21.9.2022 | Tax

What to consider when buying or leasing vehicles for business use

Head of Taxation at Beatons’ Andrew Diver gives an overview of what to consider and how to ensure any benefits are properly gained.

Having vehicles on the books can be a benefit for lots of businesses.

But there are tax considerations depending on the type of vehicle, what it is used for and how it is purchased.

Tax legislation generally divides vehicles into two categories – cars and other vehicles.

 Is it a car?

Cars attract fewer tax benefits than vans or commercial vehicles.

Therefore, the first important question to consider is, ‘Is it a car’?

It might seem straightforward, but the official guidelines state that a car is defined as a mechanically propelled vehicle which is not:
• A motorcycle
• A vehicle which is constructed primarily to suit the conveyance of goods or burden of any description, or
• A vehicle of a type which is not commonly used as a private vehicle and is not suitable for use as a private vehicle.

As vehicles develop and become more hybrid in use, there are cases in which certain ones have sought to benefit from the non-car status, with double cab pickups being a particular example where the lines of car/van are less certain.

Other considerations

• Capital allowances

This form of tax relief incentivises companies to invest in capital expenditure. So, capital allowances can be claimed if a company owns a vehicle as an outright purchase or hire purchase.

Vehicles in the ‘non-car’ class are eligible for a 100% annual investment allowance, and new fully electric cars are eligible for 100% capital allowances.
However, second-hand electric cars are only able to claim the 18% rate, so buying new brings the biggest benefits.

• Benefit in kind

Purchasing a new electric vehicle offers some of the best benefits in kind advantages. Full electric cars are eligible for a percentage of just 2% of the list price as the annual benefit in kind.

• Lease or purchase

Tax deductions can be claimed for leased vehicles based on a percentage of the rental agreement.

For a purchased non-car vehicle, relief is likely to be possible in full up front with 100% capital allowances permitted. Effectively reducing the vehicle cost by the current rate of corporation tax, which is 19% in 2022/23.

Vehicles are a necessity for many businesses, and obtaining the correct class with the best benefits is crucial. Our experts at Beatons can help with all your vehicle tax considerations – email info@beatons.co.uk or call us on 01473 659777.