An overview of company car benefits
A company car is a vehicle that is provided by a business (limited company) to an employee. The employee can use the vehicle for business and personal travel, and therefore it may be a benefit in kind.
Company cars and how they affect tax
Some positions offer a company car as part of an employee’s remuneration package. However, where there is a personal element to the use of the vehicle a benefit in kind may arise. Personal use can include commuting, and use of the vehicle by family members.
Tax on employee
Employees pay tax on benefits in kind, including cars, accommodation and loans. The amount of tax due depends on the value of the benefits.
A company car benefit arises if a car is made available to an employee (or their family/ household) for private use. Private use includes commuting. If fuel is provided for the company car, a company car fuel benefit also arises.
Tax on the company
When an employer provides and employee (or director) with a company car, the employer must pay National Insurance Contributions (NICs) on the benefits in kind.
How are company car benefits calculated?
A company car benefit is based on a car's list price for tax purposes (generally list price plus accessories, less capital contribution), the fuel type and its CO2 emissions.
Use the tables provided by HM Revenue & Customs (HMRC), to work out an appropriate percentage. This percentage is applied to the list price for tax purposes to determine the company car taxable benefit charge for the year.
To encourage the use of electric and low emission vehicles, the appropriate percentage is lower for these vehicles to make them more attractive to business owners.
If the employee has access to the company vehicle part-time or contributes toward the cost, this will be factored into the benefit in kind tax calculation.
You can also use the company car tax calculator which can be found on our TaxAssist Accountants app through the Google Play Store or on the App Store.
Private fuel benefit, where the employer pays for fuel for employees to use privately, is calculated similarly to the company car benefit.
How much personal tax has to be paid on the benefits depends on the income tax bracket the employee/ director falls into.
Company car and fuel benefits
The rate of benefit will depend on whether the car was first registered before 6th April 2020 or after, whether the car is:
- diesel and meets Euro standard 6d
- an other diesel car
- an other car
The benefit in kind appropriate percentages have been proposed for each year up to 2029/30, so companies considering the purchase of company cars over the next five years. The percentages are set to gradually increase.
How TaxAssist Accountants Keighley can help
At TaxAssist Accountants Keighley we can talk you through the tax implications of your next vehicle purchase, from income tax, to capital allowances and VAT. Call us today on 01535 601199 or use our online contact form and we’ll get back to you.
Last updated: 6th December 2024