How to buy a car for your business

Are you an entrepreneur or a tradesman who wants to know how to buy a car for your business?

Then this article will give an overview of what is required when you want to buy a car for your business.

buy a car for your businessHowever, this does not constitute financial advice and you should speak with your accountant before buying a car.

So, whether you want to buy a car for yourself, or a fleet of vehicles, there are some considerations to take into account.

Buying the car outright for business

There are several reasons for buying a car outright for business purposes, and the pros include:

  • The vehicle is yours to do what you like with.
  • There’s no interest payable, for example on a Hire Purchase agreement or a loan.

The cons of buying a car outright include:

  • There will be a big dent in your firm’s cash flow.
  • Cars depreciate in value so it’s unlikely that the vehicle’s value will be recovered when sold.

You also need to appreciate that the car is a business asset that needs to be on your balance sheet.

This will then reduce in value because of its depreciation, which will then reduce your profits.

According to Brookson One, for taxation this depreciation will be placed back to the profits and capital allowances can be claimed to reduce your firm’s taxable profits – and help lower your tax bill.

Buying a car for business using Hire Purchase (HP)

If you are thinking of buying a car for business using a hire purchase agreement, then you need to pay a deposit and pay the balance monthly.

Once the payments have been completed, the car is yours. Other pros include:

  • Using Hire Purchase may help to free up cash flow.
  • HP may also help you enjoy a more expensive vehicle than when paying cash.

The downsides for using a Hire Purchase agreement include:

  • You cannot sell the car without paying off the finance.
  • The Hire Purchase agreement will attract interest.

There may also be a fee to pay at the end of the term, this is known as an option to purchase, but you should check first before signing.

Depreciation allowances will be applicable for a car being bought on Hire Purchase because it will be classed as being fully paid by your accountant.

Using a lease to get a business car

As with an HP agreement, you could consider leasing a vehicle for business purposes and the pros include:

  • You can pay fixed monthly repayments over an agreed time.
  • The payments may help with cash flow rather than spending a lump sum.
  • Leasing may help with budgeting.
  • Most leasing companies will offer maintenance within a contract to help bring peace of mind.

The downside of leasing a business car include:

  • You never own a leased vehicle.
  • Usage and mileage restrictions will apply.

Buying a vehicle for business

If your business is VAT registered, you may be able to recover 50% of the charged VAT when buying a vehicle for business.

And the lease payments should be included in your firm’s profit and loss account which will then reduce the firm’s profits – and your tax bill.

Buy a car with cash

However, there is one more important tip for those who are wanting to buy a car for business with cash.

And that is to consider paying for a full car history check from a reputable service such as This will:

  • Ensure there is no outstanding finance – if there is, it’s still owned by the finance company.
  • Find out whether the car has been stolen previously or written off.
  • Check the mileage is accurate.
  • Find out how many owners the vehicle has had.
  • Check the MOT history.
  • Find out whether the registration plates have been transferred previously.
  • Find out whether it has ever been scrapped by the DVLA.

A full car history check will also reveal other information and bring peace of mind that when you buy a car for business, you can do so confidently.

Essentially, you need to consider carefully the type of car you want to buy for business purposes – and what your budget is – but you should speak with an accountant before parting with any money to ensure yours is the most tax-effective decision that you take.