Tax and Your Company Car

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There are many factors which will influence your choice of company car. These can include the distance you travel, terrain covered, the price, your lifestyle and perhaps even your clients. However, is tax ever a consideration?

The start of the tax year saw an increase in the company car rates and indeed the rates are increasing quite significantly year on year. Assuming however that you have some degree of choice over the car make and model, you can influence the tax that you pay.

The two factors which determine the tax charge attached to a company car are the list price of the vehicle and its CO2 emissions.

The table below shows the benefit in kind charge for cars with various, hypothetical,  list prices and CO2 emissions.  The rates applicable to the current tax year (2017/18) have been used.

List price CO2 emissions Fuel type Benefit in kind value
£17,000 102g/km Petrol £3,230
£25,000 99g/km Petrol £4,500
£25,000 117g/km Diesel £6,250
£35,000 0g/km Electric £3,150
£50,000 41g/km Electric/Petrol £4,500
£50,000 155g/km Diesel £16,500

In addition to the company car benefit there is also a fuel benefit if the employer provides fuel for private use; the value of the fuel benefit is affected by the CO2 emissions but not by the list price.

Although tax will not be the only issue affecting your choice of company car, perhaps it ‘auto’ be a consideration?

If you’d like any more information please contact Green & Co Accountants.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

A Tax Efficient Company Car

In recent years the government has changed the way that company cars are taxed. They have been trying to encourage more people to be environmentally friendly. Consequently, the higher a car’s CO2 emissions, the higher your tax bill on the benefit in kind, and the lower the capital allowances that are available for the company.

With this in mind, Mitsubishi has recently launched the Plug-in Hybrid Electric Vehicle (PHEV) version of its all new Outlander. This vehicle comes with some impressive green credentials, only producing CO2 emissions of 44g/km and achieving a mightily impressive 148mpg.

The fact that this vehicle has such low emissions makes it the ideal company car.

In the year of purchase, the company would be able to claim back 100% of the cost of the vehicle against its tax bill.

The benefit in kind rating against the employee is only 5%. This means that an employee paying tax at basic rate would only pay £596 in tax for the use of the vehicle and fuel purchased during the year. As you can see from the table below this easily outstrips its nearest rivals:

Tax payable on benefit Mitsubishi Outlander GX4h Auto BMW X3 Xdrive SE Auto Audi Q3 S-Line Plus Auto Mercedes E-Class SE Estate Auto
At basic rate £596 £2,575 £3,040 £2,770
At higher rate £1,192 £5,150 £6,080 £5,540

If you currently live in London or travel there frequently, there is also the additional good news that the Outlander PHEV is registered as congestion charge exempt, allowing you to travel through London free of charge.There are also grants currently available on the purchase of this vehicle. You will be able to get a grant of £5,000 against the initial cost of the vehicle. British Gas are also currently able to install high speed chargers at your home, so that you would be able to take advantage of cheap Economy 7 electricity by charging your vehicle overnight.

Do you have any queries about company cars? Here at Green & Co, we are more than happy to help you.

Should you wish to read more about the new Mitsubishi Outlander PHEV, please visit the website.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Can company car’s still be tax efficient?

The way company cars are taxed has changed quite significantly over the years, with the rules now concentrating on CO2 emissions instead of the list price.

The government is trying to encourage more people to be environmentally friendly and consequently the higher the car’s CO2 emissions, the higher your tax bill on the benefit in kind, and the lower the capital allowances that are available for the company.

Capital Allowances

  • For brand new cars with CO2 emissions of 95/km or less =        100% relief
  • If CO2 emissions are between 96g/km and 130g/km =               18% relief.
  • If CO2 emissions are more than 130g/km =                                8% relief.

However fear not, many car manufacturers have cottoned on to the governments tactics and are producing some flash, CO2 friendly cars, for people who can’t quite bring themselves to drive around in a Smart car! Some of the cars available which have 95g/km or less are Lexus CT 200h S, Toyota Yaris Hybrid T3 1.5 WT-I and Volkswagen Polo Bluemotion 1.2 TDI. For more cars in this category please see www.greencarsite.co.uk

Benefit in kind

The car benefit charge for a full year is obtained by multiplying the list price of the car (plus accessories, less capital contributions) by the ‘appropriate percentage’. For example if you buy a Lexus CT 200h which has 87g/km CO2 emissions, the benefit is calculated at a rate of 10% of its list price of £21,995, giving a car benefit of £2,195. This results in a basic rate tax payer paying £439 in tax!

Please contact us if you require any further information.

 

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.