Who doesn’t want a brand new car? They look great and there are no worries over maintenance, repairs or the dreaded MoT test. However, before you go running off to the nearest car showroom we recommend you take time to read our essential guide to company car tax…
For anyone working for a recruitment business, company cars are deemed a benefit in kind, so income tax is payable which is calculated as a percentage of the car’s list price based on CO2 emissions. For 2021/22, the rates start from 1% for electric vehicles up to 37% for large diesels.
Hybrids (below 50gm of CO2 per kilometre) are assessed on electric-only range. The 2021/22 rates start from 1% (more than 130 miles) to 13% (below 30 miles).
For example, if you have a company car worth £40,000 with an emissions rating of 30%, the benefit in kind will be £12,000. The income tax due is £2,400 for basic rate or £4,800 for higher rate payers.
The annual mileage or the age of the vehicle has no effect on the tax due. The list price can include delivery charges, tax, VAT and factory-fitted accessories, but not vehicle excise duty.
As always, there are some exceptions and, for instance, pool cars used by a group of employees for work and not assigned to one employee do not give rise to taxable benefits. It’s worth noting there are strict rules around the classification of a pool car so tread carefully if you decide to go down this route.
Any free or subsidised fuel provided for private use in a company car is liable for income tax. The tax rate is usually the same as the benefit in kind as it is based on the vehicle, not the amount of fuel. The rate is applied to an annual fixed figure known as the “fuel charge multiplier” which is the same for all cars.
The multiplier is £24,600 for 2021/22, so a car with a percentage charge of 10% would attract a taxable benefit of £2,460. This means £492 would be due for basic rate tax payers or £984 for higher rate payers.
Driving a company car means you pay more tax, however you will also remove significant motoring costs from your household budget. Calculate how much you will be saving by not paying for servicing/repairs, insurance, breakdown cover and road tax.
Here are a few ways employees and directors can reduce their tax liability on company vehicles:
Some workers can gain financially by choosing a company car allowance or extra salary, especially if their company car produces high emissions.
If business mileage is paid in line with the HMRC Approved Mileage Allowance Payments (AMAP), there is no tax or National Insurance liability. AMAP for cars and vans is 45p a mile for the first 10,000 miles, and 25p a mile thereafter.
If employees do not receive full mileage allowances, then they can claim the difference as relief on their tax return.
Recruitment businesses who provide employees and directors with company cars must pay Class 1A National Insurance contributions (13.8%) on the benefits, based on the taxable value of the cars and fuel. All employee benefits must be declared on their P11D form which is submitted to HMRC on 6 July every year. To find out more about P11D forms please read our guide here.
Other things employers need to consider:
Your recruitment business can claim the cost of a vehicle purchase through capital allowances, therefore lowering taxable profits. For 2021/22, new cars with emissions below 50g/km are in the main 18% rate pool, while cars with emissions greater than 50g/km are in a special 6% pool.
Here are a few other points for employers:
Leasing vehicles is an attractive option for recruitment businesses who do not wish to purchase their vehicles, but there are still tax implications, including:
If you require professional guidance on the tax implications of company cars, please arrange an appointment with us here.