Finance for company cars

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Finance for company cars

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Why should you read this guide?

If you are thinking of providing company cars either for yourself or for any of your employees this guide will introduce you to your options. There are many ways of financing company vehicles and there are also many tax implications. You will find the basic details of these below.

Background

At some point you may decide that either you or your employees are doing sufficient miles to warrant receiving a company car. This is a normal progression for awarding your staff or yourself in a successful business. The best advice on how to finance these cars will come from your accountant. Each type of finance has different tax implications on the business and also on the one receiving the "benefit in kind".

Types of finance

The finance options listed below are for the business. There will also be personal options for finance on cars that you can consider as well. Depending on your circumstances you may want to give serious thought to purchasing the car out of the business and paying yourself expenses for running it. This reduces the tax implications on the company and on you.

Contract Hire: This allows you the use of a car for a fixed monthly fee over the term of a contract. You can also have the maintenance of the vehicle added to the monthly fee. You are able to reclaim 50% of the VAT on the monthly payments if the car has any personal use.

Finance Lease: This is basically a rental agreement where you pay for a car for the period required. At the end of the term there is a balloon payment which you need to settle by selling the car. You may end up having a shortfall if the car value does not cover this payment. Again you can reclaim 50% of the VAT on the monthly payments.

Hire Purchase: You are buying the car by making monthly instalments. At the end of a specified period you own the car outright. During the HP term you are responsible for all normal running costs and become full owner at the end of the contract. The drawbacks are that you pay higher monthly instalments and you cannot reclaim any VAT on the payments.

Tax implications

Anybody in the business earning more than £8500 per annum or any director of the business will be liable for tax on the benefit in kind for a company car. There is also a further tax charge made if any fuel benefit is received. There is also an additional National Insurance charge on the business. The tax charges are less for cleaner more economical cars and you should take this into account when considering the type of car to provide.

Summary

Providing cars as a benefit in kind is far from a cheap option for a business. You will need to discuss this in great detail with your accountant before deciding if it is the right thing to do for your business. If you decide to go ahead make sure that you finance these in the most economical way. Any provider of finance will negotiate with you to get a rate that is agreeable.

Further information

Speak to your accountant about the best way to finance the vehicles, if at all. You will be able to get a great deal of information on the tax implications on www.hmrc.gov.uk.