Purchasing a car for business use brings with it its own unique set of considerations. Primary among these are tax concerns, which will vary depending on the country you are working in. It’s important to look up these rules in your specific region to find out how you can reduce costs and find more affordable financing. However, if you’re in the market for a new company car, it’s worth taking the following general factors into consideration.
Leasing a car may be more advantageous.
There are tax advantages to leasing a vehicle in many countries. The least payment can often be deducted if you use the vehicle solely for business purposes. If you are a sole trader and combine a car for work and business use, you can still deduct a partial percentage of the lease payment. Different inclusion amounts may apply. In the USA, this means that if the vehicle costs more than $18,500 you’ll need to add back the inclusion amount to your income to offset the deductions available from leasing vs. owning.
Tax write-offs will vary widely.
Leasing a vehicle is only one way in which write-offs will vary. The size of the car, its intended use, and the type of business you operate will all impact what you are allowed to write off. The USA allows motorists to choose from an IRS standard mileage rate or the real costs of running the vehicle. Choosing real costs also allows you to take depreciation into account. In the UK and Australia, there are standard mileage rates which apply regardless of how efficient your car is. This means that it’s more cost-effective to find Opel at carsales.com.au or other small, efficient cars rather than a gas-guzzling SUV.
If you own the car in the UK, for example, you can claim 40p per mile for the first 10,000 miles travelled and then 25p per mile after this threshold has been reached. This amount is meant to cover the full running costs of the car, so you won’t be reimbursed any extra if your car needs costly repairs. It’s worthwhile to choose a reliable, efficient vehicle as a company car for this reason.
Green-friendly cars can lead to more savings.
With this in mind, hybrids and other green-friendly cars can look like attractive options. Not only do you get more mileage for your money, but you also get the added benefit of a tax credit in most countries. For example, the federal government in the US paid out a tax credit of $7,500 in 2012 for those who purchased an electric vehicle. The exact amount of tax credits will vary depending on country, region, or state. At the moment fully electric cars tend to offer higher tax rebates than hybrids.
A trade-in may lower the amount you can write off.
If you’re lured in by Skoda Yeti offers on Carsales and decide it’s time to turn in your old clunker for a shiny new company vehicle, you’ll need to remember that the amount of depreciation you can claim for the new purchase may be limited. This is due to the new vehicle’s price being adjusted using the amount of the trade-in.
Whether you run a small business, are self-employed, or are looking for a car to drive to and from work, you’ll need to keep these factors in mind. Buying a company car can make your tax situation more complicated, so you’ll want to consult with your accountant to find out which options are most tax-friendly in your country of employment.