Buying a Company Car as a Contractor
Posted on 30th July 2018 at 20:41
A great majority of contractors in the UK are using their own vehicles to commute to their customers’’ offices. If you are currently doing so, you are able to claim the HMRC’s Mileage Approved Rates (MAPs) to cover the costs of your travels. Contractors can also benefit from purchasing a company vehicle under their company name.
There are certain tax laws that we will discuss in this blog in order to find out which option is going to be most beneficial for you and your company.
How does it work?
If you do go ahead and purchase a car through your limited company, the business will have the full responsibility of taking care of any servicing & maintenance costs of the car, which will go under the running costs of the business. This has its own benefits which will discuss further below.
How are company cars taxed?
There are a couple of factors which will determine how much tax you will have to pay when buying a company car. These include:
● The cost of the vehicle.
● The CO2 emissions of the vehicle.
● The type of fuel the engine uses.
● If the company will take care of any fuel costs.
You will have to pay an income tax charge on the value of benefit you will receive during the tax year as your limited company is providing you with a vehicle. Your company will also have to further pay Employers Class 1A National Insurance Contributions.
Which option should you go for?
It is never straightforward when it comes to weighing up the expenses and benefits of purchasing a vehicle and paying for your travelling through your business. Employees are allowed to be reimbursed up to 45 pence per mile for their first 10,000 business miles during any tax year using a private car and for any tax year after, the reimbursement goes down to 25 pence per mile. The most simple way of reimbursing your employees & yourself for any business travel is by simply sticking to the defined tax-free mileage allowance set by the HMRC. If the mileage records for your business travels are accurate, the total amount will be not be taxed.
Despite the simplified information above, it can be quite easy for you to get confused. We do advise you to seek further advice from a qualified expert. You can give our experts a call at 0333 772 7753 or visit our website - https://www.chartaccountancy.com/ to discuss any concerns you may have before making any further decisions.
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