If in the course of your work you decide that you need a car, you need to figure out if you will get the vehicle in your name or as a director of a company. This is not a decision made on the fly because each choice has tax implications. Whether you are leasing or buying a car, here are four situations to help you decide if it is better to get the car yourself or through the business.
Which is better, getting a car under my name or my company’s name?
If the car will be used for personal reasons, get a car under your name.
A general rule with vehicles is that only the actual business use of the car can be deducted from taxes as a business expense. The law in the UK uses the phrase, “wholly and exclusively.” Incidental use is not allowed. For example, you cannot deduct commuting expenses for travel between home and work. Private travel is also not deductible.
You must also be able to provide proof that the use of the vehicle is for business purposes. Thus, you will need to keep accurate records such as receipts and logbooks. Take a good look if the vehicle’s main purpose is not for the business, then get it under your name.
If you want to increase business assets, get the car under the company’s name.
A car purchased by the company is recorded as a fixed asset and not as an expense. This is because it is expected to be useful to the business for a long time. However, the value of the car goes down the minute you get your hands on it.
This depreciation value is not straight up deductible under UK law precisely because it is considered an asset. Instead, a portion of the car’s value can be deducted from the profits through capital allowances to reduce taxes. It is important to note that HMRC only allows claim capital allowances on cars and for those who have not claimed a mileage deduction.
If you want to pick your dream car, get the car under your name.
One of the factors that influence the amount of capital allowances that can be claimed with the HMRC is the amount of CO2 emissions it produces. The HMRC specifies the amount that can be claimed depending on the year the car was purchased. Generally speaking, lower C02 emissions mean better rates for capital allowances.
This is a factor that should be considered on what type of car to get. For those who do not want such restrictions in choices, stick to getting the car personally.
If you want to make claims on VAT, get the car under the company’s name.
VAT on cars is quite restrictive in the UK. The law specifies two conditions that have to be met. First, the car has never been used for private purposes. Second, it will be exclusively used for business. In fact, even the potential for private use, even though it never really happens, is usually considered a factor in being unable to make VAT claims. Basically, the law sets that you can only reclaim VAT If the car is 100% for the purpose of the business. If these criteria set by HMRC are met, you can claim your VAT refund by submitting a VAT return.
There are many things to think about when buying or leasing a car under your name or as a director of the company. Circumstances such as whether the company is VAT registered, the amount of personal use, and the ability to maintain meticulous records need to be considered. In making the decision, the advantages and disadvantages need to be weighed in order to make the right choice.
You can manage your finances with the help of an accounting firm. With her experience of helping businesses achieve profitability in challenging times, Annette Ferguson – can assist you in unlocking financial strategies to boost business profitability. Get in touch. Our social media channels and YouTube channel are also available to subscribe.