Buying a vehicle through your business

This is one of the most frequently asked questions we get, and the honest answer is that it depends on three things: whether the vehicle is a car or a van, how much private use there is, and whether you trade as a company or a sole trader.

A commercial vehicle with only incidental private use is generally an efficient purchase through a business. The cost can typically attract capital allowances, running costs are deductible, and where the business is VAT registered the VAT is often recoverable.

A car provided by a company and available for private use creates a benefit-in-kind, taxed on the driver and attracting employer's National Insurance. For most conventional cars that annual charge outweighs the corporation tax relief, which is why so many director-shareholders own their car personally and claim mileage instead.

Low-emission and fully electric cars are treated much more favourably, which is why they are frequently the exception to this rule. The rates change, so check the current position before committing.

Owning the vehicle personally and claiming an approved mileage rate for business journeys is simple, requires no benefit calculation, and covers fuel, insurance, servicing and depreciation in one figure. For lower business mileage in an ordinary car it is very often the better outcome.

It requires a mileage log with dates, destinations and purpose. Without that, the claim is difficult to defend.

There is no benefit-in-kind for a sole trader, because there is no employer. Instead you claim the business proportion of actual costs, or the flat mileage rate — but you must stick with one basis for that vehicle.

Work out the annual cost both ways using your real business mileage and the actual vehicle you are considering. It is a fifteen-minute calculation that regularly changes a five-year decision.