Company car; or private car with business use?

By Tim Heaton, accountant, The Tax Partnership

It’s a familiar question – if complex.

You run a small business – and you need a car for business. Should your company run the car? Or should you buy a car privately and then re-charge the company for business mileage?

Most companies are what I call ‘lifestyle’ companies – run by one or two family members. The idea is to produce a reasonable income for the owners to maintain a decent lifestyle.

The company earns its profit, which is then paid down to the business owners. Any company transaction which saves it tax means there is more to hand down to the owners. But, if the owners’ tax situation is affected by the company’s tax saving, is it really worth it?

What matters is how much cash (tax) the ‘operation’ has to pay out following the purchase. Let’s take a look at a three-year period.

Your company buys a decent mid-range car. Running costs and capital allowances are set against corporation tax. Saving: