Company Car vs Personal Car in South Africa: Should You Buy Your Car Through Your Company?

It depends. If you drive a lot of business kilometres for work, a company car might pay off. If not, you’re usually better off buying the car personally. This guide breaks down the tax implications in South Africa so you can make an informed decision.

The Scenario: Low vs High Business Travel

Consider two professionals in South Africa:

• Dr Mkhize – a general practitioner who mostly drives between home and her clinic (mainly personal travel).
• Thandi – an attorney who spends hours on the road visiting courts and clients (heavy business travel).

These two have very different outcomes when it comes to a company car. For Dr Mkhize (low business km), a company car would be tax-inefficient. For Thandi (high business km), a company car could make sense – but only after weighing all the factors like VAT, depreciation, and fringe benefit tax.

VAT on Company Car Purchases (South Africa)

One of the biggest misconceptions about company cars is VAT. In South Africa, if your company buys a passenger vehicle (a typical car):

• No input VAT can be claimed back (with rare exceptions like car dealerships).
• This means the company eats the full 15% VAT on the purchase price without a refund.

Example: Company buys a car for R500,000. The VAT is R65,217 (at 15%). The company cannot reclaim that R65k from SARS; it’s a sunk cost. If you bought the car personally, you’d be in the same position VAT-wise, so no advantage gained through the company.

Selling the car later: If the company couldn’t claim input VAT, it usually won’t charge VAT on sale. That avoids adding 15% to the selling price. But that benefit is minor compared to the upfront VAT the company couldn’t reclaim.

Tax Depreciation (Wear-and-Tear) and Recoupment on Company Cars

When a business buys an asset like a car, it can claim wear-and-tear (depreciation) for tax purposes:

• The company can deduct a portion of the car’s cost each year (often over 5 years for vehicles).
• This reduces taxable income in those years, giving a tax break up front.

However, there’s a catch: recoupment.

• If the company later sells the car for more than its tax–written-down value, the difference is added to taxable income in that year.
• In other words, SARS “claws back” some of the tax benefit you got from depreciation.

Example: Company buys a car for R500,000 and writes off R100,000 per year over 5 years (so for tax purposes, the car’s value becomes zero after 5 years). In year 5, the company sells the car for R200,000. That R200,000 is a recoupment – the company must treat it as taxable income in the sale year, effectively paying back tax on earlier deductions.

Bottom line: Depreciation gives a timing benefit (tax relief now), but often evens out once you sell the car. It’s not a compelling long-term tax savings, just a short-term deferral.

Fringe Benefit Tax on Company Cars (Personal Use)

If your company provides you a car that you also use personally, SARS (South African Revenue Service) views that personal use as a fringe benefit – a perk that’s taxable as part of your income.

How it works:

• Every month, a taxable value is added to your payslip for having the car.
• This value is typically 3.5% of the car’s original cost (including VAT).
• If the car has a maintenance plan, it’s slightly lower at 3.25% per month.

For example: On a R500,000 company car, about R17,500 per month gets added to your taxable income. That means more PAYE tax out of your salary every month.

Crucially, commuting (home to work) counts as personal travel for tax. So even if you just drive from home to the office and back, that’s personal use.

Impact for low vs high business use:

• Low business kilometers: If you barely drive for work (like Dr Mkhize), almost the full 3.5% of value each month is taxed as a benefit. The company car quickly becomes very costly due to the added personal tax.
• High business kilometers: If you drive a lot for work (like Thandi), you can reduce the fringe benefit tax hit:
  • Keep a logbook of business vs personal travel.
  • At year-end, you can claim a relief so that only the personal-use portion of the car’s use is taxed.
  • For instance, if 60% of your total kilometers are for business, only 40% of that fringe benefit should be taxable (you’d get a refund for the rest at tax filing time).

However, even with high business travel, your employer must still withhold tax on the full fringe benefit each month. You only get the adjustment after filing your tax return with the logbook records. It’s a cash flow disadvantage throughout the year.

Personal Car + Travel Allowance: An Alternative Approach

Instead of having the company own the car, many professionals find it better to own the car personally and have the company support business travel costs.

How this works:

• You buy and own the car in your name.
• Your company provides a travel allowance or pays you per km for work travel.

Tax implications:

• A travel allowance is only partially taxed upfront (usually 80% is taxable monthly, 20% isn’t). You can then claim deductions for your business mileage at year-end, using actual costs or SARS’ per-kilometer rates.
• No fringe benefit: Since the car is yours, there’s no monthly fringe benefit tax on personal use.
• Flexibility: You decide when to buy, sell, or change the car, since it’s yours, not the company’s.
• Logbook still needed: You should keep a logbook to justify the business portion of your travel and to maximize your tax deduction on the allowance.

Why this often wins:

• For low business travelers (like Dr Mkhize), it avoids paying tax on a fringe benefit you don’t fully utilize. She can get a small allowance for the occasional work trips, claim those kilometers, and pay far less tax overall.
• For heavy business travelers (like Thandi), a generous travel allowance can reimburse a lot of her costs with less complexity and often lower tax than a company car arrangement. She won’t face a recoupment later and has more control.

Conclusion: Which Option is Better?

In South Africa, the decision to buy a car through your company vs personally comes down to business use:

• If your work-related travel is low: A company car is usually not worth it. The lack of VAT recovery and the monthly fringe benefit tax make it expensive. You’re better off buying the car yourself and, if applicable, using a modest travel allowance to cover business trips.
• If you have very high business mileage: A company car can be beneficial (short-term tax depreciation and company covering costs). But even then, carefully compare it with a personal car + travel allowance. Sometimes the allowance route yields a similar or better benefit with less hassle.

Key takeaways:

• Don’t be swayed by the idea of a “tax-free company car” – for most professionals it doesn’t exist.
• VAT savings on cars are a myth for normal businesses (you can’t claim it back).
• Fringe benefit tax means the more personal use, the more it costs you.
• A travel allowance on your own car is often the simplest and most tax-effective plan.

By understanding these factors, you can choose the option that maximises your benefit and minimises tax headaches. If in doubt, run the numbers (or let us run them for you). The best choice is the one that lets you drive in peace, knowing you’re not overpaying the taxman.