Navigating company cars and the tax implications in the UKcreative77
Company cars have long been a valuable perk for employees and can offer convenience and cost savings.
However, it’s crucial to understand that owning and using a company car comes with tax considerations that can significantly impact your personal finances.
Here are some key points to consider:
- Personal use of a company car: If you are planning to purchase a car through your business and use that car for non-business purposes such as running errands, popping to the shops or taking personal trips – this will be considered as a taxable benefit.
- Benefit-in-Kind (BiK) tax: This is the tax you pay on any non-cash benefits received from your employer, including company cars.
The tax is based on the car’s value, CO2 emissions, and fuel type.
Generally, the more expensive and polluting the car, the higher the BiK tax rate.
It’s important to check the official HM Revenue and Customs (HMRC) guidelines to determine your specific tax liability.
- CO2 Emissions and electric cars: In recent years, the UK government has been actively encouraging the adoption of electric and low-emission vehicles.
As a result, BiK tax rates for electric cars are generally lower compared to traditional petrol or diesel vehicles.
Choosing an electric company car may offer tax advantages and contribute to reducing your carbon footprint but it is worth ensuring before you purchase that the electric car you are buying will qualify for the full tax saving, as not all electric cars do!
- Personal use and fuel benefit: If you use your company car for personal journeys, you may be subject to additional tax, known as the Fuel Benefit Charge if you put your fuel expenses through your business. It’s essential to keep accurate records of your business and private mileage to avoid the fuel benefit charge should the tax office come knocking!
- Tax on car allowances: If your company offers a cash allowance instead of a company car, this amount is typically subject to Income Tax and National Insurance Contributions (NICs). However, you won’t be liable for BiK tax in this case.
- Reporting obligations: Employers are required to report any company car-related benefits and expenses on a P11D form. Make sure all relevant details are accurately provided to avoid discrepancies in your tax assessment.
- Commercial Vehicles: In some cases it may be more tax efficient to purchase a commercial vehicle or van instead of a car for your business. Although there is still a BiK charge, if you use the vehicle privately, the ‘cash equivalent’ amount can be far less than a car and therefore reduce the amount of tax you and your Company may be liable to pay to the tax man.
All of the above gives you some idea of the different implications of company cars for you to consider. If you are already a client then please get in touch to chat through these options as we are here to help you make informed choices that align with your financial goals.
We understand that the tax implications of company cars can be intricate, and we are here to support you through the process.
Staying informed is the first step to managing your tax responsibilities effectively. Together, let’s ensure a smooth ride on the road of compliance and financial well-being.