HMRC are cracking the whip to stop people from abusing this system to pocket some extra cash. They changed the tax rules for these instances in Previously, if you chose a company car over a car allowance , you were taxed on the BIK value of the car. Nowadays, you're either taxed on the BIK value of the car or the value of the cash alternative, depending on which is the most.
So, if you picked out a car with a low P11D value and low CO2 emissions, you might not reap the benefits of a reduced tax bill because you'll end up paying income tax on the higher cash alternative.
You can see how the car allowance figure is arrived at in our car allowance calculator post. If you choose the salary sacrifice car lease route, it's a similar story. You're charged tax on whatever value is highest - the cut in your salary or the BIK value. If your company says to you, "We'd like to pay for your fuel costs too, both for work and leisure.
Does that sound good to you? Free fuel? Who could pass that up? But we suggest that you don't jump at the opportunity straight away. It sounds like a great deal, but it might not end up working in your favour.
HMRC also charge fuel tax for company cars. If your company pays for your fuel, you'll be lumped with a tax charge on it. In some cases, you might even pay more tax than what the fuel itself would cost - see why we said to hold off a little?
In the UK, the average number of miles driven per year is around 7, at time of writing. If we look at the example of the diesel engine BMW 3 Series with So, in this case, it looks like you'd be better off paying for the fuel yourself - you'd be paying almost double otherwise!
If you drive extensively, then it might be worth your while, but if you're tend towards this average annual mileage, then it's likely not. Now you've come this far, you might be wondering what car will get you the best bang for your buck. You don't want a flashy company car if you're going to be shelling out a fortune on benefit in kind tax every month.
Well, it goes without saying that electric cars will be down there with some of the lowest rates of company car tax. With zero emissions, they're in the lowest bracket for CO2 emissions tax bands. If you're interested in a happy medium between electric and ICE, then the low emission Toyota Prius petrol hybrid is a winner. Armed with all this information, you can push your company to get a fiery car that doesn't break the bank your bank.
Check out our guide " how does business car leasing work " to see if it suits your business. If you're interested, Lease Fetcher is a car lease comparison website - we've rounded up the best business car leasing deals on the UK market.
We've also written some other helpful guides, include how to get a car lease tax deduction , and if you're leasing a van for business , our company van tax overview is essential reading! Trying to wrap your head around the car leasing world? Emily works hard to keep Lease Fetcher fresh with everything you need to know in the automotive sphere. We act as a credit broker not a lender.
We can introduce you to a limited number of lenders who may be able to offer you finance facilities for your purchase. We will only introduce you to these lenders. Though the use of a car and the value of the fuel are taxed, company car drivers do not pay extra tax on some other benefits. The cash value of these benefits often outweighs the cost of any car tax paid.
Knowing there will be no surprises in the shape of repair bills or insurance increases also allows employees to take motoring costs out of the family budget. To find out more, see our FAQs. Employee car tax Tax on fuel Reducing tax costs No car or your own car? Tax for employers Buying company cars Leasing company cars 1. Employee car tax Company cars are taxed as a benefit in kind for most employees and income tax is payable There are some special cases.
Pool cars used by more than one employee for their work are not taxed. A pool car must not normally be kept overnight at an employee's home. Employees pay tax at their top rate The income tax charge is based on an assumed benefit This is calculated as a percentage of the car's list price. The percentage depends on the car's CO 2 emissions.
The higher the emissions, the higher the assumed benefit is. The rates for different emissions depend on whether the car was registered before or after 6 April when emissions testing rules changed. For low emission hybrid cars below 50gm of CO 2 per kilometre , the rate depends on the electric range. The tax cost to the employee depends on their tax rate. The rates applied to each CO 2 band have increased every tax year.
However, some organisations may choose to incentivise employees to take a car over cash, for health and safety or environmental reasons and this could skew the cash allowance downwards. If you choose to take a cash alternative to a company car you will be liable for National Insurance and income tax at your marginal rate on the full amount of the allowance. If you choose to forego the allowance and take a company car you will be taxed on the higher of the value of your cash allowance, or the Benefit-in-Kind value of the car.
Car allowance assuming this is a cash amount payable in lieu of a company car is treated as an additional amount of salary and you will be charged National Insurance and income tax at your marginal rate on the full amount of the allowance. Understanding the tax implications of a company car is an important question, but you should also consider exactly what you need from your next car.
This means assessing criteria such as the length and frequency of journeys that you make, how much room you need and if there are any specific features that you would require. The best place to start with this is by looking at the, CO 2 -based, Benefit-in-Kind BiK tax band that each car falls into. Click here to see the full tables of BiK tax bands from to The other key factor is the value of the car itself, including any optional extras.
The higher the total value, the greater the tax liability, so think carefully about which equipment you really need before ordering. This is:. If you choose to take a cash allowance instead of a company car, this will be treated as an addition to your salary and both income tax and National Insurance will apply.
If you take the car, you will be taxed on the higher of the value of your cash allowance, or the Benefit-in-Kind value of the car. So, the amount that a company car adds to your taxable salary varies depending on this choice as well as the value of the benefits on offer.
For Plug-in Hybrid cars, the tax rate varies depending on how many miles the car can cover under battery power alone and its overall CO 2 emissions. See the full Benefit-in-Kind tax table here. If the business outright purchases a new car then the amount that is tax deductible depends on the CO 2 emissions of the vehicle.
For leased cars, in general terms, the rental payments for the vehicle are deductible as business expenses. Note that there are proposals to extend the capital allowances and reduce the CO 2 emission thresholds which, if approved, would be effective from April Assuming your question refers to a cash allowance in lieu of a company car, the answer is simple: The cash sum is treated as an additional amount of salary and is subject to normal income tax and National Insurance rules.
Choosing the right type of car for your mobility needs. It also contains a handy checklist that could narrow your search. If you need any additional information to help make any decisions around your next car, please contact us. Read this first. Company car drivers For those that drive a traditional company car, with no cash alternative, the rules are relatively straightforward. Calculating your company car tax The amount of company car or Benefit in Kind BiK tax you pay depends on the value of the car, its CO 2 emissions, your personal tax rate and whether you forgo cash for the car either under a salary sacrifice scheme or as a cash allowance.
How much company car tax will I pay? The value of the car P11D value The next thing to consider is the value of the car itself. Your personal income tax band Another major factor in how much company car tax you will pay is your personal income tax band. Personal contributions and availability of the car If you make a one-off contribution to the cost of the car, this amount is deducted from the final BiK tax liability. VW Golf 8 R-Line 2.
Fuel costs and employer provided private fuel Another important cost that you will need to consider when selecting a new car is fuelling it for your private journeys.
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