Company Car Tax : A Quick Guide

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August 20th 2019
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Company Car Tax : A Quick Guide

A business providing a car for an employee has a number of tax implications to consider. Here is a quick guide to company car tax.

Company Car Tax?

Private use of a company vehicle is classed as a 'perk' by the Taxman and therefore some amount of tax must be paid. The tax is collected under the 'Benefit in Kind' system. For this to work, the actual benefit must be calculated which is known as, the cash value. From this figure a tax calculation for income tax from the employee, and national insurance from the employer.

The vehicle's CO2 emissions and manufacturer's list price make up the cash value. The list prices includes all delivery costs and VAT, as well as options and modifications. CO2 emissions are centrally calculated by the government for every vehicle available and a corresponding entry for the CO2 category is available in BiK tables for company cars.

HMRC is penalising diesel vehicles with a BiK percentage surcharge of 4% at the moment whilst encouraging hybrid or electric vehicles with lowered rates or zero rates.

The main factor going into the calculation aside from the cash value is the employee's highest tax rate percentage.

The total calculation would be:

list price x BiK percentage x employee's highest tax rate

Electric Car Company Car Tax

The recent changes to company car tax for electric cars has made them even more attractive as a choice. Offering zero, one and two percent BiK rates from 2020 to 2023, there would be little to no company car tax and employers NIC, yet 100 percent write down of the vehicle costs - including insurance, maintenance etc.

So, overall the business gets a cut to corporation tax liability but gets a rise in Class 1A NIC bill and the employee picks up the tab on personal income taxes.

An alternative to company cars is for the employee to purchase the vehicle and claim business mileage at 45p per mile (first 10,000 miles, 25p thereafter). Expense claims can also be made for insurance, maintenance and more.

Company Vans and Commercial Vehicles

If there is a private element of usage to a van and the employee takes it home there is company car tax to pay, but the calculation is different to regular cars. A fixed value is used for the 'List Price x BiK percentage' portion of the above calculation. This fixed figure is currently £3,430. Fuel usages paid by the company for private usage is also a fixed value of £655. Both of these fixed figures are able to be reduced if the the employee does not have the van for more than 30 days in succession, or the employees pays for their usage, or it is a shared vehicle. For zero-emission vans the £3,430 figure is reduced to £2,058 - a 60% reduction.

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