Company car vs own purchase

When your company provides you or your employees with a car then a taxable benefit potentially applies when the car is available for private use- regardless of whether there is little or no private use.

It may be possible to avoid this taxable benefit, though only in limited circumstances. Specifically, where it can be demonstrated that private use of the company car/van is prohibited.

The taxable benefit is calculated as a percentage of the manufacturer’s list price of the car plus accessories, based on the CO2 emissions of the car. The brand-new list price applies regardless of the second hand value of the company car when it is being used. Put very simply the higher the CO2 emissions then the higher the taxable benefit - you can see more about the rates here (you can also work out the benefit in kind here).

Additionally, if your company pays for your company car’s private petrol costs there will be a taxable benefit. This taxable benefit is calculated by applying the relevant percentage based on the CO2 emissions of the car to a fixed figure – for the 2023/24 tax year this is £25,300. Again, the higher the company car’s CO2 emissions the higher the taxable benefit.

For this reason, unless your company is purchasing an electric car (which for 2024/25 applies 2% to the list price of the car to calculate the benefit in kind - and be aware, this is subject to change!) or you travel significant business miles, it is rarely tax efficient to purchase a car via your company.

A more practical alternative is for limited company owners (or their employees) to purchase a car personally then charge the company a mileage allowance for business miles travelled. This mileage allowance can be made to the director/employee tax-free and their company obtains a tax deduction for the cost. The topic of company car versus own purchase is covered in more detail in this post here.

Any fees for setting up a car purchase in Xero or FreeAgent may be chargeable by us as this isn't usually covered by the company's annual fee. Also any P11ds required will also a chargeable service.