If you are thinking about purchasing a company car through a limited company, there are many issues that need to be considered. In this short article we will point out some of the main issues, but it is important to research this area and weigh up all the available options. The tax treatment of the purchase will depend on how the purchase of the company car is financed.

The purchase of a company car will be classed as a fixed asset and tax relief will be obtained by way of capital allowances. Cars do not qualify for the annual investment allowance.

The amount of capital allowances that can be claimed will fall within one of the following 3 categories:

• 100% First Year Allowance. New and unused electric or zero emission cars emission cars benefit from 100% capital allowances. This means that 100% of the cost of the car can be deducted in the first year.
• 18% of the car’s value (main rate allowances). This effectively means that 18% of the purchase price can be deducted from your profits each year before you pay tax.
• 6% of the car’s value (special rate allowances). This effectively means that 6% of the purchase price can be deducted from your profits each year before you pay tax.

The difference between the main rate and special rate allowances depends on when the car was bought and its CO2 emissions. The government continues to encourage employers to choose more fuel-efficient vehicles by offering a tax incentive.