In this article, we discuss when a company car benefit may arise and what the consequences are. We also summarise how company car benefits are calculated, in order to assist directors in making a more tax-efficient decision about their next company car.
Company Cars and how they affect your tax position
Employees pay tax on company benefits like cars, accommodation and loans. The amount of tax due depends on the value of the benefits that you get.
Employees will always pay tax on benefits from their employer if they are a company director or earn £8,500 a year or more (including 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. If fuel is provided for the company car, a company car fuel benefit is also incurred. The employee is then taxed on the benefits calculated and the employer pays National Insurance on them.
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) and its official CO2 emission figure.
Using a table provided by HM Revenue & Customs (HMRC), the official CO2 figure for the car is converted to an appropriate percentage and applied to the list price for tax purposes to determine the company car taxable benefit charge for the year.
Private fuel benefit is calculated in a similar manner to the company car benefit. A car fuel benefit charge multiplier (set by the Government) is multiplied by the same percentage used to calculate the company car taxable 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 benefits in 2013/14
Below are the current rates applicable to company cars during the 2013/14 tax year:
- The lowest appropriate percentages are 0% and 5%. However, 10% now applies to cars with CO2 emissions of 76g/km to 94g/km. Previously in 2012/13, this band extended to 95g/km
- Thereafter, the appropriate percentages will increase by 1% in 5g/km increments for all cars with CO2 emissions between 95g/km to 215g/km, up to the normal maximum of 35g/km
- The car fuel benefit charge multiplier increases from £20,200 to £21,100
Help is at hand
Your local TaxAssist Accountant can talk you through the various tax implications of your next vehicle purchase, from income tax, to capital allowances, to VAT, which will ensure you make an informed decision. We can also look at the implications of you making personal contributions towards the provision of your company car, the vehicle’s availability and the possibility of ‘sharing’ the vehicle with colleagues or your family members.
There are also tax planning opportunities with regards to how your motor running expenditure is structured and paid for, which your local TaxAssist Accountant will explore and discuss with you.
They will evaluate your circumstances such as the type of vehicle you require, level of mileage and type of usage (private or business). Ultimately, your local TaxAssist Accountant will ensure that your company car fits your needs and make sure your tax position is as efficient as possible.
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
By Jo Nockels
Last updated April 2013