Company Cars and Tax

6. Buying Company Cars

6.1 Businesses can claim the cost of purchase through capital allowances. This reduces taxable profits and is used by profitable companies with healthy cashflow.

• With conventional cars, all businesses can claim 20 per cent of the written-down cost every year, until the car is no longer in use by the business.
• The maximum that can be written off against tax is £3,000 in one year.
• Businesses can claim 100 per cent first year allowances on the amount they spend on buying low-emission cars for use in the business. Cars must be registered on or after 17 April 2002 and either emit less than 110gm/km of CO2 or run on electricity.
• From April 2009, the annual allowance will fall to 10 per cent for cars with CO2 emissions above 160gm/km.
• Sole traders who buy cars for business and private use can only claim the business portion of the writing-down allowance.

6.2 Tax relief is available in full for two items:

• Maintenance and other running costs.
• Interest paid on a loan to buy the car.Typically, card dealers and leasing firms are the only business able to recover VAT.

6.3 A business cannot recover VAT on the purchase of a new car unless it can prove that the car is for business use only.