What are the ins and outs of buying a company car?
Purchasing a company car may be a good option for you. Perhaps you drive a lot of kilometers for work as a self-employed professional. In that case, you can save on taxes by purchasing a company car through your business.
But what do you need to consider when purchasing and using a company car? Are there differences between using it as a private individual or as a self-employed person? And is there a difference in insurance coverage between business and personal use? Alpina explains it all for you.
Company Car for Self-Employed Individuals
Purchasing a company car in your company’s name offers a number of benefits, such as tax advantages. Below, we’ve listed a few of them for you.
Car Expenses
It is possible to deduct certain expenses related to your company car if you purchased it in your company’s name. These include, for example, gas, maintenance, insurance, and even parking fees. You should initially calculate these expenses excluding VAT; we’ll discuss this in more detail in the next section. You can deduct these expenses when filing your income tax return.
To claim reimbursement for gas expenses and mileage, you must keep a log of your trips. This makes it possible to determine exactly which kilometers you actually drove for business purposes.
However, fines may never be claimed. These are your own responsibility.
VAT Return
As mentioned above, you can submit expense reports for costs that you must calculate excluding VAT. This is because you must file a separate VAT return. You can then claim the VAT you paid on these expenses.
Additional Taxable Income
The additional tax liability depends on how you use your car. If you use it strictly for business purposes, you do not have to pay any additional tax. If you drive more than 500 kilometers per year for personal use with your company car, you will have to pay additional tax.
Looking to get commercial auto insurance? Calculate your premium!
Can you buy a company car as a private individual?
You can also purchase your company car as a private individual. In that case, you would not register the car in your company's name, but in your own name.
If you purchase the car as a private individual, you cannot claim certain tax deductions. For example, you cannot deduct the sales tax or the costs of gasoline, maintenance, etc., on your tax return.
What you can do, however, if you purchase your company car as a private individual, is to deduct the business-related mileage from your profits. You then report this mileage as a business expense. While this means your company will have lower profits, you’ll also owe less tax on them.
Whether it’s more cost-effective for you to purchase a company car as a private individual or through your business depends on the costs you expect to incur. The number of kilometers you drive for personal use is also important. The imputed income can be a significant expense, and your company will also have to pay taxes on it. Be sure to do the math in advance so you know which option is most cost-effective for you.
Insurance for Your Company Car
What kind of insurance do you actually need for your company car as a self-employed person? And what kind of insurance do you need as a private individual?
Insuring a Company Car as a Self-Employed Professional
Have you purchased a company car registered in your company’s name? If so, you must at least have liability insurance for it. This type of insurance is required by law. It only covers damage you cause to others; it does not cover damage to your own vehicle.
In addition, you can choose a more comprehensive commercial auto insurance policy, such as limited comprehensive coverage or all-risk coverage.
With limited comprehensive insurance, you’re covered not only for damage to others but also for theft, collisions with animals, weather-related damage, and damage caused by fire or explosions. This means you’re covered for most types of damage.
With ALL-Risk insurance, you’re also covered for damage you cause to others. If you accidentally bump into the door of another car, your insurance will cover that damage.
Please keep in mind that you cannot claim the insurance as a business expense if you purchase your company car as a private individual.
Get insurance for your company car through Alpina: simple and affordable
Are you considering purchasing insurance for your company car? Then take out a policy today through Alpina! Thanks to our many years of experience, we can offer you the best insurance plans. Do you still have any doubts or questions about our insurance plans for your company car? Feel free to contact our customer service team. They’re here to answer all your questions.
See also:
- Are electric company cars on the rise?
- All-Risk Coverage for Commercial Auto Insurance
- Passenger Accident Insurance as Part of a Commercial Auto Insurance Policy
- Commercial auto insurance that's right for you: Do you insure your car for business or personal use?
- Additional Coverage for Commercial Auto Insurance
- Passenger Injury Coverage as Part of a Commercial Auto Insurance Policy
- Liability Insurance + Limited Comprehensive Coverage
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