Want to learn about understanding company cars and tax? Then read on!
Firstly a common question I get asked by clients is about company cars and tax. Secondly, I love to help so let me share an overview.
Above all, company cars are a benefit in kind because they are not used just for work. For example, you might use it to drive down to the shops or drive between home and the office.
To clarify, with around 1 million company car drivers in the UK, this benefit is likely to remain one of the most popular and potent perks of a job.
Benefit value
Typically, there are three things to look at when working out the Company Car benefit value, and understanding company cars and tax.
Working out the Benefit Value
Subsequently, there are three key numbers that we consider when looking at buying your car through your business
- How the car is powered
- The list price of that vehicle
- CO2 emissions of that car.
For instance, income tax is payable on the final figure at their appropriate tax rate:
- 20% for basic rate taxpayers
- 40% for higher rate taxpayers
- 45% for additional rate taxpayers
The benefit value is List Price * Relevant Percentage,
Considerations
Firstly, what’s the list price of the vehicle?
Number two, what’s the power supply? Is it electric, petrol, diesel, or one of those fancy hybrid cars?
Thirdly, what’s the CO2 emissions, this provided a relevant percentage that is applied to the list price.
Tax impact
Typically, based on a vehicles average CO2 emission, you will get a 30% percentage. For a vehicle that costs £30,000 that car benefit is worth nine thousand pounds. If you’re a higher rate taxpayer that’s £3,600 pounds.
As the company, that’s £1,242 in employers NIC. Capital allowance claim is pretty low at 6% Writing Down Allowances.
Ultra low emission vehicles
The good news. Major changes have been made from 2020-21 to the company car tax benefits-in-kind bands affecting ultra-low emission vehicles (ULEVs). In shorthand ULEVs are basically electric or hybrid cars.
If you drive a fully electric car there are no CO2 emissions, That same car, benefit value, wait for it, has a magnificent value of zero, zilch, no benefit in kind value at all. Secondly, the company can claim the cost of that car immediately, and that’s nearly a six-grand saving off the corporation tax bill.
In April 2020, new ULEV rates will be introduced, and the most tax efficient cars will be those with CO2 emissions below 50g/km. There will also be additional financial incentives for electric only cars.
Government Grant
There is a government grant given to vehicle dealerships and manufacturers to reduce the buying cost. Furthermore, you do not need to do anything if you want to buy one of these vehicles. The dealer will include the value of the grant in the vehicle’s price.
The grant will pay for 35% of the purchase price for these vehicles, up to a maximum of £3,500.
You can also get a grant towards the cost of a charger
For cars emitting CO2 of between 1 and 50g/km, the appropriate percentage will depend on the car’s electric range figure:
Numbers
Check out some Numbers !
Tax Savings: Salary v Employee Benefits: 2024-25
| Marginal Rate: Basic | Marginal Rate: Higher | Marginal Rate: Additional | |
|---|---|---|---|
| Annual | < £50,270 | £50,270 + | £125,140 + |
| Tax Savings per £1,000 | Tax Savings per £1,000 | Tax Savings per £1,000 | |
| Employee savings | £189 | £418 | £511 |
| Private company savings | £332 | £698 | £820 |
| Not for Profit company savings | £443 | £931 | £1,604 |
Hybrid cars registered after 06-April-20 - tax benefit percentage 2020-21
| Cars electric range | Percentage 24-25 | Percentage 25-26 | Percentage 26-27 | Percentage 27-28 |
|---|---|---|---|---|
| 130 miles + | 2% | 3% | 4% | 5% |
| 70-129 miles | 5% | 6% | 7% | 8% |
| 40-69 miles | 8% | 9% | 10% | 11% |
| 30-39 miles | 12% | 13% | 14% | 15% |
| Less than 30 miles | 14% | 15% | 16% | 17% |
What next?
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