market value scale as there would be no costs of selling and it is the easiest option for the company. When the car is sold you do have to give back corporation tax relief on the sales proceeds. So if you sold to yourself for £30,000 the company’s tax bill on closure would increase by £30,000 @ 19% (current corporation tax rate) = £5,700, hence why it is a good idea to research the lowest market value (usually part exchange via a dealer).
Q: Can the insurance costs can be claimed as expenses for the company car? Assuming there is no personal vs. business use determination needed here.
A: Insurance must be paid by the company and corporation tax relief would be claimed on this too. It would be all business as any personal benefit is covered by the Benefit in Kind tax charge. All other car running expenses such as servicing, tyres etc can also be claimed as company expenses.
If you would like detailed advice please call us on 0203 713 4530 or email firstname.lastname@example.org