What’s the best formula for your company car?
2 min
In the next few years, many things will change regarding the tax deductibility of company cars.
For petrol cars that have already been purchased, the amount you can deduct from your taxable income will decrease. For new cars, that amount will also be reduced gradually in the coming years, depending on the purchase date. For traditional and hybrid cars, tax deductibility will be completely eliminated, including for vehicles purchased from 2026 onwards.
So to keep your tax benefits, an electric car is a must
Between 1 July 2023 and 31 December 2025, a transitional period applies during which petrol cars still have an element of tax deductibility. However, the benefit will decrease, because it will be capped according to the schedule for phasing out petrol and diesel cars.
For cars of this type purchased before 2023, the proportion of costs that are deductible from taxable income will drop to 75% in 2025, 50% in 2026 and 0% in 2028. If you bought your car later, the tax deduction is even lower.
If you become the owner of a diesel, petrol or hybrid car in 2024, the tax deduction will be a maximum of 75% in 2025 and a maximum of 50% in 2026. From 2028, there will be no tax deduction at all.
On the other hand, if you buy an electric car before 1 January 2027, all costs will be tax deductible for the car’s entire lifetime or lease. Between 2027 and 2031, the tax deduction for electric cars will also decrease gradually, from 95% for those purchased in 2027 to 67.5% for those purchased from 2031 onwards.
So to benefit from the maximum level of tax deductibility in the next few years, it’s wise to opt for an electric car now.
The question then arises: what’s the best way to finance it? We review the different possibilities: buying it with your own funds or on credit, or taking out a finance lease or operational lease.
Buying your car with your own funds or on credit
Buying with your own funds
The simplest way to buy your car is with your own funds. You simply use your company's working capital and don’t have to pay any monthly instalments or interest. You become the legal owner of the car, which is not the case with a finance or operational lease.
However, there are also disadvantages: you have to take care of all administrative formalities and costs, such as taxes, insurance, tyres and maintenance. And since you use you’ve used your working capital, you have less cash for your company's day-to-day operations.
Buying on credit
If you borrow money, you don’t need to tie up a large sum in one go. In general, a loan can be arranged quickly, and you can even apply and finalise the loan online.
It’s also flexible: you can, for example, opt for monthly or quarterly payments, or for fixed instalments or a fixed level of capital repayments. With the latter option, you pay a higher amount at the beginning of the loan than at the end.
As with a purchase using your own funds, you become the legal owner of the car and take care of the costs and administrative formalities.
VAT financing and tax consequences
If you take out a loan, most self-employed individuals are subject to the rule that the loan can cover a maximum of 50% of the VAT. Only professionals can obtain loans covering all of the VAT. From a tax point of view, a loan is relatively simple. You record the interest as business expenses, as well as the car’s depreciation of course.
In both cases, however, you must take into account limits on the car’s tax deductibility and possibly rules restricting it to business use.
Car leasing: which type suits you best?
Finance or operational leasing
For both finance and operational leasing, the logic is the same: you make payments to a leasing company for a certain period, usually four or five years.
With a finance lease, the leasing company is the legal owner of the vehicle, and you are the economic owner. You’re responsible for registering the vehicle and maintaining it. The purchase option – the price for which you can eventually buy the car – is fixed and known from the start of the lease.
With an operational lease, the leasing company is the legal and economic owner of the vehicle for the entire duration of the agreement. At the end of the lease, the rental ends and you return the vehicle to the leasing company. You can then decide whether or not to lease a new car.
The all-inclusive formula
This is one of the significant advantages of an operational lease compared to a finance lease: taxes, insurance (comprehensive), maintenance and all other costs (except fuel) are included in the lease payment. Additionally, you benefit from additional services such as summer and winter tyres, a breakdown service and a replacement vehicle. In other words, you pay a certain amount per month, and everything is taken care of for you, so you can drive with peace of mind.
What are the tax consequences?
With a lease, the purchase option has tax consequences. With a financial lease, you have a choice:
- Either you recognise the car as an asset and depreciate it, and record the interest portion of the lease payments as business expenses. The purchase option can equal 4 to 15% of the initial value of the car.
- Or you recognise all of the lease payments as business expenses. In this case, the purchase option must equal more than 15% of the car’s initial value.
With an operational lease, you recognise the entire lease payments as expenses. In both cases, tax deductibility limits apply, and you may have to take into account the extent to which the car is used for business purposes.
Another important point: since VAT is included in the monthly lease payment, you don’t pay it all at once. This allows you to keep your credit facilities for other investments.
Loan or lease?
Which is the best option for you? It depends on your aims. Compare loans and leasing formulas for all your business vehicles: passenger cars and utility vehicles, but also all modern means of transport, such as electric bicycles, scooters, hoverboards and monocycles.
Are you interested in a loan, finance lease or operational lease?