Buying a car through your company: Is it worth it for small businesses and self-employed individuals?

Many small business owners and self-employed individuals may consider buying a car through their business.

While this can be beneficial, the decision must depend on how the car is used, the vehicle’s CO2 emissions, overall costs and the tax consequences for you and your company.

Business owners must understand which option suits their vehicle best so that they can make the most tax-efficient decision.

Should I buy my car through my company?

When a company purchases a car, it becomes a business asset and one of the main advantages is tax relief.

You can claim capital allowances on the cost of the vehicle, with the rate depending on CO2 emissions.

Zero-emission vehicles may qualify for a 100 per cent first-year allowance, while higher-emission cars often result in higher Benefit in Kind (BiK) charges, which reduces the overall tax efficiency.

In addition, your company can deduct the running costs, such as insurance and repairs, provided these expenses relate to business use.

A company car can be beneficial for a small business’ professional image, especially where branding or client-facing travel is important.

However, if the car is used for any private use, including commuting, a BiK tax charge will arise and VAT recovery may be restricted.

When using a company car, documenting accurate mileage records is crucial to avoid any HMRC challenges.

Is buying my car personally more beneficial?

Buying a car in your personal name can be a simpler option, as your vehicle remains your personal asset and there is no need to deal with BiK tax and P11D reporting.

If you use your car for business journeys, you can usually claim mileage allowances instead of actual costs.

Business owners can choose between two approaches to claim tax relief:

• Simplified mileage, which allows you to claim a fixed pence-per-mile rate for business journeys and covers all running costs.
• Actual cost methods, where all vehicle costs are tracked and the business-use proportion is claimed based on mileage or usage records.

The main downside of personal ownership is that capital allowances cannot be claimed and all running costs must be paid personally.

Mileage claims can also be less generous if the business use is high or if the vehicle is expensive to run.

How do I know which option is better?

There is no right decision when buying a car personally or through a business so you must consider all the requirements.

Buying a car through your company may be more suitable if:

• Business 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
• You have an electric vehicle, as BiK tax is lower and the personal tax cost is reduced

Buying a car personally is preferable if:

• It is mainly used for private use
• Business mileage is lower
• You want to lower the administrative burden

Recent Autumn Budget changes may also affect your decision, as new mileage charges for electric vehicles from 2028 and revised thresholds for the Expensive Car Supplement (ECS) may alter the long-term cost of company cars.

These changes could reduce some of the previous tax advantages of electric and company vehicles and you must seek financial advice to review your decision and the tax implications.

How do I know if I am making the right decision?

When considering buying a car through your company, careful planning and expert advice can help you make the most tax-efficient and compliant decision.

We can assess your personal and business tax position and explain how capital allowances, VAT recovery and BiK calculations will affect your purchase.

Our professional team can help ensure you meet HMRC requirements and that you avoid any unexpected tax liabilities.

For expert financial advice and support, contact our team today.