Negotiating the minefield of company vehicle rules

Adams Moore looks at the considerations that should be made when thinking about a company vehicle.One of the topics we get asked about on a regular basis is whether a company car is a good option to either receive as a company owner or to offer to employees. There are many rules and regulations around the taxation regarding company vehicles that should be explored and taken into consideration, and as with any taxable perk, pros and cons.

Firstly, since a company vehicle is a benefit that can be used outside of work for personal use, it is considered a Benefit in Kind (BiK) and therefore is subject to taxation. How much taxation will depend on the cost of the car as stated on the P11D form, which along with the car’s value, will also include any optional extras.

So whilst the Vehicle Excise Duty (VED) paid on all vehicles, whether company owned or not, is based on carbon emissions, the tax on company vehicles takes into consideration emissions but is also based on the P11D factors and the income tax band you are on.

Here are some other considerations when thinking about company cars or which to choose.

Consider fuel type – diesel cars are subject to a 3 per cent extra tax. It is therefore worth considering whether the fuel efficiency savings of filling up with diesel will outweigh the extra in tax. Whilst it was previously the case that electric and hydrogen fuel cell cars were tax exempt because of zero emissions, they are now in the 5 per cent BiK tax band. Given the recent speculation around Government action to reduce pollution by introducing tougher taxes on diesel cars, it is worth considering future ramifications of opting for diesel.

Assess vehicle use – the vehicle is considered a BiK as it can be used outside of work and commuting. However, to avoid higher tax charges, an employee can consider making a contribution towards the vehicle, or using it only for work purposes.

Check the current rates – the company car taxation rates are changed annually so ensure any decisions being made are based on the very latest data.

Shop around for the best business deals – car manufacturers are increasingly looking to cater for the company car market by offering business-specific models that are low in emissions. The choice can be significantly lower here though.

Consider alternatives – in some cases, it can be more beneficial to take or offer extra in salary so a vehicle can be funded personally and mileage charged back to the company. With the HMRC rate being 45p per mile, for those doing significant business mileage (commuting not included) it can be a good option. However, if considering a personal lease for this, it can be restrictive as many will be subject to a mileage cap. In this instance, a second-hand car option is good and can yield great savings overall.

As with any business decision, it is worth consulting with a professional such as an accountant to work out the best option. Any of our clients wanting further advice around this should get in touch on 01827 54944.

Visit the Government website for further information and company car tax