“Is it worth me having a company car?”
This is one of the most common questions that owners of small companies ask their accountant.
Most of us need cars for our business so if there is a tax efficient way of owning one, we all want to know about it.
However, there is no standard answer to this question because everyone’s situation is different. One person may drive 50,000 miles a year of which only 5000 relates personal mileage in a top-of-range BMW X6 with several optional extras compared to another person who may only drive 12,000 miles in a Mini and, of those, only 1000 are business miles.
Each scenario is different and there will be a different solution available to you make sure you pay as little tax as possible.
However, as a starting point, it is always worth assessing the tax implications of you owning a company car and suffering the appropriate tax charge on that as a benefit in kind
This charge is calculated by multiplying a percentage (which is determined by the CO2 emissions of the car) by its list price
It is important to remember that the list price used in this calculation is the list price when the vehicle was first registered and not the current market value or the price you actually paid for it. Therefore, you will not reduce the tax charge simply by opting for a second-hand or older vehicle.
Tax is payable at 20%, 40% or 45% on the benefit in kind depending on your overall tax position.
This means that, for example, if you are a 40% taxpayer and drive a BMW X6 (which was first registered in January 2019) as a company car, the extra tax you would have to pay in 2019/20 is £9,812. Whereas, if you owned the car personally and drove 45,000 business miles per year you could claim £13,250 mileage allowance from the company instead and not pay any additional tax personally.
Compare this to someone who is only a 20% taxpayer and drives an entry level mini (which was first registered in March 2017) as a company car. This person’s additional tax would be £803 in 2019/20. Alternatively, by driving 1,000 business miles per year, they would be able claim £450 as a tax free mileage allowance.
All the figures quoted above are in respect of the company car benefit only. If a company also provides private fuel to an employee that person will also be liable to pay tax on a fuel benefit. The same percentage figures shown above will be applied to the set amount of £24,100 to calculate the applicable fuel benefit.
As mentioned above, every situation is different. Should you want to assess your position in order to gauge which option suits you best, please get in touch with our tax partner, Sarah Salton, who will gladly discuss how we can help you.