The company car is a very emotive topic, and the subject of lively debate on a regular basis.
We are often asked if it is best to have a company car or not, and whether to have fuel or not. In reality, there is no quick answer because each car and tax payer is different and needs to be reviewed on a case by case basis.
car policy for the employer
If you have a large number of employees, it is often simpler to agree a policy across the board such as:
- company cars from specific list price and CO2 emission bands, or
- fixed car allowances.
The company car option means that the driver will pay tax via PAYE on the P11D value of the car. The P11D value is based on the annual amount that HMRC believes it is worth, and it’s calculated by reference to the list price of the car when new and the CO2 emissions. The rates change with each Budget, and you can find current rates in our resources section and on our app.
It’s important to advise HMRC of car changes in good time, to avoid surprise tax bills for the driver at the end of the year, and penalties for the employer!
This option is hassle free for the driver. The car will generally be fully maintained and a replacement provided if it’s off the road for any reason. This valuable benefit is sometimes overlooked.
With a fixed car allowance both the driver and company pay tax and NIC on the value in exactly the same way as a salary. The allowance isn’t usually taken into account when calculating contributions into a pension scheme though.
the car and driver
You should choose a car that you like and
one that’s suitable for you, not just a tax efficient one.
HMRC will tax you based on the list price of the car when new and the CO2 emissions. The reasons for this are:
- it encourages manufacturers to make environmentally friendly cars
- you are effectively incentivised to choose a low CO2 emission car
- by taxing you on the list price when new, it discourages you from choosing a less environmentally friendly second hand car.
There can be a huge difference in your taxable P11D benefit by researching and choosing wisely (there’s a useful calculator on our app).
Once we’ve calculated the taxable benefit, we’ll then calculate your tax liability.
We then compare the cost to running your own car, and claiming a mileage. If you do very little business mileage, and have a high private mileage, then it generally makes sense to opt for the company car.
fuel or no fuel
Again, the taxable benefits vary in the Budget and the current rates are in our resources section and on our app.
If you do very little private mileage, you should not opt for the fuel benefit. Instead, you can claim an agreed mileage rate for business miles accrued using your company car all around the UK, from London to Staffordshire, Chester to Edinburgh.
how can Mitten Clarke help you?
We can help and advise you on all aspects of company car tax planning, whether you are looking to change your own car, or introduce a company-wide policy into your business.