Can I buy a car through my business?

Charlotte Allen
January 6, 2023

As we know, when you work for yourself, the more expenses you claim the less tax you will pay. So it's pretty reasonable question if you can buy or lease a car through your business. In this blog we'll show you the options avaliable to help you choose if you can claim your car as an allowable expense.

The below applies to self-employed and sole traders. Different rules apply to limited companies.

Buying a car through your business as a Sole trader

Buying a car as a business expense is fairly common practice within the rules set out by HMRC. Depending on your line of work, buying a car through your business can be a really tax-eficent decision. However, the way you'll get tax relief will depend on how you pay for the car and it CO2 emissions.

Personal use of a car

You must remember that when it comes to self-employment taxes, you cannot claim for buying personal items through your business. That means you'll only ever be able to claim the business portion of your car, no matter how you buy it. If HMRC ever investigates you'll need to show evidence of how you use your car for work purposes. The easiest way to work out the split between personal vs business is to assign a simply percentage. For example you may use your car 60% business and 40% personal.

Sole Trader Car purchase options

If you are self employed and buying a car, then there are 4 main ways you can expense the cost:

1. Claim mileage

2. Buying a car for cash

3. Hire Purchase

4. Claim lease payments

Let's look at each option;

1. Claim a mileage

If you buy your car personally, you can simply claim a fixed amount per mile every time you use it for business reasons. The fuel you can claim per mile currently is;

You'll need to record the miles you do and keep a detailed log of where you have travelled.

If you choose to claim the mileage allowance, you cannot claim for the cost of your car and expenses. The fixed rate is set higher than the cost per litre of fuel to cover running costs and wear & tear.

2. Buy a car for cash

Another way to buy a car through your business as a sole trader is to pay cash and own it outright. If you choose this option, you can expense the cost of the business use element of your car. As a self employed sole trader the way you'll get tax relief on your car is by using Capital allowances.

Capital allowances are a way of giving you tax relief on more expensive items, like cars, that you keep for a number of years. You'll have to claim for a portion of the car cost, depending on it's emissions, using Capital Allowances:

  • up to 50 g/km - 100% first year-allowance
  • 51g/km-110g/km - 18% capital allowance
  • 111g/km or more - 8% capital allowance

If you choose to use this method for your new car, then you can also claim for fuel, servicing, insurance and repairs on your vehicle as tax-deductible expenses.

If you'd like an example or a rough illustration of how this would work for you then let us know and we'd be happy to help!

3. Lease a car

A sole trader car lease is another option for buying a car through your business if you don't want to own it outright. In this case, you'll claim for your self-employment car lease against your taxes.

You can also deduct for sole trader car expenses like fuel servicing, insurance and repairs against your tax. Again, only claim for your business use percentage for these expenses.

4. Hire Purchase Agreement

Buying a car via a hire purchase agreement is another way to get yourself a new car. If you choose HP, then similar to buying a car outright, you can claim capital allowances as well as any finance charges up to £500 associated with the agreement. Only claim for your business use percentage for these expenses.

Whichever method you choose for your sole trader car purchase, you have to stick with it. It cannot be changed partway through the time you own the car. So, make sure you choose the method that is right for you at the point that you purchase your car. And don't forget you can only ever claim the business portion of any costs associated with your car.
If you have any questions or we can help you with any personal tax or sole trader queries, please do get in touch. Email the team or call 01858 289 189.
Thanks for stopping by,
Charlotte & The Business Hut Team
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