Can Buying a Car or Van Be a Business Expense?

Thinking of buying a car or van through your business? Well you can, and it can be a smart investment and can have various benefits such as yearly tax deductions. But the question is, what else do you have to consider when purchasing a car through your business? Read on to find out.

Type of vehicle 

One of the most important things to think about is the type of vehicle you want to buy. Buying a car through your company comes with a series of strict requirements that, while possibly providing you with several tax benefits, may also come with additional expenditures and turn out to be a terrible investment.

However, if you plan to buy a van or vehicle through your limited company, you'll be free of many of these troublesome restrictions. HMRC permits for "insignificant" private use, which means you can drive the van home as long as it's still being used for business.

This implies that claiming 100 percent of the vehicle cost is a lot easier, thus buying a van through your company is almost always a better deal than buying one on your own.

What can I claim when using my car or van for business use?

When using your car or van for business use, you can claim back on a lot of things including fuel, vehicle insurance, and parking. However, you can’t claim for personal driving costs, fines, or commuting between home and work.

How do I work out my business car expenses?

There are two main ways of doing this; either via the actual costs method or a flat rate for business mileage. Whichever method you decide on, you have to consistently use this for the entire time you have the vehicle.

The Actual Costs Method

With this method you’ll need to know how many miles the vehicle has done during the relevant tax year and then work out what percentage of those were for business use only. A good tip is to regularly note down each of your business and personal trips and even consider a mileage tracker. 

For instance, if the total running costs amounted to £6,000 and 75% of the miles worked out to be from business use, you would include £4,500 on your Self Assessment Tax Return.

If you’re using traditional accounting and the actual costs method, you can also claim a capital allowance for the purchase of the vehicle itself. A capital allowance is an expense that a company can deduct from its taxable earnings. You can also claim for fuel, servicing, insurance and repairs.

Flat Rate For Business Mileage Method

If you’re deciding to use this method, you can find out the current rates here on the GOV.uk website. 

You have to keep a record of how many business miles you travel. The flat rate covers the whole cost of buying, running and maintaining the vehicle so you’re unable to claim a capital allowance using this method for the purchase of the vehicle.

What about claiming back VAT?

VAT can only be reclaimed on a vehicle that has solely been used for business purposes. If the car is used for personal use at any point, such as commuting to and from the office,  reclaiming any VAT on the purchase won’t be possible.

The only exception is if you choose to lease your car or van. You can then use the vehicle for both business and personal use while still being able to reclaim 50% of the VAT amount.

For more information on how to claim capital allowances and tax refunds, visit the self assessment page on the GOV.uk website.