New Vehicles Economic Issues
The question of car ownership is becoming increasingly ticklish both for private individuals and for companies. Although even the “greenest” cars have an environmental footprint (if only because of the manufacturing process), the reality is that for some people they are essential and for many people they are highly convenient. So if you’ve established that your business would benefit from a car, then there are basically three ways you can go about getting access to one. You can buy it through your company, lease it through your company or have your employees use their private vehicles and pay them mileage. Let’s have a look at these three options.
Buy a car through your company
If you opt to buy then you can claim an annual “write down cost” as a taxable expense. The WDA is based on the emissions the car generates. At this point in time, VAT charges on the purchase of a car can only be reclaimed if the car is used exclusively by the company (and it is worth noting that an employee using the car as transport to and from work would typically be treated as private use), but if a company buys a car through a hire purchase agreement then it may be possible to claim tax relief on the interest charged. Furthermore, it is generally possible for a company to claim standard running costs as taxable expenses. These would typically include maintenance, insurance and, of course, fuel. The flip side of this, however, is that the reason why the company can claim back these costs is because it has to take care of the car in the first place, whereas with some other options, such as contract hire, you can include a maintenance package as part of the deal.
Lease a car through your company
Leasing ensures convenient access to a car without the car being considered part of the company’s assets (because the company never actually owns it). This can be advantages from the point of view of maintaining the company finances since purchasing a vehicle puts a depreciating asset on your balance sheet as soon as you take possession of it, even though you may only actually own it once the financing is paid (e.g. with hire purchase). It is also advantageous in the sense that monthly payments can be treated as tax-deductable expenses and that VAT can be reclaimed (assuming the purchasing company is VAT registered and that the vehicle is used purely for business purposes, again, please note that an employee driving the car to and from work would usually be considered private use).
Have your employees use their own private vehicles
In some ways this is the simplest option and in some ways the most complicated. It’s the simplest in the sense that the vehicle itself never touches the company’s finances in any way. The company just reimburses the employee for the expense they have incurred in using their vehicle on company business, which can be put through the company books as an everyday running cost and generally claim tax relief thereon. Employees can usually receive these expense payments free of tax as they are essentially reimbursements for expenses which the employees have paid on the company’s behalf, rather than benefits on which tax would be payable. The reason why this approach can get complicated is that, by definition, it requires employees to have their own vehicles and these days it is probably a good idea to spend some time thinking on how realistic an expectation that is. A good bellweather would be to look at the availability of parking in your local area. Plentiful parking can often indicate a high degree of car ownership (or at least car access) in the local area. Absence of parking can be a sign of a highly built-up area, where people would be more likely to rely on public transport.