Should I buy a car or lease it?

Are you thinking about buying a car?  If so, will it be an electric car? Will you buy it or lease it? Will it be a Company Car, or will you buy it personally?

Buying a car is a big decision and one that should be taken with some thought. Whether you buy  or lease it depends on your own perspective and priorities.  For some it is about what is the least expensive option.  But for others it depends on the tax.

That is when you start thinking whether to buy it yourself personally or through your Company?

So what are the options?  Let’s have a look.

Buying a car via your Company

When you decide to get a Company Car, you need to have a think about the tax implications?

When you buy a car you are purchasing an asset and so you can reclaim some of the cost of the car each year of use.

You can claim what we refer to as Writing Down Allowance (WDA) each year whereby you can write off a percentage of the cost of the car as an expense.  The amount depends on the CO2 emissions of the car.

If your car’s emission is more than 130g/km you can get 8% of the cost back as a written down allowance.  However, if you buy an electric car you can claim 100% of the cost in the first year.

Remember you can never claim back the VAT back if a car is used for personal reasons.  VAT can only be claimed back for genuine pool cars where there is no private usage at all.

If you use the car personally as a director or employee it will be a benefit in kind which is normally reported on forms P11d. This means as an employee you have pay tax on the car benefit and as an employer there will be employer National Insurance on the benefits.

The tax on a diesel / petrol car is punishing and therefore owing a company car was falling out of fashion. But the tax regime is more beneficial if the company car is an electric one and worth another think now.

Electric cars are currently an expensive option.  This is where you may think of leasing the car rather than buying it outright as it could become more affordable.

 

Should the car be leased or purchased ?

 There are advantages and disadvantages to both options and it really depends on your outlook and finances.

If you lease a car it means that you are basically renting if for a specified time.  This means there is lower capital outlay.

Sometimes when you lease a car there are restrictions as to how many miles you can drive per year.

When you buy a car it is yours from the start.  You get the tax advantages discussed above.  If you are financing the car via a loan, you even get tax relief on the interest.

With leasing a car you can claim VAT back on 50% of the monthly costs.

Buying the car personally

Finally, if you have decided to buy a car personally (maybe because you have not yet gone Electric) you should claim mileage allowance.

Currently you can claim 45pence per mile for the first 10,000 business miles and 25pence per mile for the remainder. This is for cars that run on petrol, diesel or even electricity.  All you need to do is keep a record of your business miles.

But remember travel between office and home is not business travel.

What next?

If you would like to discuss any of the options here whether if it is buying a car or leasing it. Or you are thinking of whether it is via your Company, or you do it in your own name just talk to us.

We are here to help and can run the numbers with you to help you make the right decision. Call your normal manager at Myers Clark. If you are not yet working with us then contact Priya at priyar@myersclark.co.uk.