Whether you or your company should buy your next car depends on many factors including the cost the car, its CO2 emissions rating and the level of your business and personal mileage. When you own the car personally, the company can pay you a tax free mileage allowance of 40p per mile for the first 10,000 business miles per tax year, and 25p per mile for additional journeys, but this allowance may not cover the vehicle’s running costs and so you may be tempted to put the car into your company.

If the company owns the car it can claim a tax deduction for all the running costs, and claim an annual capital allowance to provide tax relief for the purchase cost. Currently the capital allowance is 25% of the cost of the car, restricted to £3,000 per year for cars that cost £12,000 or more. From April 2008 the allowance is likely to be 20% of the cost for cars with a CO2 emissions rating of 165g/k or less, but only 10% for more polluting cars. Cars with CO2 emissions of 120g/k or less qualify for a 100% first year allowance and will continue to do so. These changes mean it will take longer to get full tax relief for the cost of cars that have higher CO2 emissions ratings, making them more expensive for the business to buy. The cost of leasing more polluting cars will also be affected from next year.

However, when the company owns the car you pay a tax charge for using the car privately. When you buy your own fuel the company can pay you a fuel rate for business miles driven, which also changes with the petrol prices. If you give us all the facts we can help you calculate what is best for you.

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