When is the best time to sell a car?

Can you sell a company car?

In some circumstances, you can sell a company car. However, there are certain conditions that need to be met.

If the car is registered to a company, you’ll need a written letter of authority from a member of the team who has the right to sell the car (along with a copy of their driving licence and signature). You may also require permission from the company confirming that the car can be sold.

However, if the company does not yet own the car (e.g. if it is still subject to a car finance agreement), it cannot be sold until the outstanding finance has been settled with the lender.

In this guide, we will cover the process to follow for selling a company car and the potential tax implications for doing so. We’ll also explain when you need to pay tax on a company car, how to write off the cost of a company car as a business expense – and calculate your deductions.

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How do I sell my company car?

Providing you are authorised to do so, there are numerous options for selling your company car, including:

  • Selling your car privately.
  • Selling to a dealership.
  • Selling at an auction.
  • Selling to a car buying service (such as webuyanycar).

The selling process for a company car is very similar to that for a privately-owned car.

However, it is likely that you’ll need to provide additional documentation, such as a letter from an authorised team member (along with their driving licence and signature) as proof that you are authorised to sell the company car.

Tax explained when selling a company car

When selling a company car, you’ll need to pay corporation tax or capital gains tax if your car sells for more than the amount you originally paid for it. You may also have to pay capital gains or corporation tax if the car is disposed of differently and you make a profit on it.

Tax implications of selling a company car

If you trade as a limited liability company (LLC), you may have to pay corporation or capital gains tax when you ‘dispose of’ a business asset (e.g. a company car).

His Majesty’s Revenue and Customs (HMRC) will consider you to have disposed of a company car if you:

  • Sell your car.
  • Gift it or transfer ownership to another person.
  • Part-exchange your company car for a different model.
  • Claim on your insurance after your company car is written off.
  • Retain the car but no longer use it for business purposes.
  • Start using your company car for non-business-related activities.

When do I need to pay tax on the sale of a company car?

You will have to pay corporation tax (or capital gains tax, if you are a sole trader using your car for business purposes) if you sell your car for more than what you paid for it.

You may also have to pay capital gains/corporation tax if you ‘dispose’ of the car in another way (e.g. trading it in) and its trade in value exceeds the original price.

What else do I need to consider?

You will also need to factor in any capital allowances you have claimed for the car.

If you trade as an LLC, your status may determine how much corporation tax you’ll have to pay.

If you are a sole trader, selling your company car may increase your income tax bill (although you won’t pay capital gains tax).

Writing off the cost of a company car as a business expense

If you buy a car and use it for business activities at least some of the time, HMRC allows you to claim a tax deduction. This deduction could be for the full price of the car (or a smaller amount), depending on:

  • Whether you are a sole trader or an LLC. (Sole traders must account for personal travel, whereas LLCs don’t have to.)
  • The car’s CO2 emission level. (The more pollution your car creates, the smaller your tax deductions will be.
  • If you bought the car through a hire purchase (HP) agreement (or through a loan), you can claim for the interest in your repayment.
  • When you have worked out the value of your car (purchase price and any interest, minus any personal use) - and its CO2 emission level, you’ll need to apply for HMRC’s writing down allowances.

Need to calculate the market value of your company car? Enter your reg number into our free car valuation tool.

Example: Deductions for a company car over three years

Imagine you bought a car for £20,000 with your company’s money in 2020. This car emits 25 grams of CO2 per kilometre. HMRC’s current writing down allowance for new cars that emit below 50 g/km is 18%. Therefore, your deductions over the next three years would be as follows:

  • In 2020/21, you'd deduct 18% of £20,000 (or £3,600). Therefore, your car's written-down value (or closing balance) would be £16,400.
  • In 2021/22, you'd deduct 18% of £16,400 (or £2,952). Therefore, your car's written-down value (or closing balance) would be £13,448.
  • In 2022/23, you'd deduct 18% of £13,448 (or £2,420.64). Therefore, at the three-year mark, your car's written-down value (or closing balance) would be £11,027.36.

How will my tax liability be affected if I sell my company car?

When it comes to tax liability, whether you’ve sold (or traded in) your car at a profit is not the only consideration. You must also take any allowances that you have previously claimed into account.

If your car’s sale price (or trade-in value) exceeds your total writing down allowances, you’ll need to adjust the allocation. This is also known as a balancing charge (and will increase your overall tax bill).

Balancing charges explained

Put simply, a balancing charge is the opposite of a writing down allowance. Whilst a writing down allowance reduces your tax bill, a balancing charge will increase it.

The aim of a balancing charge is to ensure that disposing of a business asset (in this case, a company car) doesn’t result in you claiming an entitled tax deduction (which may be higher).

Balancing charge example

Imagine you are a sole trader and bought a car for your business 6 years ago for £11,500.

  • You claimed £5,000 worth of capital allowances on the car over its lifetime.
  • You sell your car for £8,000, which exceeds the written-down value of the car (£6,500).
  • Therefore, you will need to add a balancing charge to your profit.
  • You calculate your balancing charge by adding the amount you sold your car for (£8,000) to the amount claimed in capital allowances (£5,000) - then subtracting this figure from the car’s original price (£11,500).
  • (£8,000 + £5,000) - £11,500 = a £1,500 balancing charge.

TLDR: What are the tax implications of selling a company car?

  • If you are a sole trader selling a company car, it is unlikely that you will have to pay capital gains tax, as you probably won’t make a profit.
  • However, you might have to pay more income tax (if the sale price exceeds your writing down allowances).
  • LLCs don’t pay capital gains tax; they pay corporation tax.
  • Your company might have to pay more corporation tax if the amount you sell your company car for exceeds the amount claimed in writing down allowances.