Company Cars

Introduction

Company cars are a more complicated area than it would appear.

They fall into 2 categories:

Company pool car

Company car with private use.

The alternative is:

Private Car

Fuel is also an important consideration.

Company pool car

A pool car must be kept at the company premises and must be available for all employees. It cannot be used for any private journeys. This is very difficult to prove for companies where the employees and directors work from home.

Company car with private use

This is the only option for adding a car to the business.

There are 4 different taxes to consider:

  • Capital allowances
  • Income tax
  • Employees NIC
  • Employers NIC class 1A


Capital Allowances

For all electric cars there is a 100% first year allowance which means the whole cost can be taken as an expense against profits in the first year which reduces the corporation tax liability.

When the car is subsequently sold, the allowance will be reclaimed by HMRC based on the sale price.

The same applies to the installation of the new electric charge point although if this is done via a grant, the relief will be for the difference between the cost and the grant.

For non electric cars the capital allowances are 6% of cost price per year.


Income Tax

For all electric cars, the benefit in kind is currently 1% of the purchase price (based on the HMRC price list not the actual amount paid). This percentage will rise to 2% next year and then it is likely (in the opinion of many) to go up to meet the more normal levels of company car taxation to around 20% of the price. There is no reduction for age of the vehicle.

The benefit in kind is then assessed for income tax at your marginal rate.

The benefit is added to your employment income and will then be taxable at 20%.

For an electric car costing £30,000 the benefit for the current tax year would be £300.

For non electric cars, the benefit is assessed on the emissions and the rates are form 4% to 37% of the purchase price (as set by HMRC not the price paid) each year. Therefore a car with emissions of 120g/km costing £30,000 will be assessed at 28% of £30,000, giving additional taxable income of £8,400 per year.


Emplyees National Insurance

The benefit is assessed for National insurance at 12%.

For the electric car in my example this would be a further £36 of NIC.

For the non electric car in my example this would be a further £1008 of NIC.


Employers NIC class 1A

The company must pay class 1A on the benefit at 13.8%.

For the electric car in my example this would be a further £41 of NIC.

For the non electric car in my example this would be a further £1159 of NIC.

There is also additional admin, as the benefit has to be calculated and reported on a P11d form each year and the class 1a NIC is paid separately.


Fuel

You can choose to have a fuel benefit for a petrol or diesel car and this is also assessed as a benefit in kind at the applicable benefit rate on £24,600.

In my example this would be further taxable income of £6888 and NIC of £826 and Class 1a NIC of £950.

This is not relevant if you buy an all electric vehicle.

The electric you use will not be deductible in the company as it will be for both private and company use. It may be possible to claim 4p per business mile.

Please do consider the recent increases in electricity prices!


Private car

This would be purchased privately and mileage is charged to the company at 45p per business mile for the first 10,000 miles.


Summary

A fully electric car is currently an attractive option for some.

If not an all electric vehicle, then the lower the emissions the better for a company car as the benefit in kind is very expensive from a tax perspective.

Company Cars