Buying a Vehicle Through Your Business: A Complete Guide for Business Owners

Paul Edwards
Mar 13
3 min read

How to Buy a Car or Van Through Your Business & Save on Tax

Buying a vehicle through your business can be a smart financial move, offering potential tax benefits and cost savings. Whether you're a sole trader, partnership, or limited company, understanding the tax implications and financing options is key. In this guide, we’ll explore the best ways to purchase a business vehicle while optimizing your tax savings.

1. Can You Buy a Car Through Your Business?

Yes! But the method you choose will affect your tax liabilities, expenses, and personal tax position. Key factors to consider include:

Business vs. Personal Use: How much will you use the vehicle for business?
Tax Benefits: Can you claim capital allowances or deduct expenses?
Ownership Options: Should you lease, finance, or buy outright?

2. Buying a Vehicle as a Sole Trader or Partnership

If you operate as a sole trader or in a partnership, the vehicle will be personally owned, but you can still claim tax relief for business use.

Tax Benefits for Sole Traders:

Claim Capital Allowances: Deduct the cost of the vehicle using the Annual Investment Allowance (AIA) or Writing Down Allowance (WDA).
Mileage Allowance: If you use your personal vehicle for business, claim 45p per mile for the first 10,000 miles and 25p thereafter.
Leasing Options: Lease payments are tax-deductible, but personal use must be accounted for.

3. Buying a Vehicle Through a Limited Company

A limited company can purchase a vehicle directly, but there are specific tax rules to consider, especially if the car is available for personal use.

Company Car Tax & Benefit-in-Kind (BIK)

If you use a company-owned car for personal use, you must pay Benefit-in-Kind (BIK) tax. The tax rate is based on:

CO₂ Emissions: Lower emissions mean lower tax rates.
List Price (P11D Value): The original price of the car.
Employee Income Tax Rate: Determines how much BIK tax you’ll pay.

Tip: Electric cars have low BIK tax rates (2% in 2025), making them a tax-efficient option for business owners.

Tax Benefits for Limited Companies:

Full Capital Allowances on Electric Cars: Claim 100% of the cost in the first year.
VAT Reclaim on Commercial Vehicles: If VAT-registered, reclaim 100% VAT on vans and pickups used solely for business.
Leasing Deductions: Lease costs can be expensed, and 50% VAT can be reclaimed on leased cars.

4. Should You Lease or Buy a Vehicle for Your Business?

There are advantages to both leasing and buying:

Leasing a Business Vehicle:

✔️ Lower upfront cost

✔️ Fixed monthly payments

✔️ No depreciation concerns

✔️ Tax-deductible lease payments

Buying a Business Vehicle:

✔️ Full ownership after purchase

✔️ Potential capital allowances

✔️ No mileage restrictions

✔️ Higher upfront costs but no long-term lease commitments

5. Best Vehicles to Buy Through a Business (Tax-Efficient Options)

To reduce tax liability, consider: 🚗 Electric Cars (Tesla Model 3, BMW i4) – Low BIK tax & 100% capital allowances 🚐 Vans & Pickups (Ford Transit, Toyota Hilux) – Lower BIK tax & VAT recovery

6. Key Considerations Before Purchasing a Business Vehicle

Business vs. Personal Use: More business use = greater tax savings.
Electric vs. Petrol/Diesel: Electric vehicles offer better tax benefits.
Cash Flow Impact: Leasing offers predictable costs, while buying locks in assets.

Final Thoughts

Buying a vehicle through your business can be tax-efficient, but structuring it correctly is crucial. Personal use, BIK tax, and financing methods all impact tax efficiency.

Need Expert Guidance?

At Strength in Numbers Limited, we help business owners make tax-efficient financial decisions. Contact us today for tailored advice! Call 01902 632 627 or fill out our contact form