Should I get a company car and if so, which one? (Sam Bacall)
This is a common question we are asked and there are generally two arrangements to consider here. The first being a car provided by the company to an employee or director and the alternative being a car allowance.
Note: this post assumes that there is some personal use, rather than a car being used purely for business purposes.
|The company often pays fuel, insurance, and maintenance. Costs are tax deductible for the company
|Personal use creates a P11d taxable employee benefit based on emissions (unless 100% business use) – PAYE and NI (including ER’s NI).
|The car rental cost is tax deductible in the case of a lease.
|Tax relief for leased cars is limited to 85% if CO₂ emissions are greater than 50 g/km
|The VAT on leases is generally 50% recoverable
|Employee/Director needs to give back car (or buy) if they leave employment
|The benefit in kind and therefore associated tax cost can be very low depending on the vehicle.
|If the employer provides fuel and there is mixed (i.e. some personal) use, then fuel benefit tax is payable based on emissions.
|Leased vehicles can be changed for a new model every few years.
|VAT on fuel – if there is mixed use, can reclaim all VAT but then must pay fuel scale charge (which often outweighs the benefit).
|Capital allowances -these can be claimed by the company if the car is bought outright.
|All tax deductible for the employer
|Employees/Directors may have to pay for any lease beyond employment if they leave employment
|If agreed with the employer, the employee can reclaim milage tax free (45p per mile for first 10,000).
|PAYE and NI due are payable on the car allowance by the individual.
|It may be better value when a vehicle has higher emissions and has high value.
|Employees/Directors pay any VAT personally and none is recoverable
|If a car is bought using the allowance, they are investing in an asset that can be sold later.
|Employees/Directors pay for the maintenance and insurance
In terms of which car to get, there are many things to take into account, which include up front and ongoing costs, personal taste (which you can never account for!) and ego, level of expected use and most importantly in the case of company cars the taxable benefits.
Key to any decision when choosing a company car, is the taxable benefit associated with each vehicle. The higher the taxable benefit, the more tax you will pay each year associated to your private use of the car.
I will let you in on very useful and well-kept secret (though a basic Google search would reveal this)…… HMRC do provide an “easy to use” calculator (Click here), where the taxable benefit of a car can easily be calculated for comparing and contrasting against other vehicles.
It is well publicised that the taxable benefit rates (click here for HMRCs rates) for electric/hybrid (particularly those with a long electric range) vehicles are favourable at least for the next few years. Prior to this, due the associated tax, company cars had somewhat lost their appeal and were becoming less common.
If it was up to me, I would be beelining straight for a Tesla, though admittedly this has little to do with sensible analysis and more to do with the awesome “Summon” feature! Allowing owners to command the car to remotely leave its parking space, navigate around a car park and meet its owner at the exit.
Anyway, this isn’t a Tesla advertisement, so in reality, when the time comes to make a decision, the best course of action is to plug all the key numbers in once your vehicle preferences are known and then to make a decision based on the hard facts.
If you need assistance making a company car decision, please get in touch with the team at Freedman, Frankl and Taylor Chartered Accountants.