A car-buying dilemma

Credo look at car finance issue

Credo look at car finance issue - Credit: PA

Simon Gray, of Credo Asset Finance, on a question of car ownership.

It’s one of the most-asked questions when it comes to car finance inquiries at Credo... “should I buy this car in the company name or should I run it privately?”

That is a question that needs more space to answer than I have here because there’s so much to consider – trading status of the business, emissions, list price, business mileage, who pays for fuel, tax rate, employment status, tax status of the company, VAT registration, finance method so speak to your accountant.

To simplify (and generalise a little) if you are a sole trader or a partnership (even an LLP) I more often than not suggest buying it in the business name, enjoy tax relief on the purchase for sure, but if the business is a limited company, in general the cons outweigh the pros, and a private purchase is preferred.

If a limited company provides the car to an employee or director, you are taxed as a benefit in kind on a percentage of the list price of the car (including extras). That percentage is determined by CO2 emissions – visit www.hmrc.gov.uk/cars/for more details. Sometimes, for ultra low emission cars, it may be a benefit and cheaper to run through a company car scheme and, with better tax allowances on these cars for the company, they may prefer it too.

The other option is to opt out of a company car scheme, buy a car privately and claim a mileage allowance from the employer – as much as 45p a mile (for the first 10,000 miles in any tax year) and 25p a mile above that – the government-approved rate – but it’s down to each employer to set a level they are comfortable with. This is generous but has to cover fuel, insurance, road tax, running costs and depreciation. The payment is tax-free and, for the company, tax deductible.

With a budget set by your mileage allowance, you can, with an element of freedom, start the hunt for a dream car. Contract deals can be a great way to match allowances with vehicle costs but some people buy something a little older where the allowance can actually buy a car over time.

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To explore the options – as an employer or employee – speak to a specialist broker like Credo Asset Finance.

Credo Asset Finance, is at 85 Yarmouth Road, Norwich, NR7 0HF. Telephone 01603 703180, email sales@credoassetfinance.com or visit the website at www.credoassetfinance.com