Many small business owners and self-employed individuals may consider buying a car through their business.
There are many factors to think about, including how the car is used, the vehicle’s CO2 emissions, overall costs and the tax consequences for both you and your business
Business owners must understand which option suits their vehicle best so that they can make the most tax-efficient decision.
What if I want to buy my car through my company?
When a car is purchased through your company, it becomes a business asset, and one of the key advantages is the potential for tax relief. Companies can claim capital allowances on the cost of the vehicle, with the level of relief determined by its CO₂ emissions.
Zero‑emission vehicles can qualify for a 100% first‑year allowance, allowing the full cost to be deducted from taxable profits immediately. In contrast, cars with higher emissions only qualify for reduced writing‑down allowances, meaning tax relief is spread over a longer period.
Where a company car is used for any private purposes, including commuting, higher‑emission vehicles also attract higher Benefit‑in‑Kind (BiK) charges, making them significantly less tax‑efficient than zero‑emission alternatives. VAT recovery may also be restricted if there is any private use of the vehicle.
Another advantage of company cars is the ability for the business to deduct running costs such as insurance, servicing, and repairs. Beyond the financial benefits, a company car can also enhance your professional image, particularly if branding or regular client-facing travel is part of your operations.
To stay compliant, it’s essential to maintain accurate mileage records for any company vehicle, as HMRC may request evidence to support business‑use claims.
Is buying a car personally better?
Purchasing your car personally is often simpler, as your vehicle remains your own asset and no BiK rules or P11D reporting are required.
If you use your car for business journeys, you can usually claim mileage allowances instead of actual costs.
However, the downside of buying a car personally is that you cannot claim capital allowances through your company and all running costs must be paid personally. Financing of the vehicle is also a consideration.
Mileage claims can also be less generous if the business use is high or if the vehicle is expensive to run.
Which is better?
Business owners should consider the pros and cons before making their decision.
Whilst each case should be considered on its own merit, generally buying a car through your company is better if:
- Business and personal mileage is high
- The car has low or zero CO2 emissions
- You want to benefit from Corporation Tax relief on the purchase and running costs
Buying a car personally is generally better if:
- Private use is low
- Business mileage is low
- You want to lower the administrative burden
The recent Autumn Budget reforms may affect your decision and you must stay informed on any upcoming changes.
This includes new mileage charges for electric vehicles from 2028 and revised thresholds for the Expensive Car Supplement (ECS), which may alter the long-term cost of company cars.
These measures could reduce some of the previous tax advantages of electric and company vehicles and it is crucial that you seek financial advice to review your decision and the tax implications.
How can I make an informed decision?
When considering buying a car through your company, careful planning and professional advice can help you make the most tax-efficient and compliant decision.
We can help review the current tax rates and advise you on how capital allowances, VAT and BiK calculations will affect your purchase.
Our expert team can help ensure you meet HMRC requirements and that you understand your tax liabilities.
For expert financial advice and support, contact our team today.
