This is following on from our very own Richard’s article on claiming motor expenses in your business. It is designed to cover leasing a car in your limited company specifically and whether it is a good idea or not.

Can I claim 45p a mile and also the car lease?

Uh no! Do you want your cake and eat it too?

So I want to give it to you, how it is. Straight talking, straight hitting and to the point. We recently had a client that said their previous accountant was claiming all of the car leasing costs AS WELL as the mileage allowance. This is simply wrong.

The mileage allowance is 45p per mile up to 10,000 miles then 25p per mile. This is for using your own car for business travel. If it’s your car then the business can’t also be paying for the cost! It’s that simple…

By claiming both you are basically saying it’s a company car and a personal car and claiming for both. It’s either one or the other.

Leasing a company car

It’s very rare that accountants recommend buying a company car or leasing one through the business nowadays. This is due to the tax you get hit with personally. You and your limited company are two different legal entities. If you pay for a company car that is leased then the limited company can claim it as a cost against corporation tax (and normally 50% of the VAT). This is great, it will save you around 19% corporation tax and some VAT. Win, win then? No, when something seems to good to be true, it usually is. The kicker is your personal tax.

Benefit in kind

If you lease a car through the company then you will also need to account for the ‘benefit’ in using the car personally. HMRC are very strict when it comes to cars and unless it’s genuinely a pool car that hardly gets used for personal use then to keep above board you’ll need to pay tax personally for your own limited company being so kind to give you your very own company car (what a nice employer!). This gets added to your tax code and you’ll pay tax on this benefit. The amount of tax you pay almost always wipes out the savings you’ve made in the limited company as the company will also need to pay extra national insurance on this perk too (Class 1A).

Summary

So in a nutshell, if you have a leased company car then you will be able to get tax relief on the costs of the vehicle. However, the employee (which is you) will have to pay additional personal tax for the benefit of using a company car. If the company was to claim the full fuel costs the employee would have to pay a second benefit on the fuel element too!

This article is not intended to be technical but to give you a general guide why leasing a company car is usually not a good idea. There are some situations where it COULD BE BENEFICIAL FOR YOU although this is not common. If you have a zero emissions car and are a basic rate tax payer it may be worth reviewing. Commercial vehicles have more relaxed rules (such as a van) so this article is not relevant for say a builder with a van.

If you have any questions feel free to contact us for more guidance – hello@cheltenhamtaxaccountants.co.uk

Stephen Edwards – Director of Cheltenham Tax Accountants & Business Coach