Deciding whether to buy or lease a company car is not just a practical choice; it is also a tax decision. The option you choose can affect your corporation tax bill, cash flow, and the total cost of running the vehicle through your business.
This guide explains the key differences between buying and leasing a company car, how the tax treatment works, and what business owners should consider before committing.
Buying a Company Car Through Your Business
When a company buys a car, either outright or using finance, the vehicle becomes a business asset. The way tax relief is claimed depends on whether the car is new or used, its CO2 emissions, and how it is financed.
Tax Treatment When Buying a Company Car
Brand new electric cars: If your company purchases a brand new, fully electric car, the full cost of the car can be deducted from taxable profits in the first year. This is known as a First Year Allowance. For many businesses, this makes buying a new electric car very tax-efficient as you do not have to spread the relief over several years.
Example: If your company buys a new electric car for £40,000, the company can deduct the full £40,000 from its profits in the year of purchase. At a corporation tax rate of 25%, this could reduce the tax bill by £10,000 in that year.
Used electric cars: Used electric cars do not qualify for the 100% allowance. Instead, tax relief is spread over several years, starting at 18% per year, and reducing each year thereafter. Business owners regularly overlook this difference when comparing new and used electric vehicles, as it is often assumed that all electric cars receive the same tax treatment.
Example: A used electric car that costs £30,000 may only give a tax relief of £5,400 in the first year, rather than the full amount.
Petrol and diesel cars: For petrol and diesel cars, tax relief depends on CO2 emissions:
- Lower-emission cars may qualify for 18% annual allowances.
- Higher-emission cars may be restricted to 6% per year.
This means that it can take many years to fully claim tax relief, making these vehicles less tax-efficient when bought through a company.
Buying With Finance: HP and PCP
Most businesses do not buy cars outright in cash. Two common finance options are Hire Purchase and Personal Contract Purchase:
Hire Purchase (HP): With HP, the company is treated as owning the car from the start. This means capital allowances can usually be claimed, including the 100% relief for new electric cars, and interest payments are typically allowable as a business expense.
Example: A new electric car bought on HP for £45,000 can still qualify for 100% tax relief in year one, even though the business pays for it monthly.
Personal Contract Purchase (PCP): PCP works slightly differently. While monthly payments are lower, ownership may not transfer until the final payment. The final balloon payment and ownership structure affect how capital allowances apply, so this option needs careful review before proceeding.
Leasing a Company Car Through Your Business
Leasing, often referred to as contract hire, means the business never owns the vehicle. Instead, it pays a fixed monthly amount to use the car for an agreed period.
Tax Treatment When Leasing a Company Car
Lease payments are usually treated as an ongoing business expense, which means that tax relief is spread across the life of the lease rather than claimed upfront.
For VAT-registered businesses, 50% of the VAT can usually be reclaimed on the lease payments, and 100% of VAT can usually be reclaimed on maintenance costs.
For many businesses, this provides predictable costs and steady tax relief each month. However, it does mean there is no large tax deduction in year one, even for electric vehicles.
There may also be restrictions on how much of the lease cost is tax-deductible for higher-emission cars.
Example: If your company leases a car for £500 per month plus VAT, the annual cost to your business is £6,000 plus VAT. The business can then usually reclaim £600 of the overall £1,200 VAT, and the remaining lease cost is deducted from profits over the year.
Practical Considerations With Leasing
There are some benefits to leasing a vehicle, as leasing arrangements often include servicing and maintenance, road tax, and breakdown cover. However, mileage limits will apply, and the charges for excess milage can be significant.
Benefit in Kind and Personal Use
If a company car is available for personal use by a director or employee, a Benefit in Kind (BiK) charge may apply. This is taxed personally and also attracts employer National Insurance.
Electric cars currently have much lower BiK rates than petrol or diesel cars, which is why they remain a popular choice for company vehicles. However, these rates are set to increase gradually over the next few tax years.
More significantly, there are planned changes from the 2028/29 tax year, which will affect the BiK treatment of electric company cars. While electric vehicles are still expected to remain more tax-efficient than petrol or diesel alternatives, the personal tax cost for drivers is likely to rise.
This is particularly relevant when entering into multi-year agreements, such as a three-year lease. The BiK rate in the final year of the lease may be higher than when the vehicle was first taken on, which can impact personal tax planning for directors and employees.
For this reason, it is important to consider not just today’s BiK rate, but how future changes could affect the overall cost of having a company car over the full term of ownership or lease.
Choosing the Right Option for Your Business
There is no single correct answer when deciding whether to buy or lease a company car. The most tax-efficient option depends on the type of car, how it is financed, how it is used, and the wider financial position of the business.
The examples in this article provide general guidance only. Specific advice will depend on your circumstances, including future plans, profitability, and personal tax exposure.
This is where GLX can help you with tailored advice, ensuring the decision supports both your business and personal finances.
For further advice on whether you should buy or lease a company car, contact our team today.
Understanding the difference between cash flow and profit can help you make better financial decisions and, although both are signs of how healthy your business is, they don’t always tell the same story.
What Is Profit?
Profit is what’s left after you subtract your costs from your income.
In simple terms: Profit = Income – Expenses
There are three main types of profit:
- Gross profit: what’s left after you take away the direct costs of producing goods or services (like materials or labour).
- Operating profit: the profit after all regular business costs, such as rent, wages, and insurance.
- Net profit: the final figure after everything, including tax and interest, has been deducted.
Profit is what appears on your profit and loss statement, and it shows whether your business model works over time.
However, you can be profitable on paper and still run into cash problems. That’s where cash flow comes in.
What Is Cash Flow?
Cash flow is the movement of money in and out of your business.
Positive cash flow means more money is coming in than going out. Negative cash flow means your expenses are higher than your income during a certain period.
Even a profitable business can experience negative cash flow if:
- Customers take a long time to pay invoices.
- You’ve purchased equipment or stock upfront.
- You’re growing quickly and spending before income catches up.
This is why understanding cash flow is essential for keeping your business running day to day.
The Key Difference Between Cash Flow and Profit
The main difference between cash flow and profit is that:
- Profit measures your overall financial performance.
- Cash flow measures your business’s ability to stay liquid and meet short-term commitments.
Profit is recorded when income is earned and expenses are incurred, even if the money hasn’t yet changed hands, and cash flow tracks when those payments happen.
A Real-Life Example
Imagine you invoice a customer £2,000 for a job. To complete the work, you had to buy materials costing £600. On paper, your profit is £1,400 which looks great on your profit and loss report however, you’ve given the customer 30 days to pay.
So while your accounts show a healthy profit, your cash flow is actually -£600 until the money arrives and you’re temporarily out of pocket, even though the job was profitable.
This is one of the most common issues small businesses face. They’re profitable on paper, but the timing of money coming in and out leaves them short when they need to pay suppliers, wages, or tax.
How Businesses Can Manage This Issue
There are practical ways to reduce cash flow pressure caused by timing:
- Take deposits upfront: For example, asking for 25–50% before starting the work helps cover materials and protects your cash position.
- Use staged or milestone payments: Instead of invoicing £2,000 at the end of a project, you might invoice £1,000 at the start and £1,000 on completion. This spreads risk and keeps cash moving.
- Shorten payment terms where possible: Moving from 30 days to 14 days can make a significant difference, especially for service-based businesses.
- Automate reminders and follow-ups: Many businesses suffer cash flow stress simply because invoices sit unpaid and unchased.
Why Both Matter for Your Business
If you only look at profit, you might think your business is performing well, but a cash shortage can stop you paying staff, suppliers, or taxes on time.
If you only look at cash flow, you might miss the bigger picture, like whether your business model is sustainable in the long run.
Keeping an eye on both gives you a full view of your financial health, which is why many businesses use management accounts and cash flow forecasts to monitor both regularly.
At GLX, we help business owners translate their numbers into clear insight. Whether you want to understand how cash moves through your business, or how profitable your operations really are, our team can guide you through it in plain English, and help you make confident, informed decisions about the future.
As a director of a Limited Company, protecting both your business and your employees is vital. One way to achieve this is by putting the right insurance policies for directors in place. These policies can be paid through your Limited Company without triggering a benefit in kind, making them both practical and tax-efficient.
Why Insurance Policies for Directors Are Important
Running a Limited Company comes with responsibilities, not only to shareholders, but also to employees and their families. Having the right protection in place ensures financial security, supports business continuity, and helps attract and retain valuable staff.
In this guide, we’ll explain the most important insurance policies for directors, including Relevant Life Insurance, Death in Service cover, and Key Man Insurance.
Relevant Life Policy
What is a Relevant Life Policy?
A Relevant Life Policy is one of the most tax-efficient insurance policies for directors. It provides a death-in-service benefit for employees, including directors, by paying a lump sum to the insured person’s beneficiaries if they die or are diagnosed with a terminal illness while employed by the company.
Benefits of a Relevant Life Policy:
- Tax Efficiency: Premiums are usually eligible for Corporation Tax relief, reducing overall costs for the company.
- Employee Attraction and Retention: Including this policy in your benefits package makes your company more appealing to potential hires and helps retain existing employees.
Death in Service Insurance
What is Death in Service Insurance?
Death in Service cover is another valuable option when considering insurance policies for directors. It provides a tax-free lump sum to an employee’s beneficiaries if they pass away while employed by the company.
Benefits of Death in Service:
- Financial Security: Helps the employee’s family cover major costs such as mortgage repayments, funeral expenses, and day-to-day living costs.
- Cost-Effective: Offers high value at relatively low cost, making it an attractive benefit for employees.
Key Man Insurance
What is Key Man Insurance?
Key Man Insurance is a business insurance policy that provides financial protection to a company if a key person, such as a director or critical employee, passes away or becomes disabled.
Benefits of Key Man Insurance:
- Financial Protection: Provides a cash payout to offset lost revenue, cover recruitment costs, or support ongoing business operations.
- Business Continuity: Ensures the company can continue running smoothly despite the loss of a critical person.
Choosing the Right Insurance Policies for Directors
Each Limited Company is different, and the right cover depends on the size of your business, the nature of your work, and your long-term goals. By putting the right insurance policies for directors in place, you’ll not only protect your business but also safeguard your employees and their families.
If you require further information on the various insurances available to you as a director, please get in touch.
Did you know that misunderstanding Director’s Loan Account rules is one of the most common causes of tax and cashflow issues for small companies and their Directors?
A Director’s Loan Account (DLA) records money you take from or lend to your company outside of salary or dividends, such as expenses you pay for the company, cash withdrawals, or loans between you and your company.
At GLX, we regularly speak with directors who are surprised to learn just how easy it is to fall foul of DLA rules. We understand that running your business is your priority, but understanding how much you can withdraw as a business owner is crucial.
Here are some Director’s Loan Account rules to be aware of:
– Taking out more money than you’ve put in creates an overdrawn DLA. This means you owe money back to the company. If you don’t repay the overdrawn amount within 9 months after the company’s year-end, the company faces a Corporation Tax charge of 32.5% (known as Section 455 tax).
– Loans under £10,000 can be interest-free. For loans above this, interest must be charged. If not, the difference is treated as a benefit in kind and reported on a P11D, potentially creating a personal tax liability.
– Repaying the loan within the deadline avoids the Section 455 charge. The company can reclaim this tax if repaid later, but this can create cash flow challenges.
– Writing off the loan or treating it as a dividend can trigger further personal tax implications.
– Regularly documenting and reconciling your DLA helps prevent surprises and ensures your accounts are accurate.
HMRC monitors Director’s loans closely and may impose penalties for non-compliance, so making sure you are well informed will help you avoid any issues in the future.
If you’re unsure about your Director’s loan or need help managing withdrawals and tax effects, contact GLX to discuss your situation and we will guide you every step of the way.
If you’re a company director, your salary and dividend strategy can make a significant difference to how much tax you pay and how much income you take home. Now that the new tax year is underway, it’s a great time to review whether your current approach is still the most tax-efficient option.
Why Your Income Structure Matters
By balancing salary and dividends, many directors can significantly reduce their tax and National Insurance liability. In fact, with the right strategy, you could take home approximately £46,700 from a total income of £50,270, while keeping your tax and NICs to just £4,260.
Here’s what that might look like:
– Salary of £12,570 with no income tax, but around £293 in employee NIC and £712 in employer NIC which helps protect your state benefits.
– Dividends of £37,700, £500 of which is tax-free using the dividend allowance, and 8.75% tax on £37,200 which equals £3,255.
– Total tax and NIC paid: £4,260*
– Take home pay of approximately £46,700* from a total income of £50,270.
*Simplified figures
Why This Strategy Works
Dividends aren’t subject to National Insurance, which is why a well-structured salary and dividend strategy for directors can be so tax-efficient. Splitting income between the two can lower your overall tax bill compared to taking the full amount as salary.
Other important considerations:
– Staying below the £60,000 threshold ensures you retain your full Child Benefit entitlement.
– Employment Allowance can reduce employer NIC by up to £10,500 but isn’t available if you’re the sole director on payroll. It can help if you have other employees, even temporarily.
– Employer NIC paid on salary is an allowable business expense, so it reduces your company’s taxable profits and corporation tax liability. For example, £712 NIC reduces your corporation tax bill by up to £178 (at 25% rate).
Tailoring your salary and dividend strategy
For many directors this is likely the most tax-efficient position. However it’s important to tailor remuneration to your individual circumstances. If you have other income streams such as rental income or pensions this can affect your overall tax position and the best strategy for you. It’s not a one-size-fits-all solution.
For tailored advice for your salary and dividend plan for 2025/26, speak to the GLX team today on 01603 671361 or email info@glx.co.uk
With the P11D reporting deadline 2025 fast approaching on 6th July and the 2024/25 tax year now closed, now is the time to make sure everything is in order.
If your business offers perks such as company cars, private medical cover, or director loans, these are classed as benefits in kind, and must be reported to HMRC as part of the P11D process.
Key points to consider:
- The value of any benefit is treated as taxable income for the employee or director and is usually taxed via an adjustment to their tax code.
- Employers must also submit a P11D(b) to report and pay Class 1A National Insurance at 13.8% on most taxable benefits.
- Payment of Class 1A NIC is due by 22nd July 2025 (or 19th July if paying by post).
The most common reportable benefits include:
- Company cars and fuel
- Mileage reimbursements above HMRC’s approved rates
- Director’s loans exceeding £10,000
- Private medical insurance
Benefits that have already been processed through payroll (if registered in advance) and trivial benefits within HMRC’s exemption rules don’t need to be reported.
Did you know that you can now choose to payroll certain benefits? This means adding them directly to employees’ payslips, reducing admin time, and eliminating the need for year-end P11D reports (though a P11D(b) is still required). Registration with HMRC must be completed before the start of the tax year.
From April 2026, payrolling benefits will become mandatory, which will replace most P11D reporting altogether, so preparing early for this change will help smooth the transition.
If you need help meeting the P11D reporting deadline 2025, understanding the changes, or implementing payrolling for benefits, contact our team today!
Early tax return preparation might not rank high on the “fun” list for most individuals and business owners, which makes it all too tempting to put off.
However, the benefits of being proactive are significant and often overlooked.
At GLX, we work proactively and encourage our clients to get ahead of the curve, and here’s why:
- More time to maximise allowances: When you start early, there’s time to properly assess your situation and ensure you’re not missing out on any deductions or reliefs that you’re entitled to.
- Less pressure, fewer mistakes: Last-minute submissions can lead to avoidable errors. Preparing early gives you the breathing space to prepare your records and get it right the first time.
- Faster refunds: If you’re owed money, submitting early means HMRC processes your return sooner. That can be a welcome boost to cash flow.
- Peace of mind: Getting ahead removes the stress of looming deadlines. You can focus on running your business or enjoying life, knowing it’s all under control.
Thinking about getting expert help with your tax returns? Whether you’re an individual or business owner, our team can guide you through early tax return preparation with ease.
Get in touch with the GLX team for a no-obligation chat about your circumstances, and how we can help you.
Q: How flexible is the outsourced Finance Director role?
A: For many businesses, especially growing SMEs, flexibility in financial leadership is crucial — and this is where outsourcing shines.
An outsourced Finance Director (FD) offers significant flexibility that a full-time, in-house hire simply cannot match. Whether your business requires strategic input for a short-term project or ongoing part-time support, an outsourced FD can be engaged on terms that suit your needs.
This model allows you to adapt your financial management approach without the high cost and long-term commitment associated with full-time employees. It’s a scalable solution — giving you the ability to increase or decrease involvement based on your business’s current stage or challenges.
What adds to the flexibility is the broad range of services that an outsourced FD can provide. These include:
- Financial planning and forecasting
- Budgeting and cost control
- Cash flow management
- Financial reporting and analysis
- Strategic financial advice
You get high-level expertise tailored to your company’s specific requirements, all while maintaining cost-efficiency and operational agility. Whether you’re navigating growth, restructuring, or preparing for investment, this flexible arrangement ensures your financial leadership scales with you.
If you’re asking “how flexible is the outsourced Finance Director role”, the answer is: very. It’s a solution designed for adaptability — a smart, modern approach for businesses looking to optimise performance without sacrificing control or budget.
If you’d like to explore how an outsourced Finance Director could benefit your business, contact us for a free chat.
On March 26th, Chancellor Rachel Reeves unveiled the Spring 2025 Budget, responding to current economic challenges and outlining plans for the future.
We’ve outlined the key takeaways that may impact individuals, sole traders, and business owners.
Overall, The Spring 2025 Budget emphasises modernisation, compliance, and strategic reforms without dramatic tax rate changes.
Individuals, sole traders, and business owners must prepare for these developments, with ‘Making Tax Digital’ being the most important point here. We’ll be reaching out directly to all our clients affected, but if you’d like to get ahead of the game, we’d be happy to help you prepare for this change.
Take a look at some of the key takeaways:
No easing of business taxes:
The budget confirmed that increases to Employers’ National Insurance Contributions and other business taxes set to take
effect in April 2025 will not be eased. This means businesses will face increased costs, affecting pricing and wage decisions.
Making Tax Digital (MTD):
A phased rollout of Making Tax Digital for Income Tax will require sole traders and landlords with income over £20,000 to comply by April 2028. This includes mandatory quarterly digital updates and using MTD-compatible software. Affected individuals need to prepare for these changes and ensure they have the right tools in place.
Measures against tax avoidance:
The government is taking a firm stance against marketed tax avoidance schemes. A new consultation aims to strengthen penalties for scheme promoters, enhance HMRC’s powers to combat tax evasion, and create a less permissive environment for such schemes. Individuals are encouraged to be cautious and ensure their tax practices align with legal requirements.
Revised behavioural penalties:
HMRC is consulting on reforms to its penalties regime, focusing on simplifying the system and making penalties more proportionate. This aims to address inconsistencies in how errors in tax returns are penalised, particularly for honest mistakes, promoting a fairer approach to compliance.
Advance clearance for R&D tax claims:
The budget proposes exploring advance clearances for Research and Development (R&D) tax claims. If implemented, businesses could obtain an upfront agreement from HMRC regarding eligibility for R&D relief, reducing the uncertainty and administrative burden associated with post-claim reviews.
Enhanced third-party data utilisation:
HMRC plans to improve its data collection methods and use third-party data to enhance tax compliance. This may involve using earnings data from gig economy platforms and bank transaction insights to facilitate tax return processing and compliance checks.
If you have any questions about your finances or need assistance with your accounting, contact the team at GLX on 01603 617361 or email info@glx.co.uk
This month, millions of workers will take home more pay due to a reduction in the national insurance rate.
As announced by the chancellor, Jeremy Hunt, in November 2023, the main National Insurance rate for employees was reduced from 12% to 10% on 6 January 2024.
As an example:
On a salary of £30,000 an employee’s NIC per month was £174.30 at the original 12%, however from 6th January 2024 the new amount of £145.25 will be payable, saving £29.05 per month or £348.60 per year.
The self-employed will receive their reductions from April 2024 and we’ll be sharing more detail on this nearer the time.
In the meantime, you can read the full details on the Government website: