Company Cars And Benefit In Kind Tax

company car

Should I consider putting my car through the business?

This is one of the most common and popular questions we get at RJF! Nearly everyone has a car and the thought of being able to put that through the business and enjoy all the benefits that offer is very appealing.

Unfortunately, in most circumstances, HMRC has made it no longer attractive to put a car through a business.

Benefit in kind

It all started when companies would, instead of increasing an employees salary, give them a car (or another valuable item) and, as such HMRC would be missing out on the tax not coming through the salary. So in usual HMRC style, they decided to tighten up and effectively eliminate any tax savings by introducing what’s called a benefit in kind tax.

For a vehicle, HMRC states that: “You’ll pay tax if you or your family use a company car privately, including for commuting.”

In other words, unless the car is strictly for business use and not taken home you are liable to pay a benefit in kind tax.

What tax is payable?

Like many tax rules, it depends on your particular circumstances and it’s always worth giving us a call at RJF to see what applies to you.

However, there are 4 main points to look at;

1) Emissions: The higher the CO2 emissions of the car the more tax you will pay. So imagine a big petrol engine Range Rover at one end of the scale and a 1 litre Vauxhall Corsa at the other!

2) Vehicle value: Otherwise known as the P11D value which is the cars forecourt price plus any other fees. (minus first registration costs and tax)

NOTE: If you start adding all those nice extras to your new car then your P11D value will adjust accordingly.

3) Fuel type: Petrol, diesel, hybrid or electric.

4) Your tax bracket: Which income tax bracket you fall under.

As a general rule of thumb (and this is very general) if you are doing less than 25,000 miles per year business mileage then putting a car through a company is usually more expensive than doing it personally.

What about leasing?

Clients often ask us about leasing a vehicle through a business. As often lease prices for businesses are significantly lower than personal leases.

Everything regarding benefit in kind still applies, however with the lower lease cost things look a bit more attractive…

We can put in place structures in which you can effectively repay your business for the leases vehicle. This can in some circumstances be a cost-effective way to run a vehicle through a business. But as always it’s best to speak to us so we can look at your individual circumstances and recommend the best strategy for you.

Electric and hybrid vehicles

Not long ago you could write off the entire value of your electric vehicle in year one. Which as you can imagine became super attractive and a lot of people took advantage of that. Yes, you guessed it HMRC has since clamped down and the gains of going electric aren’t quite as substantial as they once were…

Benefit in kind still applies to these vehicles but buying a greener car like a fully electric or a hybrid vehicle will save you a lot of money when it comes to HMRC when compared to buying a fossil fuel vehicle.

If you have any questions about company cars and tax or need any guidance with any tax matter (business or personal please don’t hesitate to call us here at RJF.