Should I buy a company car as a contractor?

Purchasing a company car is a big investment, and before you think about going down to your dealership to buy a company car as a contractor, there are a few things we need to discuss.

When it comes to claiming for travel, there are two ways that most contractors do it. They either buy a company car through their company or use their personal car and just claim back a certain amount for the business miles traveled.

We help contractors to work more tax efficiently and have put together the following guide to paint a clearer picture as to which option is best for you. If you have any questions our qualified accountants will be happy to answer them, call us on 020 7481 4743.

Tax on company cars

A great place to start is tax on company cars, it works a little differently than you might expect.

As things currently stand, tax charges are based on the CO2 emissions of your vehicle. You will have to pay a certain percentage (up to 35% depending on your vehicle) of the car’s original price.

You will also be required to pay class 1A National Insurance Contributions on the total car and fuel benefit in kind figures.

Reimbursing yourself for business travel

The other approach is what most contractors opt for. This is where they use their own car for business use but get their limited company to reimburse them for the mileage they accrue.

You can claim back 45p for the first 10,000 miles and then 25p thereafter. As an example, say you did a round trip of 100 miles to go to another site that your client owns, you could claim back £45 (.45 x 100).

Ultimately, from a paperwork perspective this approach is far more appealing as all you need to do is keep a log of the business miles you travel and make sure that your company reimburses you (don’t forget to keep hold of those petrol receipts).

When using a company car might be right for you

We have determined that claiming back mileage on your personal car tends to be the favoured approach, but when is the right time to use a company car?

If a car costs more than the average vehicle to service and maintain, it could well be that the running costs exceed the tax and national insurance charges, therefore making it more attractive to purchase a company car.

Furthermore, another reason why a company car could be the best option is if you have a car that depreciates in value rapidly. It may be beneficial to own the car for a period of 6 to 12 months and then the director can purchase the car for a much-reduced rate.

Every situation is different and the tax behind company cars can be quite complex, so we always recommend that you speak to an accountant before making a final decision.

To find out more about our fixed fee package for just £55 per month, please call our expert accountants on 020 7481 4743 and we will be happy to help.

The key benefits of our all inclusive contractor accountancy package are:

  • Low cost accountancy fees at just £55 per month
  • Friendly advice from our expert, fully qualified accountants
  • Manage your affairs easily online with FreeAgent

Now that you have a clearer idea of whether or not you should buy a company car, you might also find these pages of use:

  • Our services – appoint us as your accountants for just £55 per month
  • VAT – a comprehensive introduction
  • Dividends – what are they?