Offering an employee a company car is a brilliant way to reward staff in a tax efficient manner. The concept of a company car is useful and enjoyable to both employees and a business.
HMRC is able to charge a tax rate which is in line with the benefit you receive from having use of a company car. (Source: The Guardian)
How Does it Work?
The government states that you’ll pay tax if you or your family use a company car privately but additionally for the purpose of community.
The tax which you pay is dependent on the value to you of the company car, which in turn is dependent on things such as; how much it would cost to buy at the types of fuels that the car utilises.
This value is however reduced based on a number of categories:
- You have it part-time
- You pay towards the running expenses
- It has low C02 emissions — The rates for what you can save have in most recent times been based to a large extent on Carbon Dioxide emissions, as the government is trying to utilise company car tax to make the UK car pool more environmentally friendly.
NB: If your employer pays for fuel you use for personal journeys, you’ll pay tax on this separately.
Your company car is in theory a ‘Benefit In Kind’ (BIK). The car is essentially viewed as an add on to your salary and alike your earned income, your car has to have a tax paid on it.
How Much Can You Save With Company Cars?
The answer is thousands of pounds per year.
The tax rate is different for every car but one of the first steps is to work out the carbon dioxide emissions of the car, and this is because different levels of emission are taxed at different percentages of a vehicle’s value. Her Majesty’s Revenue and Customs has named this the P11D value, and it is the HMRC recognised list price of the car including options added to the vehicle, but without non-taxable items, which include the first year’s road tax and registration fee. (Source: AutoExpress)
If we were to break down the P11D value it would be comprised of the following factors:
- MANUFACTURERS LIST
- VAT
- DELIVERY
- NUMBER PLATES AND ANY OTHER COST OPTIONS
If the car cost less to buy than the official P11D value, you will not save you tax as the BIK value is determined to still be the same.
NB: It is important to remember that car tax bands for Company Cars are different from Vehicle Excise Duty car tax bands. For Company Cars there are 30 different levels whereas there are 13 only for Vehicle Excise Duty.
The least polluting company car models, earn a 5% BIK rate while the highest polluters are taxed at 35%. It is very important to note that as the tax year changes so too will the rate of Company Car tax, so it is vital to keep yourself updated. Things are forever changing, in April 2016 we saw electric vehicles which had for a longtime been exempt suddenly face a tax.
The specific amount of Company Car tax which you will pay is largely dependent on your salary. For example: if you earn a salary which positions you in the 20% income tax bracket you would then in turn pay 20% of the taxable portion of the car’s P11D value. Paying this tax will usually involve a deduction from your monthly salary.
Car Tax Calculator
- Take your Company Car’s P11D value
- Multiply this value by the Company Car’s tax rate which is dependent on Carbon Dioxide emissions to get your BIK amount
- Multiply this BIK value by your personal tax rate. This will be the amount of company car tax payable
Petrol vs Diesel??
It is important to remember that without question diesel vehicles have a 3% surcharge over petrol consuming cars. This is for the simple fact that cars which run on diesel emit more emissions.
What Are The Company Car Tax Exemptions:
- You are a Partner of a Partnership
- A Partner of a Limited Liability Partnership
- You are the proprietor of your own business
- Your company car is adapted for mobility reasons
- You car is not used for personal use
Vans:
By and large the rules concerning vans are the same however there are a few additional exemptions.
You are exempt if you van is used for business journeys or as a pool van.
A business journey includes:
- Travelling to appoints
- To a temporary workplace
Examples of good company cars:
(Source: OSV)
- Smart Fortwo
- Toyota Avensis Saloon
- Dacia Sandero Hatchback
- SEAT Ibiza Sport Coupe
- Skoda Fabia Estate
- Fiat 500C Convertible
- Nissan Juke
Company cars will typically need fleet insurance if purchased in bulk. You have to insure a vehicle to drive it legally on UK roads and company cars are no exceptions. By using fleet cover, you as a business are able to put all vehicles under one single policy so it is easier for your company to manage and above all, you save money with a ‘bulk order.’ For more questions, you can contact us by email at [email protected]