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Purchasing a vehicle through your company – process and benefits

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1 September 2022

There are many benefits to having access to a personal vehicle, especially as the owner of a business. But rising household costs can render vehicle financing difficult, if not impossible. However, there are some key benefits to be found in sourcing a vehicle via your own business. What are they, and what is the best practice for doing so?

Purchasing a Car Through Your Business

The chief benefit to purchasing a car via your limited company relates to taxation. Cars are liable for VAT taxation, but if bought for business usage that VAT may be claimed back by the business. Buying a car can also introduce a number of other tax relief opportunities.

With the car being your company’s, it is your company and not you that is liable to pay for insurance and road tax. These payments can be used as a form of expense, to narrow your business’ Corporation Tax obligations. The more energy-efficient the vehicle is, or the lower its carbon emissions, the more of its value can be written off at year-end.

But funding a car purchase is not a simple affair, even for a business. Where individuals may benefit from lease programmes, businesses need to own their company cars outright – or own a contract that guarantees ownership, such as a Hire Purchase agreement – in order to receive the tax benefits.

As such, it is important for businesses to finance outright ownership through cash advance, investor assistance, or long-term unsecured agreement with a third-party vendor. It is also of crucial importance that the vehicle in question is used near-exclusively for business needs.

Purchasing a Van – Differences and Benefits

Vans are a different affair to normal cars, being classified – and hence treated – differently. HMRC classifies vans as ‘plant and machinery, conferring different benefits to the company purchasing them. ‘Plant and machinery means that a given business take advantage of the Annual Investment Allowance – meaning they can claim 100% of the cost of the van in tax deductions.

For the Self-Employed – Claiming Expenses

Self-employed freelancers, or ‘sole traders’ in the eyes of HMRC, do not enjoy the same benefits as above; the process and benefits of buying a vehicle through a business only apply to limited companies. This is because, for self-employed workers, all business profits are treated as personal income. There is no separation between business finances and personal finances.

However, this does not completely preclude sole traders from experiencing their own benefits from purchasing a vehicle. If your work requires you to own a vehicle, or if you find yourself making car trips for business purposes exclusively, you may be eligible to claim certain costs as an allowable expense.

Allowable expenses are business expenses you can declare in your self-assessment tax return, and which can be used to reduce your tax obligations. Expenses are deducted from your overall profits before taxation, reducing your tax burden and saving money. With regard to driving, you can claim reimbursement for mileage, on a per-mile basis.

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Business Motoring

Business Motoring

Business Motoring is the motoring resource for small businesses and SME small fleets running company cars and business cars.

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