Company Cars: A Guide to Tax Efficiency

Understanding Company Car Benefits

At first glance, a company car can seem like an attractive perk. However, the devil is in the details, and understanding the tax implications is crucial.

1. Calculation of Benefit-in-Kind (BIK)

   • The BIK is calculated as a percentage of the car's list price when new, ranging from 2% for electric cars to 37% for high-emission vehicles (over 160g/km).
   • Example: A new BMW 318 Diesel would result in an annual benefit of £12,232, leading to a tax charge of approximately £407 per month for a higher rate taxpayer. Conversely, a Toyota Yaris Hybrid would have an annual benefit of £5,088, translating to £170 additional tax per month.

2. Fuel Benefit

   • The provision of fuel for a company car is usually not cost-effective. It is often better to claim business mileage instead.

3. Company Cars for Family Members

   • If a director’s company provides a car for a spouse or older child who is not an employee, the director is charged the benefit. For example, providing a Toyota Yaris Hybrid for a family member would increase the director’s tax bill by £170 per month, which is generally cheaper than purchasing the car personally.

4. Tax Relief for the Company

   • The company can claim 18% per annum on the car's capital cost and corporation tax relief on running costs. If the car is leased, the company can recover 50% of the VAT on lease costs and receive a full rental cost deduction, including the irrecoverable VAT portion.

When is a Car Not a Car? When it’s a Van

1. Identifying a Van
   • Tax legislation defines commercial vehicles, including double-cab pickups and certain Land Rovers, as vans. This is significant because the BIK for vans is fixed at £3,600, leading to a lower tax charge for higher rate taxpayers.

Classic Cars

1. Tax Benefits for Classic Cars
   • If a company car is over 15 years old and has a market value exceeding £15,000, the market value is used instead of the original list price. This prevents the under-taxation of valuable classic cars.
   • For example, a 1970s sports car valued at £14,000 would result in a relatively low tax charge of £370 per year.

Key Takeaways

• Variety in Tax Charges: Different cars come with varying tax charges, so it’s essential to calculate the cost implications for both the employer and employee.
• Company Cars for Directors’ Families: Buying a family car through the company can be cheaper than funding it personally, considering the tax savings.
• Efficiency of Vans: Vans can be a tax-efficient option, especially in industries where they are commonly used.
• Potential of Classic Cars: For those inclined towards classic cars, there might be a scope for tax savings.

At Aspen Waite, we are here to provide you with the guidance needed to make informed decisions about company cars and other tax matters. Please feel free to contact us for personalized advice.

Contact Us

For more detailed advice and to discuss your specific situation, reach out to us:

• Email: bernard@aspen.co.uk
• Phone: 01278 445151
• LinkedIn: Bernard Critchley
• Website: Aspen Waite

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