By Ansar Mahmood, Pomegranate Consulting
Despite consecutive governments increasing the taxation on company cars, they still remain one of the most popular employee benefits, having the use of a brand new car is always going to be appealing to an employee. One of the most common question clients ask us is “what are the tax implications of having a company car?” My initial answer is it depends!!
This commentary deals with
Tax for employees
Employees pay tax based on the list price of the car, the fuel type and the emissions. Simplistically, the list price is multiplied by a percentage (based on the emissions and fuel type) to work out the value of company car benefit. The percentage varies between 0 (for zero emission cars) to 35%.
There are a few exceptions to the above. Employees (other than company directors) with total earnings below £8,500 will not pay company car tax. Employees driving pool cars or company cars used exclusively for business.
If an employee is re-imbursed for the cost of fuel used for business using the HM Revenue and Customs advisory fuel rates, there are no tax implications. If fuel is provided for private use there will be an additional benefit chargeable.
Tax for employers
Employers must pay Class 1A National Insurance contributions on the taxable value of cars and fuel given to the employee. This rate of contribution is currently 13.8%.
An employer will receive tax relief on the purchase or lease of the vehicle, as well as the ancillary costs incurred including items such as insurance, maintenance etc.
If an employee is provided with a company van which is available for private use there is a standard benefit in kind of £3,090 (for the tax year to 5th April 2015). There is an additional £581 if fuel is provided for private use.
There is no tax charge where private use is insignificant or the van is only used privately for commuting in and out of work.
Low CO2 Emission Cars – given the fact that the taxable benefit of having a company car is based on CO2 emissions, all manufacturers are working towards producing low CO2 emission cars. For example you can have a BMW 3 Series Saloon 320d Efficient Dynamics for an annual taxable benefit in kind of £5,011 (2014/15) and is reported to do 69 mpg. If you are looking for a non-executive car you can have a Renault Twizy Electric Car for an annual taxable benefit in kind of £nil!
Vans – an employer could have a van policy with respect to private use in writing, preferably they should sign a statement to confirm that they accept and adhere to the policy. This provides evidence should you have a PAYE visit.
Classic Cars (older than 15 years) – for tax purposes the taxable benefit is assessed on list price multiplied by a specified percentage based on engine size. However if the market value is more than £15,000 then the market value is used. In these circumstances you could have a situation where the taxable benefit of a car is very low.
Tax Free Mileage Allowance – if you own the car personally and use it for business purposes, you can charge the business for business related journeys and receive the amounts tax free. The tax free limit is 45 pence a mile for the first 10,000 miles and 25p thereafter and can often prove to be better to do this than to have a company car.
How We Can Help You
We can assist you with tax planning advice in relation to your company car. Please contact us for further advice.