Own car or company car

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Own car or company car
  • Car benefit charges
  • Car benefit
  • Fuel benefit
  • Vans
  • Business mileage levels
  • Capital allowances regime for cars
  • Car leasing adjustments
  • Company car for a spouse / civil partner?

Own car or company car

This guidance covers some ideas for tax planning for the provision of cars to owner-managers and their spouses / civil partners. Detailed rules regarding the taxation of company cars are covered in the Company cars guidance note in the Employment taxes module.

For guidance on the VAT implications of purchasing or leasing a car through the company, see the Buying and selling a car, Leasing a car and Motoring expenses guidance notes in the VAT module.

HMRC provides a company car and car fuel benefit calculator.

If an owner-manager or director uses their own car for business purposes, then they can be reimbursed by the company without incurring tax liabilities, provided, payments are made within the limits prescribed by HMRC. Alternatively, if they use a company car, they would pay income tax on the benefit received based on the level of the car’s CO2 emissions and its list price. The employing company will also be liable to Class 1A NIC on the benefit.

The company will usually pay for ownership or lease of the car and most of the ongoing associated costs. Provided that these costs are made wholly and exclusively for the purpose of paying the owner-manager, they will be allowable deductions for corporation tax purposes. The company receives corporation tax relief for depreciation of company cars in the form of capital allowances. There may also be an adjustment to the company’s profits for leased cars.

Therefore, when assisting a client in deciding the best option, comparative calculations will need to be prepared, taking into account the impact of the following:

  1. the car’s CO2 emissions ― car benefit charges are based on CO2 emissions. Also, where there is flexibility over the choice of vehicle, the possibility of generous reliefs for low and zero-emission cars cannot be ignored

  2. the car’s list price ― this is distinct from the actual cost of the vehicle. It relates to the cost of the car, including VAT, and including

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