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Vehicle in Limited Company - what are your options?

Updated: May 27



If you use a vehicle in your business, perhaps you might be wondering how to claim the expenses related to travel and use of vehicle. 


Using personal car for business travel


If you own the vehicle personally and use it for business travel, you may be able to use the approved mileage rate to cover running your own vehicle. This means that instead of claiming the actual receipts of things like fuel, vehicle tax, repairs or MOT, you can use the approved mileage rates for business miles traveled in the tax year. 


When using a car or van, the first 10,000 business miles can be claimed at 45p per mile. Each business mile over 10,000 in the tax year can be claimed at 20p per mile. If the claim is above these rates, these will be treated as benefit in kind and taxed.


If you’re carrying another employee in your vehicle, you can additionally claim 5p per passenger per mile. 


Such mileage claim can be an effective way of reducing your corporation tax as the full cost is an allowable business expense. Moreover, the money claimed by the employee - vehicle owner is tax free. Remember that travelling between home and your permanent place of work cannot be claimed as an expense. 


If you want to claim mileage, you should keep sufficient records of your work journeys to evidence the business use. Records should include:


📍 Dates of travel

📍 Postcodes

📍 Information about the purpose of travel or client name

📍 Passenger information if claiming mileage for additional person travelling with you


To track mileage you can record above information in the notebook or diary and keep it with you or in the car to get a habit of noting down the journeys or use tracking apps on the phone to log mileage on the go. 


You can also use our mileage log template, download and save it on your phone or print it out and keep with your bills.


👇 Download the template here 👇


Mileage Log
.xlsx
Download XLSX • 8KB

What about VAT on mileage?


If your business is registered for standard rate VAT, you can claim VAT on the fuel element of the mileage rate. The fuel advisory rates are updated by HMRC every quarter and VAT element can only be claimed on the fuel rate. 




Although you don’t need to keep the fuel receipts when claiming mileage, it becomes obligatory if you want to recover VAT. This is because you must prove to HMRC when the fuel. A claim cannot be supported by a VAT invoice which is dated after the dates covered by the claim.



Purchasing a car through limited company


Your company can purchase a vehicle and all expenses related to that vehicle such as fuel, MOT, repairs, insurance, financing charges or road tax can be claimed as business tax deductible expenses. The agreement for the vehicle and V5C should be in the name of your company to treat it as business purchase.


While the purchase might seem like a beneficial way to reduce corporation tax, be careful as any personal use must be reported in P11D and treated as benefit in kind. That means there will be extra tax charged as the personal use of company vehicle will be seen as extra income. Also there will be 13.8% of Employer’s NI charged on the benefit and different factors are considered when calculating BIK and NICs such as CO2 rating or retail value of the car.


VAT on purchased vehicle 


If your company is VAT registered, full VAT can be claimed back as long as the vehicle is 100% used for business. If the vehicle is used for personal and business, then none of the VAT can be claimed. 


If none of the VAT was claimed, you don’t have to charge VAT on sale even if your business is VAT registered. 


How to reduce BIK and NICs?


An attractive option to purchase vehicle and use it personally is to buy hybrid or electric vehicle with zero or low CO2 emission. This is because the BIK rates are lower and therefore tax and NICs due on taxable benefit can be significantly reduced. 



Vehicle CO2 emission tax rate

Some types of low emission cars are eligible for a plug-in vehicle grant from the government so that you can get a discount on the price. The amount is discounted by the dealer. You should ask the seller which vehicles are eligible for the grant.  

 

☎️  If you want to know more about using vehicle in limited company, contact us today. 📩

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