Many small business owners and self-employed individuals may consider buying a car through their business.

There are many factors to think about, including how the car is used, the vehicle’s CO2 emissions, overall costs and the tax consequences for both you and your company.

Business owners must understand which option suits their vehicle best so that they can make the most tax-efficient decision.

What if I want to buy my car through my company?

When you purchase your car through your company, it becomes a business asset and one of the main advantages is tax relief.

A company can claim allowances on the cost of the vehicle, with the rate depending on CO2 emissions.

Zero-emission cars may qualify for a 100 per cent first-year allowance, while higher-emission cars generally lead to higher Benefit in Kind (BiK) charges, making them less tax efficient.

Also, your company can deduct the running costs, such as insurance and repairs, if these relate to business use.

A company car can be beneficial for your business’s professional image, especially where branding or client-facing travel is important.

However, if the car is used for any private use, including commuting, a BiK tax charge will arise and VAT recovery is restricted.

When using a company car, documenting accurate mileage records is crucial to avoid any HMRC challenges.

Is buying a car personally better?

Purchasing your car personally is often simpler, as your vehicle remains your own asset and no BiK rules or P11D reporting are required.

If you use your car for business journeys, you can usually claim mileage allowances instead of actual costs.

To claim tax relief, you can choose between:

• Simplified mileage – When you claim a fixed pence-per-mile rate for business journeys and this covers all running costs.
• Actual cost methods – When you track all vehicle costs and claim certain parts that relate to business use based on mileage or usage records.

However, the downside of buying a car personally is that you cannot claim capital allowances through your company and all running costs must be paid personally.

Mileage claims can also be less generous if the business use is high or if the vehicle is expensive to run.

Which is better?

Business owners should consider the pros and cons before making their decision.

Buying a car through your company is better if:

• Business mileage is high
• The car has low or zero CO2 emissions
• You want to benefit from Corporation Tax relief on the purchase and running costs
• You have an electric vehicle, as BiK tax is lower and the personal tax cost is reduced

Buying a car personally is better if:

• It is mainly used for private use
• Business mileage is lower
• You want to lower the administrative burden

The recent Autumn Budget reforms may affect your decision and you must stay informed on any upcoming changes.

This includes new mileage charges for electric vehicles from 2028 and revised thresholds for the Expensive Car Supplement (ECS), which may alter the long-term cost of company cars.

These measures could reduce some of the previous tax advantages of electric and company vehicles and it is crucial that you seek financial advice to review your decision and the tax implications.

How can I make an informed decision?

When considering buying a car through your company, careful planning and professional advice can help you make the most tax-efficient and compliant decision.

We can help review the current tax rates and advise you on how capital allowances, VAT and BiK calculations will affect your purchase.

Our expert team can help ensure you meet HMRC requirements and that you understand your tax liabilities.

For expert financial advice and support, contact our team today.