18 June 2018
Is having a company car still a perk?
With HM Revenue & Customs continuing to increase the taxable benefit of having a company car, is a company car cost-effective?
By looking carefully at the tax implications for both the employee and employer, an informed decision can be made about whether a company car is the right choice. The outcome varies significantly depending on the type of vehicle being considered.
Taxable benefit for the employee:
For the employee, the provision of a company car is considered to be a benefit in kind (BIK) if the car is made available for private use. The BIK is calculated as a percentage of the car’s list price when new.
Accordingly, if you buy the car second hand, the price you pay is irrelevant for the BIK calculation and it will always be the original list price that is used. This can be a disadvantage - as shown in the tables below for the second-hand Mercedes C320.
The percentage that has to be used for the BIK calculation is dictated by the car’s CO2 emissions. The higher the CO2 level, the higher the percentage, therefore a higher BIK and a higher tax bill. The benefit can be reduced if the vehicle is not made available for the whole tax year, is shared or a contribution is made towards the cost by the employee.
For the year commencing 6th April 2018 the lowest appropriate percentage will be 13% achievable with CO2 emissions of less than 50g/km, including electric cars. Conversely, the highest percentage is 37% for a car with emissions in excess of 180g/km. A diesel car incurs an additional charge of 4% (but can’t increase the percentage beyond 37%).
If a van is provided for private use, the list price is not taken into account and the benefit is fixed at £3,350 for 2018/19 (lower for zero emission vans). A van includes pick-up vehicles, providing there is a payload more than one tonne.
Company deductions for vehicles:
The company will be able to deduct the running costs of the vehicle from its profits, as well as claim capital allowances, resulting in a reduction in the corporation tax liability.
For zero emission cars, the total cost of the vehicle can be claimed in the year of purchase, as can the total cost of the van. For other cars, capital allowances can be claimed at a rate of 8% or 18%, depending on the level of CO2 emissions, which is then claimed annually on a reducing balance basis.
The company will have to pay Class 1A National Insurance contributions at a rate of 13.8% of the value of the benefit in kind.
Tax advantages and disadvantages of purchasing different types of vehicle
The tables below show the tax advantages and disadvantages of purchasing four vehicles; two electric cars of different values, a second-hand diesel car and a new van. These examples highlight more extreme situations, but RWB’s tax team would be pleased to provide specific advice on other vehicles on request.
Company car taxable benefits and liabilities for an employee:
Vehicle |
Cost £ |
List Price £ |
Fuel |
CO2 Emissions |
Benefit in Kind %age |
Taxable Benefit £ p |
Tesla S75 (new) |
64,880 |
64,880 |
Electric |
0 |
13 |
8,434.40 |
Nissan Leaf Visia (new) |
21,990 |
21,990 |
Electric |
0 |
13 |
2,858.70 |
Mercedes C320 (2008) |
8,690 |
32,075 |
Diesel |
193 |
37 |
11,867.75 |
Ford Ranger TDCi ( new van) |
26,686 |
N/A |
Diesel |
184 |
N/A |
3,350.00 |
The tax liability for the employee and National Insurance payable by the company would be as follows on the above four scenarios:
Vehicle |
Employee Tax at BR (20%) £ p |
Employee Tax at HR (40%) £ p |
Company Class 1A NIC at 13.8% £ p |
Tesla S75 |
1,686.88 |
3,373.76 |
1,163.95 |
Nissan Leaf Visia |
571.74 |
1,143.48 |
394.50 |
Mercedes C320 (2008) |
2,373.55 |
4,747.10 |
1,637.75 |
Ford Ranger TDCi |
670.00 |
1,340.00 |
462.30 |
BR = Basic rate tax
HR - Higher rate tax
Company car capital allowances for an employer:
The following capital allowances would be deductible against the Company’s profits in the year of purchase of the vehicle.
Vehicle |
Capital Allowances Rate |
Deduction in 1st Year (£ p) |
Tesla S75 |
100% |
64,880.00 |
Nissan Leaf Visia |
100% |
21,990.00 |
Mercedes C320 (2008) |
8% |
695.20 |
Ford Ranger TDCi |
100% |
26,686.00 |
Which company car is right for you or your business?
As illustrated above, when acquiring a company vehicle it is worthwhile giving consideration to a number of factors, including the carbon emissions and type of fuel used. Acquiring a company van will often result in a lower benefit and the cost can also be deducted in full from the employer’s profits.
A vehicle with very low CO2 emissions also results in a lower benefit and the total cost of zero emission cars is also deductible in the year of purchase. On the other hand, an older diesel car can lead to a considerably higher benefit with lower capital allowances available.
Want help getting the company car with the right benefits?
If you or your business needs advice on the best option for your business vehicle, contact us today on 0115 964 8888 or email enquiries@rwbca.co.uk.
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.