Why You Should THINK before you Buy a Car Through Your Business, Unless...

Thinking About Buying a Car Through Your Limited Company? WAIT! Here’s What You Need to Know.

Don’t Get Caught Out By The Tax

Many business owners think buying a car through their limited company is a tax-efficient move, but HMRC isn’t that generous! Before you commit, here’s what you NEED to know:

1. Petrol & Diesel Cars = HIGH Taxes

❌ Benefit-in-Kind (BIK) Tax – If your company provides you with a car for personal use, you’ll be taxed on it as a benefit.

❌ Higher BIK Rates for Fossil Fuel Cars – Petrol & diesel cars come with BIK rates as high as 37% depending on CO₂ emissions.

❌ Corporation Tax Limits – You can’t claim 100% of the cost as a capital allowance if emissions exceed 50g/km CO₂.

For example: You buy a petrol car worth £30,000 with 150g/km CO₂? £11,100 will be added to your taxable income for every year you receive the benefit. Depending on your marginal rate of tax, this could become very expensive!

2. Electric Cars = Still Tax-Efficient, But Changes Are Coming

BIK tax remains low - 2% until 2025, but expected to gradually rise in following years.

100% First-Year Allowance is GONE – From April 2025, you can no longer claim full tax relief on electric car purchases in Year 1.

Instead, writing down allowances (WDA) at 18% per year will apply.

Vehicle Excise Duty Road Tax Now Applies – Fully electric cars will no longer be exempt from April 2025, meaning an annual road tax cost.

However charging is still cheaper than fuel, and maintenance remains lower.

For Example: Buying a Tesla Model 3 through your company in 2025? You’ll still benefit from low BIK tax, but no longer get full tax relief upfront!

3. Lease vs. Buy – What’s Best?

If you’re leasing an EV – The company claims monthly lease payments as an expense, reducing tax liability.

Buying an EV on the other hand you have Full first-year deduction, but resale value risk.

4. Business Use vs. Personal Use , Don’t Get Caught by HMRC!

If you use the car for personal trips (including commuting), HMRC considers it a taxable benefit!

Your company must pay Class 1A NIC on the benefit-in-kind value.

To avoid personal tax, keep the car 100% business use OR opt for a salary sacrifice scheme.

Final Verdict – What’s the Smartest Move After April 2025?

Petrol/Diesel = High BIK tax, limited tax relief, and rising costs.

Electric Lease = Still low BIK, is a tax-deductible expenses, and no upfront capital outlay.

Electric Purchase = No more 100% first-year tax relief, but still low BIK and long-term savings.

Thinking of getting a car through your company?get in touch and we’ll help you make the smartest decision!