WHEN an SME makes the decision to provide its employees with a company car, there is a lot more to consider than just the cost of the vehicle itself.
How you choose to fund your vehicle – or perhaps your small fleet of company cars – can make a big difference when it comes to the tax advantages that your company could benefit from.
There are many ways to fund a company car including traditional outright purchase, hire purchase or lease purchase with a balloon.
If ownership is one of your top priorities – despite the vehicle not actually being owned until the finance has been paid off – then this is a route that you may naturally gravitate towards.
In this instance, companies can class the car as their asset and the depreciation is written off against taxable profits.
In some instances, companies can even claim tax relief on interest paid over the term of the finance agreement.
However, unless the car is used 100% purely for business use, the company cannot claim back any VAT back on a purchased vehicle.
Contract hire – or car leasing – offers a different type of option and one that can make a very viable prospect if you want to make the company cars more tax efficient.
Firstly, an element of VAT can be reclaimed (see below for more details) which represents a saving in itself when comparing it to the purchase option.
