Buying company cars
Businesses can claim the cost of purchase through capital allowances
• This reduces taxable profits, or increases taxable losses, over several years.
• The capital allowance you can claim is based on the car's CO2emissions. For 2020/21, new cars with emissions between 50g/km and 110g/km go into the main rate pool of 18%, while new cars with emissions greater than 110g/km go into the special rate pool of 6%.
• Businesses can claim 100% first-year allowances on low-emission cars (less than 50g/km) and new zero-emission goods vehicles purchased for business use.
• Second-hand and electric cars with emissions below 110g/km can claim 18%.
• From April 2021, the emission thresholds are expected to fall to 0g/km (for the 100% allowance) and to 50g/km (18% pool).
• Sole traders who buy cars for business and private use can only claim the business portion of the writing-down allowance.
Some costs attract full tax relief
• Maintenance and other running costs.
• Interest paid on a loan to buy the car.
A business cannot normally recover VAT on the purchase of a new car
• To recover VAT, you must be able to prove that the car is for business use only.
• Typically, car dealers and leasing firms are the only businesses able to recover VAT.
Leasing company cars
Tax deductions depend on the CO2 emissions of the car
• All the costs of leasing can be deducted from taxable profits as expenses for leased cars with CO2 emissions below 110g/km from April 2018.
• There is a flat-rate disallowance of 15% of relevant payments for leased cars with CO2 emissions above 110g/km.
Only 50% of the VAT charged on rentals can normally be claimed
• You may be able to reclaim 100% if the car is used wholly for business purposes.
Capital allowances can only be claimed if there is an option to purchase the car